by Russin & Vecchi's lawyers
Vietnam continues to make economic progress. Economic growth has already lifted many Vietnamese out of poverty. At the same time, the middle class is expanding. WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises, particularly Vietnamese insurance enterprises, stronger through increased competition.
Many foreign insurance companies (particularly in the life segment) are present in Vietnam, and treat Vietnam as a natural extension of their regional or global footprints. New products are being developed. Agency networks are being built. In the non-life segment, the local companies have generally shown more pricing discipline than have their counterparts elsewhere in the region. Motor insurance - so often a thankless and profitless line in emerging markets - accounts for about one third of the premiums written in the non-life segment in Vietnam.
Companies are also beginning to provide innovative products tailored to Vietnam. 2014 was seen as a successful year for the insurance sector even though the domestic economy faced many difficulties. Insurance continued to grow at a double-digit rate. The non-life insurance sector posted premiums growth of around 10% while life insurance premiums grew by almost 22%. Premiums collected through brokerages rose by 13%. Insurance companies invested around VND 130 trillion (equivalent to US$ 6 billion, at the current exchange rate of US$ 1 = VND 21,600), up 17%. This includes investment in government bonds2 .
History and Relevant Laws
Different kinds of regulations apply to the insurance industry. The National Assembly passes Laws, the highest form of legal instrument. Decrees usually implement Laws and Ordinances. Circulars are issued by particular Ministries, and provide guidance on how that Ministry will administer or interpret a Decree. A Ministry may also issue a Decision or an Official Letter to regulate a particular issue under its jurisdiction.
At the time that Vietnam became unified and adopted a planned economy, insurance was not considered a business activity. It was viewed as a means to share risk among state-owned enterprises, and to satisfy Vietnam's insurance obligations in international business transactions. The Vietnam Insurance Corporation ("BaoViet") monopolized the insurance industry. BaoViet, itself a state-owned enterprise, was formed under the authority of, and is supervised by, the Ministry of Finance ("MOF"). The MOF has permitted BaoViet to divest specific lines of insurance products, a sign of a shift in the view of state-owned enterprises.
In late 1993, Vietnam began to recognize insurance as a business activity, and therefore subject to business regulation, including competition laws. Early attempts to regulate the insurance industry set forth basic rules governing insurance enterprises. Decree No. 100/CP dated December 18, 1993 authorized the formation of insurance enterprises other than state-owned enterprises. The Law on Insurance Business dated December 9, 2000 ("LOIB") replaced early attempts to regulate insurance providers, and developed a comprehensive approach to the insurance business. After 10 years of operation, some parts of the LOIB were amended and have been amended and supplemented by Law 61/2010/QH12 which was issued by the National Assembly on November 24, 2010 ("Law 61"). In some cases, the changes reflect the position arrived at through government regulation in the intervening years, including changes in the investment laws generally and also changes driven by Vietnam's WTO accession.
In addition to the LOIB, the Maritime Law dated June 27, 2005 contains a section that governs marine insurance purchased for marine contracts.3
Various laws have recognized the importance of maintaining competition in the marketplace and streamlining the role of government in the insurance industry. Some insurance enterprises are subsidiaries of the MOF, or of a People's Committee. In the past, it was not unusual for Ministries, governmental departments, or state-owned enterprises to require entities or individuals under their administrative jurisdiction to purchase insurance from insurance enterprises under their purview. Although government participation and influence in the insurance market remains common, there have been significant changes. In 1996, Official Letter 3780/TC-TCNH (October 1996) requested that government agencies cease to influence the insurance market. Also in 1996, the MOF eliminated an earlier legal requirement that, when purchasing insurance for a state-financed construction project, project managers give priority to state-owned insurance enterprises.
Moreover, an increased emphasis on promoting competition has resulted in laws that expressly forbid anti-competitive activities. The Commercial Law, passed in June 2005, prohibits inappropriate competitive activity in general.
The Competition Law, established in July 2005, introduced more comprehensive legislation. The Competition Law covers two broad categories of competitive practices: practices that may restrain competition, such as agreements in the restraint of trade, abuse of dominant market position, economic concentration, and unfair competitive practices, including coercion, defamation, and deceptive advertising. The Competition Law also established exemptions from its own regulations. The Law relates to the insurance sector in two ways. First, the general application of the Law's principles prevents insurers from misrepresenting the coverage terms of policies to potential customers, and demands transparency as a systemic necessity for the industry. Second, practical considerations suggest that while particular aspects of the industry may technically breach competition laws, limited exemptions are provided for activities such as sharing of loss information or pooling arrangements. The Competition Law's existing provisions on co-operation and competition in the insurance business have been revamped by Law 61, and now include additional detail on both the types of cooperation which are permitted, as well as the specific types of conduct which are prohibited, for example collusion aimed at carving up the insurance market.
Finally, the LOIB itself and Law 61 specifically prohibit illegal competitive action. These laws forbid providing untruthful information and false advertising related to insurance terms and policies, and intimidating customers or employees of other insurance enterprises.4
The Law on Health Insurance, dated November 14, 2008 and the amended law dated June 13, 2014 are applicable to all individuals and organizations, both domestic and foreign, and govern the eligibility and the scope of insurance coverage, health insurance funding, rights and obligations of insurers and insureds, and provide a road map for universal health insurance. The law has had a considerable impact on enterprises, which are obligated to provide health insurance coverage for all employees working under indefinite-term labour contracts or labour contacts with a definite term of three months or more, as well as for managers who receive wages.
The U.S.-Vietnam Bilateral Trade Agreement ("BTA") came into effect in December 2001. The BTA bound the Vietnamese Government to permit greater access by American insurance companies to the domestic market. Beginning five years from the effective date, American insurance companies were permitted to establish 100% foreign invested enterprises to provide both compulsory and non-compulsory insurance products.
Implementation of the BTA eliminated the limits on U.S. capital participation in the insurance industry. Vietnam's accession to the World Trade Organization in January of 2007 opened the market to other foreign investors.
Under its WTO Commitments, beginning January 1, 2008, Vietnam began giving equal treatment to both foreign and domestic insurance enterprises. Foreign insurance enterprises provide insurance services to foreign invested and wholly foreign owned companies in Vietnam. They may also provide reinsurance, international transport insurance, and insurance brokerage services. Foreign invested insurance enterprises may also deal in compulsory insurance products, such as liability insurance for vehicle owners.
Thus, foreign insurance enterprises operating in Vietnam may choose among several forms: joint stock companies, joint ventures with Vietnamese enterprises, and 100% foreign invested enterprises.
Internal and External Supervision
The Government is responsible for providing guidelines to explain and implement the law, and the MOF is responsible for implementing state regulations and supervising insurance activities.5 The MOF grants and withdraws licenses to establish and operate insurance enterprises.6
Insurance enterprises must make periodic reports to the MOF. Additional reporting requirements apply if there are unusual developments within the enterprise, or if the enterprise fails either to meet its financial requirements or to fulfill commitments to its customers.7 Liquidation of or mergers between insurance enterprises must be carried out under the supervision of the MOF, and changes in management structure or intended investment overseas require MOF approval. The MOF also carries out financial inspections of insurance enterprises once a year.
The MOF acts both as a government regulator of insurance enterprises, and as an owner of several joint stock companies formed from the equitization of state-owned insurance enterprises. This dual role continues to pose a conflict of interest in terms of administrative enforcement.
In addition to the regulatory role of the MOF, insurance enterprises must also adopt a system of internal supervision and control. Decision 153/2003/QD-BTC dated September 22, 2003 introduced a system of supervisory criteria for insurance enterprises. These criteria measure changes in...