Vietnam’s central bank reverses decision to ban bancassurance channel

The State Bank of Vietnam (SBV) has continued to allow banks to sell investment-linked insurance products through bancassurance channels, scrapping a previously proposed prohibition released in late March.

In its latest circular, the SBV removed the prohibition and issued specific requirements for investment-linked insurance products, requiring banks to provide illustrative charts on their websites so customers can independently check and understand them.

Commercial banks must also meet several conditions to operate as agents, the central bank said, establishing a dedicated department to conduct insurance agency activities with a qualified head of department who has at least three years of experience in finance, banking or insurance and a university degree in the field.

New amendments to Vietnam’s Law on Credit Institutions, which took effect in July, have also banned financial institutions from linking the sale of non-compulsory insurance products with “the provision of banking products and services in any form.”

The tighter enforcement of bancassurance rules was a necessary response to ensure long-term sustainability of insurance penetration in Vietnam, said Willie Tanoto, Senior Director at Fitch Ratings’ Asia-Pacific Financial Institutions team.

“A permanent ban is not necessarily to the benefit of stakeholders, but a time-out in the wake of the mis-selling allegations seen over the past few years was probably necessary to reduce instances of consumer abuse – such as banking product quid pro quo – and to ensure that insurance policies were catered to buyers’ financial needs,” Tanoto told (Re)in Asia.

The new rules come in the wake of a consumer trust crisis in Vietnam’s insurance industry after several bancassurance scandals.

Saigon Commercial Bank (SCB) and Manulife faced accusations of misleading customers by converting savings deposits into life insurance agreements without clear consent, with Vietnam’s Ministry of Public Security reporting hundreds of complaints last year. Manulife received over 6,000 complaints, and was made to refund more than $34 million in settlements.

An inspection of four life insurers in July last year — including Prudential Vietnam, MB Ageas Life, BIDV MetLife and Sun Life Vietnam — by Vietnam’s Ministry of Finance found that many had failed to provide direct advice to customers or ensured sound quality of advice on insurance products, reported Viet Nam News.

The mis-selling had resulted in widespread cancellation of policies purchased through the bancassurance channel — up to 70 per cent, the ministry said. Up to 41% of customers cancelled or invalidated their contracts at Prudential, according to the Ministry of Finance.

The drop in consumer trust has led to Vietnamese banks reporting double-digit declines in revenue from insurance services in the first three quarters of 2023, compared to the previous year. Overall, the insurance industry saw an 8.3% decline in insurance premiums in 2023, according to an AM Best report, the first decrease in a decade after years of robust growth.

A reversion to slower growth was likely inevitable, said Fitch’s Tanoto. “The pace of bancassurance sales growth prior to 2023 was unsustainably rapid, especially for an emerging market at Vietnam’s stage of development and per-capita income levels.”

Banks will now have to adapt to the slower pace, but the Vietnamese market still holds potential in the long term. “We do not expect bancassurance fees to rebound in the near term to the bonanza that it was in 2020-2022,” he added.

But a forced slowdown will mean banks will now have a chance to refine their sales force and reassess their bancassurance business model as they move toward more transparency and consumer-centric approaches, said Phong Quach, Principal at Ipsos Strategy3, a management consultant. “New training and managing system could be applied so that banks could be able to improve its quality not only in consultation step but also in later phases of the customer journey.”

To regain consumer trust, financial institutions and the government will have to continue their dialogue, Quach said. “Both sides will then be able to work towards a more balanced approach between stakeholders,” he added. “Then consumer trust will gradually return following this progress.