VCN – The insurance businesses is no longer as easy as before when customers’ income was reduced due to the impact of the Covid-19 pandemic. Profits will also decline as compensation costs increase under the pressure of inflation.
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Digital channels gradually replace traditional channels
According to a recent report by Vietnam Assessment Report Joint Stock Company (Vietnam Report), the insurance industry in Vietnam has had impressive growth in 2020 despite the global insurance market being significantly affected by the pandemic. The Covid-19 pandemic caused the continuous growth chain of the past 10 years to be broken. Accordingly, the insurance benefit payment in 2020 reached VND48,223 billion, up by 11.4% compared to 2019, investment back into the economy was estimated at VND460,457 billion, up by 22%.
"Vietnam's insurance industry has performed well as a "shock absorber" against unexpected risks and impacts caused by the Covid-19 pandemic," Vietnam Report assessed.
In the first quarter of 2021, 75% of insurance companies participating in Vietnam Report's survey recorded positive results. Notably, there have been many changes in the revenue structure between distribution channels since the outbreak of the Covid-19 pandemic. A large number of customers have switched to digital services, and very few will return to their previous habits.
A survey by Vietnam Report shows that 69.2% of businesses recorded revenue growth from the digital service channel, while the bancassurance channel had a lower increase when only 66 .7% of businesses recorded growth, while the agency channel was stagnant at 46.7% of insurance enterprises. Statistics show that, compared to the time before the Covid-19 pandemic, the revenue from the bancassurance channel is now approximately the revenue from the agency channel.
The diversity in distribution channels is the driving force behind the growth of the insurance industry. Along with the development of the fourth industrial revolution, distribution channels and digital services will gradually replace traditional channels. Currently, 88.2% of businesses surveyed by Vietnam Report are implementing a digital transformation program, while the rest are planning to do so in the future.
Although there has been quite a spectacular reversal, since Vietnam entered the fourth phase of the outbreak related to the Covid strain with complicated and unpredictable developments, insurance businesses have become more cautious about business prospects in the last months of the year. Only 52.9% of insurers were optimistic about their business results in the second half of 2021, significantly down from 90.5% last year.
Meanwhile, the percentage of insurers who think that business is more difficult increased sharply from 4.8% to 35.3%. According to insurers, although there is a vaccine to prevent Covid-19, the challenges ahead are still very unpredictable, so it is difficult to make a specific forecast about the growth rate of the industry in 2021.
The competition in the industry is increasing; the level of risks from natural disasters, extreme weather, pandemics; declining customer income and insurance fraud are major challenges that insurers will face.
In particular, the challenge from the decline in customer income has increased from 38.1% in 2021 to 70.6% this year. According to the General Statistics Office, about 22.2 million workers lost their income due to the impact of the Covid-19 pandemic in 2020. Particularly in the first quarter of 2021, this number reached 6.5 million people. This shows that customers' finances really tight compared to the previous year.
In addition, in the context that global inflation in 2021 is forecasted to increase strongly, according to some experts, inflation pressure in Vietnam also begins to "ignite" due to the lag in the money supply. Inflation can affect insurance industry profitability through four channels: claims, expenses, investment income and the balance sheet. In particular, the compensation channel is usually the most affected because inflation leads to higher compensation costs, eroding profits. The sudden increase in inflation is exacerbated by the non-adjustable premiums.
Meanwhile, recently, the bancassurance channel - which is considered an extension to help insurance businesses expand revenue, has been constantly reminded by the regulator. Specifically, the Ministry of Finance has sent an official dispatch requesting insurance businesses to review and strengthen inspection and supervision of insurance agency activities of banks, and coordinate with banks to promptly detect and handle cases of forcing customers to buy insurance.
The State Bank of Vietnam has also sent an official dispatch requesting credit institutions to rectify the insurance agency activities at the unit, ensuring the approval of dossiers and disbursement in accordance with regulations. Therefore, the forecast of insurance revenue growth through this channel may be partially affected.
Some experts also believe that bancassurance is distorting the relationship between banks and customers. Previously, many customers have reflected that banks constantly offered insurance packages. Even if you do not buy insurance, customers will have to bear high interest rates.
By Khai Ky/Kieu Oanh