Potential and Challenges of Insurance Businesses in Vietnam

DNHN - The insurance industry in Vietnam is currently experiencing a period of remarkable development, offering great potential while also presenting numerous challenges.

Potential of Insurance Businesses

With a stable economic growth rate and increasing income levels among the population, there is a growing demand for insurance coverage from both individuals and businesses. The expansion of industries, commerce and services also creates ample opportunities for insurance companies to diversify their products and expand their business activities.

Each natural disaster occurrence or complex financial risk increases the awareness of insurance within the community. People and businesses now have a better understanding of the importance of owning insurance policies to protect their assets and ensure financial security. This favorable environment provides ideal conditions for the growth of insurance businesses.

Technological advancements such as artificial intelligence, mobile technology, blockchain, and big data are revolutionizing how the insurance industry operates. These advancements enhance processes, improve data analysis capabilities, and enable insurers to offer tailored products that meet customer needs.

Mr. Ngo Viet Trung - Director of the Department of Insurance Management and Supervision under the Ministry of Finance - assessed that statistical data indicates that Vietnam's current ratio of insurance premium revenue to GDP stands at 3%, which is lower than ASEAN member countries' average (3.35%), Asia's average (5.37%), and global average (6.3%). Currently, only about 12% percent participate in life insurance in Vietnam; however it is expected that this percentage will increase to approximately 3.5% by 2025. Despite facing several challenges, Vietnam's insurance market still offers considerable opportunities for development.

At the 26th ASEAN Insurance Regulatory Agencies Conference and 49th ASEAN Insurance Council Meeting held in Vietnam with the theme "Sustainable, Comprehensive and Integration", experts highlighted potential not only within the Vietnamese market but also throughout the ASEAN region. As the ASEAN region experiences economic recovery, there is a noticeable growth in the insurance sector. The entry of new companies into the market has led to sustained growth and an increase in total insurance assets. This presents significant opportunities for the development of the insurance industry within ASEAN countries and fosters closer cooperation among them.

Challenges Facing Insurance Industry Businesses

Notably, fierce competition characterizes today's Vietnamese insurance market due to an increasing number of domestic as well as foreign entrants placing pressure on existing players within the industry landscape. To survive and develop, insurance businesses need to create competitive advantages and improve service quality to attract and retain customers.

Another significant challenge arises from natural disasters frequently affecting Vietnam such as storms, floods, earthquakes, droughts. This creates a high-risk environment for the insurance industry. Insurers are faced with accurate risk pricing and effective risk management to ensure sustainability and solvency when natural disasters occur.

The insurance sector is a tightly regulated field with stringent requirements for charter capital, minimum insurance rates, and customer benefits. Insurance companies must adhere to legal regulations and ensure compliance with internal control procedures and risk management. Additionally, they must navigate the continuous changes in regulations and policies imposed by the government.

Most insurance companies in Vietnam still rely on traditional distribution channels, such as referral networks and agents. This reliance can limit their reach to potential customers and increase operational costs. Insurance firms need to invest in developing new distribution channels, such as online platforms and community partnerships, to expand their reach and enhance their online presence.

Thus, Vietnamese insurance companies are facing numerous opportunities and challenges in their development journey. The industry's potential includes economic growth, increased insurance awareness, and technological innovation. However, fierce competition, risks and natural disasters, legal regulations, and dependency on traditional distribution channels are challenges that insurance companies need to address and overcome. Success in the Vietnamese insurance sector requires innovation, flexibility, and the ability to quickly adapt to the constantly changing business environment.

Nguyen An