- Serik Saparbekovich, your insurance career was developing well in Kazakhstan too, why did you decide to move to another country? And why to Vietnam?
- I was invited to participate in development of a financial institution of Vietnam as an insurance expert. I was interested in this, not only because you can transfer your knowledge to other people, but also because it is an opportunity to learn something new, and I was keen to learn all the time.
- What is the current situation in Vietnam’s life insurance market? How much does an average life insurance policy cost?
- Vietnam's life insurance market continues to develop at quite a torrid pace. In terms of premiums on newly-concluded life insurance contracts, then sales increased by 32% on average. This is a fairly high result even for the developing economy, given that Vietnam sees continuous economic growth and attracts quite a large number of foreign direct investment. The average premium for a separate life insurance policy varies from about 5 to 15 million VND, which is about 400-700 USD. In different companies, the size of insurance policy depends on positioning of the company, on types of channels that it uses for distribution, in particular, in bank insurance, the size of insurance policy is much higher than in conventional insurance distributed through agents. The same is true about cities with developed economies where insurance costs more than in rural areas.
- What programs are most sought-after?
- Cash-value life insurance. In the country the universal life insurance is widely spread which differs from cash-value life insurance in that it has one-time fees - an additional payment to the main premium. Such unit-linked products tied to the cost of investment are not widely spread due to the fact that population still does not trust the stock market after the crisis where many of them lost their money. It’ worth noting that in the majority Vietnamese are conservative investors, they prefer more reliable saving instruments.
Between 2011 to 2015, Vietnam ranked third by the fastest average annual growth in life and health insurance, collecting 700 trillion Vietnamese dong (more than 10 trillion tenge or more than 30 billion dollars). What promoted such a takeoff?
It is common knowledge that life insurance is a product that is sold, not bought, that is, to ensure a large growth of the market, it is necessary to increase the distribution network, it is necessary to have a sufficient number of agents, distribution channels and insurance companies. And, in my opinion, the growth was contingent exactly on the fact that international insurers found Vietnam extremely promising and 17 insurance companies with foreign participation opened in a short time. The opening of these companies led to additional investments in life insurance industry of Vietnam and to increased popularity of agency activity. The total number of agents in the cadaster (register) of Association of Vietnam Insurers exceeds 300 thousand people today. Most of these agents may not work anymore, but even assuming that 20-30 percent of them still continue to operate, then is a fairly large army which continues to grow. Over 3 years the total number of agents in this cadastre increased more than 2-fold. Vietnamese themselves, as far as I can judge, are more likely to save money by mentality and psychology than taking loans, that means we must take into account the national context as well.
- In most of Southeast Asian countries, the government provides the strong support, life insurance, in particular, is exempt from VAT. In your opinion, where is the interest of government - in development of life insurance, accordingly, addressing social issues in the country or in attracting foreign investors?
- In Vietnam, the government strongly supports any investment in the economy. If you look at the historical development of the country, it is clear that the government is not rich and such a policy aimed paid off.
Vietnam is one of the few countries developing with rapid strides where the population well-being is growing while the population here is large - 92 million people. Here it is necessary to ensure employment, economic stability as well as to attract the population's money into the economic turnover of the country. If we talk about the social protection provided by the government - these are various pension payments and medical insurance, insurance against other social risks - then it is not so developed here. For instance, a pension is paid only those who worked in the public office and in scanty amounts. This, accordingly, leads to the fact that people understand that they need to take care of their future and use extra funds for retirement and other purposes.
Another significant factor for the government is that the money of life insurance industry is long-term, i.e. sufficiently convenient for development of long-term projects. At the current stage of economic development there are no projects that pay off in 2-3 years, they need to invest in projects with a payback period of 7 years or more, but the banks are not so willing to credit enterprises for such a long period. Well, as practice has shown, during economic crises people withdraw money in panic from banks which makes banks financially unstable. While withdrawal of savings from life insurance companies do not occur in such amounts, but even if it happens, this does not severely affect the LIC. Typically, cash surrender values under life insurance contracts at the beginning of insurance period are less than the amounts of contributions made which is a factor constraining people from “hectic withdrawal” of funds from the LIC.
