The Role Of Insurance For Vietnam's Economic Growth

DNHN - Insurance is not only a solution to ensure backup, support financial stability in a timely manner for each individual, family, or business against risks and fluctuations of life. At the macro level, insurance also plays an important role in mobilizing capital and transforming capital for investment in the growth and development of the economy.

In the insurance business, the insurance premiums are collected by the insurers first, while the payment and indemnification, if any, will take place later. Therefore, Vietnamese insurance enterprises will use this mobilized idle capital to invest in the Vietnamese market. Depending on the specific type of insurance, the capital source will be invested by enterprises in different categories, with different rates, but only within the scope prescribed by the Law on Insurance Business[1].

In 2020, when the world economy suffers a very heavy negative impact due to the Covid-19 pandemic, Vietnam is no exception. However, the insurance market still maintains a high growth rate compared to GDP growth. According to statistics in the Insurance Statistics Yearbook 2020: Total insurance premium revenue reached 185,960 billion VND, an increase of 16.09% compared to 2019; Total revenue from insurance investment activities reached 34,745 billion VND, up 37.8% over the same period last year, leading to total revenue of the insurance industry reaching 220,705 billion VND, contributing 3.55% to the total gross domestic product (GDP)[2].

Regarding the financial capacity of the insurance industry, in 2020, the total assets of the whole industry reached 573,225 billion VND, this figure is brought back to be reinvested into the economy at 468,363 billion VND. More than 80% of the total capital reinvested in this economy is invested by insurance enterprises in highly safe portfolios such as deposits at credit institutions, government bonds, government-guaranteed bonds, local government bonds. Besides, choosing to invest in these portfolios also plays a significant part in ensuring capital needs for production, business activities, and personal consumption needs which creates conditions for the production process to continuously operate and contribute to the regulation of the entire economy. In addition, the investments in government bonds help to solve the need for capital for public investment projects such as electricity, roads, schools, stations,... make up for the shortfall in the national budget, no longer depending on the state budget and tax from the people.

In addition to directly allocating capital to economic development investment fields, the insurance industry also contributes significantly to socio-economic stability. Particularly in 2020, the amount of compensation and insurance payment is 48,768 billion VND, this is not a small amount, which has contributed to overcoming and limiting the losses for the insured and reducing the burden on the national resources. Meanwhile, the amount of additional provision for the year also reached VND 73,428 billion. This business reserve is intended to secure payment for predetermined insurance liabilities and amounts arising from insurance policies under the terms of the policy, contributing to the settlement of the economic loss.

Not only that, but the insurance sector helps to generate jobs for over 1 million people, whereas millions of individuals have lost their jobs or have been forced to halt manufacturing and business owing to the pandemic's impact.

In 2021, the development of the Covid-19 epidemic is still extremely complicated in Vietnam. In the context of the whole country fighting against the epidemic,  lockdowns and social distancing, the negative growth of some service industries which account for a large proportion has reduced not only the overall growth of the service sector but also the entire economy. According to estimation by the Insurance Association of Vietnam (IAV), the total insurance premium revenue of the whole market is estimated at 217,338 billion VND, up 16.71% over the same period in 2020. The growth exceeds this level, once again affirming that “there is always a chance in danger”, and that the insurance industry has taken advantage of the opportunity to achieve admirable development indicators to prop up the economy in difficult times, shows the important role of the industry in the growth of the macro-economy.

After more than two years of fighting the pandemic, people's primary concerns in 2022 are health and financial security. Simultaneously, insurance companies are building digital technology platforms, expanding insurance product distribution channels, releasing numerous insurance products, and so on in order to provide clients with new, diversified, and easy experiences. Carrying out insurance activities has never been easier when insurance products can be purchased on e-commerce platforms such as Shopee, Lazada, Tiki..., or medical examinations to issue policies can be done online, such as at Prudential Life Insurance Company; or submitting claims via applications at most insurers. The rise in insurance demand, along with the ease of use of technology, would provide revenue growth prospects for insurance companies in 2022, guaranteeing a large contribution from the insurance industry to recovering the country's economy during and after the epidemic. 

Kim Ngan - Linh Dan

1. [1] According to the provisions of Article 98 of the Law on Insurance Business 2000, the insurance premium will be invested in detail as follows:

1. The investment of capital by insurance enterprises must ensure safety and efficiency and satisfy the requirements of regular payment for the commitments under the insurance contracts.

2. The insurance enterprises may only use their idle capital for investment in Vietnam in the following domains:

a) Buying Government bonds;

b) Buying shares, enterprise bonds;

c) Dealing in real estates;

d) Contributing capital to other enterprises;

e) Providing loans according to the provisions of the Law on Credit Institutions;

f) Making deposits at credit institutions.

3. The Government shall specify the list of investment in the domains prescribed in Clause 2 of this Article and the percentage of idle capital allowed for investment in each list of investment in order to ensure that the insurance enterprises can always maintain their solvency.

[2] According to statistics of the World Bank, in 2020, Vietnam's GDP will reach 271.2 billion USD