Specific guidance on the implementation of the Law on Insurance Business

Completing legal documents will create a push to promote the insurance market to develop safely and stably. Photo: Internet

Empowerment to effectively manage the fund to protect the Insured people

Decree 46 specifies the minimum charter capital of life insurance enterprises. Specifically, life insurance and health insurance businesses must ensure a minimum charter capital of 750 billion VND. For life insurance, health insurance, and unit-linked insurance or retirement insurance business, the minimum charter capital is 1,000 billion VND. As for insurance enterprises dealing in life insurance, health insurance, unit-linked insurance, and retirement insurance, it is required to have a minimum charter capital of 1,300 billion VND.

According to experts, the specific regulation on capital level, not as high as before, allows capital determination and enterprise management according to the specific risks of each enterprise; thereby creating conditions for businesses with a solid financial position, healthy governance to develop and promptly correct businesses with poor performance in financial management and risk management.

In addition, Decree 46 also stipulates that in case insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam have invested in corporate bonds issued, which have the purpose of restructuring Debts issued by the enterprise itself before January 1, 2023, are not allowed to extend this investment.

One of the notable contents mentioned in the Decree is the detailed regulation of the Fund to protect the insured. Accordingly, this Fund is managed by the Ministry of Finance which decided to use it safely, effectively, and for the right purposes. The Fund's idle money can only be invested in Vietnam to buy government bonds, government-guaranteed corporate bonds, and deposit money at commercial banks.

Within 3 years from the effective date of the Law on Insurance Business, the entire balance of the Fund may be invested in Vietnam to buy government bonds. The Ministry of Finance makes the investment by itself or entrusts an organization to invest the Fund's idle money. This organization must be licensed by a competent authority to conduct investment entrustment activities in accordance with the contents of receiving investment trust.

This fund is used to pay the insured when the insurance enterprise goes bankrupt or becomes insolvent. Therefore, Decree 46 also has a specific provision on the payment limit  for the insured when the life insurance enterprise goes bankrupt or cannot pay. Specifically, for life insurance contracts or health insurance contracts, the Fund is entitled to pay up to 90% of the liability level of the life insurance enterprise, but not more than VND 200 million/insured person/contract.

Previously, according to the provisions of Clause 4, Article 157 of the Law on Insurance Business, insurance enterprises and branches of foreign non-life insurance enterprises stopped paying the Insured Protection Fund from January 1, 2023. Therefore, this regulation is considered to reduce the cost burden for insurance enterprises and insurance participants, so it is appropriate to transfer the Fund balance to the Ministry of Finance for management, protecting the interests of the insured people.

Strictly manage insurance agents as credit institutions

In the face of "controversial" cases about buying and selling insurance through agents who are credit institutions, the birth of Decree 46 is considered an important and necessary legal basis for strict management, helping this act go in the right direction and promote positive results.

Accordingly, Article 62 of Decree 46 stipulates conditions for organizations operating as insurance agents. Under the new regulations, insurance agency organizations that are credit institutions and foreign bank branches must meet and comply with six conditions. For example, a specialized department must be established to carry out insurance agency activities; The head of the department in charge of performing insurance agency activities must have at least 3 years of working experience in the fields of finance, banking, and insurance and have a university or higher degree in insurance major; each branch of a credit institution conducting insurance agency activities must ensure that at least 3 employees are trained and have suitable insurance agent certificates to the type of insurance the credit institution acts as an agent.

Furthermore, an insurance agent being a credit institution must have an appropriate information technology system to ensure the complete, accurate, and timely provision of information related to insurance contracts exploited through the agency; have a process for monitoring and controlling the quality of the performance of insurance agency activities; must set up a separate transaction counter (or separate transaction desk) to carry out insurance agency activities, separate from the transaction area and other professional activities.

According to the assessment of the drafting agency of Decree 46, these regulations are developed to solve the shortcomings and limit ations of the market, step by step remove difficulties and obstacles for enterprises in the process of operation and issues in management and supervision by regulatory agencies, promoting the insurance market to develop sustainably and effectively. According to the Vietnam Insurance Association, the completion of the legal system not only helps the regulator to monitor the market's activities effectively but also helps insurance businesses develop in a safe, stable direction, as well as better protection of the insured.