Under amended law, it needs clarification on cooperation between commercial banks and insurance companies

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In the first 6 months of 2024, total insurance premium revenue is estimated to reach nearly VND109.1 trillion, down 3.81 percent compared to the same period in 2023.

Without insurance, fear of trillions of VND falling into bad debt

The Law on Credit Institutions (amended) has taken effect since the beginning of July 2024. The problem that banks and insurance companies are concerned about is that the regulations still cause "confusion".

The Article 113 of the Law stipulates that commercial banks may conduct insurance agency activities in accordance with the provisions of law on insurance business, in accordance with the scope of insurance agency activities as prescribed by the Governor of the State Bank (SBV).

Meanwhile, according to the Law on Insurance Business 2022, insurance agency activities include: consulting, introducing, and selling insurance products; arrange the conclusion of insurance contracts; collect insurance fees; collect documents to serve compensation settlement and insurance payments.

According to Ms. Bui Thi Thanh Xuan, Deputy General Director in charge of the Executive Board of VietinBank Insurance Company (VBI), the above regulations mean that commercial banks are still allowed to carry out consulting, introduction, and sale of insurance products. The scope of insurance agency activities of commercial banks will be regulated by the Governor of the State Bank to suit the nature and activities of the banking sector.

However, the Clause 5, Article 15 of the Law on Credit Institutions 2024 stipulates that one of the prohibited acts includes: “Credit institutions, foreign bank branches, managers, executives, employees of credit institutions, foreign bank branches associate the sale of optional insurance products with the provision of banking products and services in all forms”.

According to insurance companies, the above regulations are not clear, causing inconsistent understandings. Mr. Nguyen Hong Phong, General Director of Agribank Insurance Company (ABIC) assessed that this regulation causes each credit institution and customer to have different understandings, so insurance activities through banking channels are seriously affected.

According to Mr. Phong, some banks understand that only value-added insurance services such as life insurance are not allowed to be sold with credit contracts, while insurances to ensure capital safety for banks and borrowers are still deployed normally; but there are bank leaders who understand that the law prohibits all insurance sales activities through banks.

For example, ABIC currently offers credit and financial risk insurance products. This non-life insurance product guarantees bank loans in case of unexpected risks and failure to repay the debt. ABIC provides this product to nearly 3 million individual and organizational customers who use Agribank's services. The Credit Security product alone has nearly 2 million participating customers.

In 2023, more than 11 thousand customers will have insurance benefits paid by ABIC with a corresponding compensation amount of VND509 billion. Cumulatively from 2007-2023, the amount of compensation amounted to nearly VND6 trillion.

In the past 10 years, 3 non-life insurance enterprises, Agribank Insurance (ABIC), VietinBank Insurance (VBI), and BIDV Insurance (BIC), have paid more than VND20 trillion in insurance to customers with loans at 3 state-owned joint stock commercial banks in case of unforeseen circumstances. According to businesses, without insurance, tens of trillion VND in credit are at risk of falling into bad debt, posing potential risks to the banking system.

Need guide documents

Representatives of some insurance companies said insurance sales through banks dropped by half in just the first days of July because of these unclear regulations in the context that the average growth rate of the insurance market is gradually recovering but still lower than before after the "shock" in 2023.

Therefore, insurance businesses request the State Bank and relevant agencies to soon issue guiding documents on banks' insurance agency activities; at the same time, clarify the above prohibited acts, so that businesses and banks can deploy and implement them synchronously. Businesses are also concerned that if progress is delayed, it will not only affect the insurance market but also affect customer rights.

Regarding this issue, Dr. Nguyen Quoc Hung, Vice President and General Secretary of Vietnam Banks Association (VNBA) said, insurance has a certain role and meaning in ensuring customers' rights, so using insurance products is the decision of the people. Credit institutions also need to perform their role well in related tasks. Banks are not allowed to force people to buy an insurance product linked to banking products and services, or tie the mandatory purchase of insurance to incentives in using banking services.