- Does the government get into a dialogue with insurance companies? Is there any need to do this? What pressing issues have they discussed recently?
- Vietnamese regulator constantly meets both with the Association of Vietnam Insurers and directly with insurance companies. Given that Vietnamese insurance companies are represented by multinationals, the regulator in communication with insurers receives feedback not only about the current state of the market in Vietnam, but also an analytical information on solving similar issues in neighboring markets: Malaysia, Indonesia, Thailand and other countries of Southeast Asia.
- Today in Vietnam there are large life-companies of UK, USA, Canada, Japan, and Russia. How many local insurance companies operate in the life sector? And how do they cope with competition with such big players as MetLife, Generali, Manulife, Prudential? Could there be certain conditions for activity of foreign investors?
- 17 out of 18 operating life insurance companies are represented either by joint ventures organized by Vietnamese banks and foreign insurers, or completely controlled by subsidiaries of foreign companies. This is not the competition between Vietnamese and foreign companies, it is a competition of international insurance companies. However, it is worth mentioning that the former Vietnamese “gosstrakh” (state-owned insurance company), Bao Viet holds the first place on collecting premiums today. This is a national insurer as the controlling interest belongs to the government, but it is gradually transferred to private sector, and as far as I know, part of its shares is already owned by Japanese investors.
- In Vietnam there is still a significant poverty level while at the same time there is a high level of income inequality. Who is the main buyer of life insurance products?
- Certainly, a high level of poverty is present, especially in rural areas. Both poor and rich people buy life insurance, they are mostly parents seeking to save up for education of their children, or people saving money for retirement, or for some big event in the future. Life insurance has become widespread in rural areas with few branches of commercial banks and mostly premiums are collected in the old fashion in cash through insurance agents.
- Could you tell us about the operation philosophy of pension insurance in Vietnam?
- Pension insurance here is more often used by large corporations purchasing cash-value insurance for their employees, these are usually companies with foreign participation, or national oil and gas companies.
- High percentage of physical disability among the occupied male population, early retirement of women, low average life expectancy among men. Are these factors taken into account when calculating the pension payments? How much is the average pension in Vietnam (male, female)?
- High level of physical disability is most likely associated with a high level of injuries, road accidents, insufficient protection and labor protection, but basically the lifestyle of Vietnamese itself is quite healthy. The average life expectancy in Vietnam is higher than in Kazakhstan. As previously mentioned, the pension is paid only public servants, and it is insignificant.
- What sales channels exist? Which ones are the most efficient?
- I will not reveal anything new by saying that the most developed channel is agency sales followed by bank insurance. In Vietnam, this sales channel is different from Kazakhstan as it is largely regarded as voluntary cash-value insurance carried out through branches of the bank.
- What is performance indicator of one selling agent? Are there any standards for them?
- Certainly, every organization, be it an insurance company, an agency or a bank, uses its internal standards related to assessment of performance of insurance agents. As a rule, they assess the activity of the agent - availability of sales for the period under report, attendance of trainings by the agent, for agents with experience of more than one year they assess their so-called “persistency”, i.e. the level of customer retention, the level of prolongation of second year contracts.
- How is the agent trained? What does it take to become one?
- Typically, insurance companies invite the agents themselves, they advertise, publish announcements, invite through other agents. It is necessary to provide documents, information on absence of criminal records, undergo the minimum basic level of trainings and pass the test. Training of agents takes several days, half of this time is allocated to explaining insurance legislation, rights and obligations of participants in the insurance transaction. Another half is taken for specific insurance products, their features, calculation of rates, explanation of insurance coverage, form-filling order, and to explain how to present an insurance policy to a potential client and how to talk about its benefits.