To what extend has the insurance industry in Vietnam been hurt by the Covid-19 pandemic?

The Covid-19 pandemic has had a major impact on almost all economic sectors and insurance industry is not an exception. In Vietnam, the pandemic has been very well managed by the government with the number of infected cases kept at less than 270 and no fatalities have been reported so far. However, Covid-19 has impacted the Vietnam’s insurance industry on the following aspects.

Truong Vinh Phuc, partner of Audit Services at KPMG Vietnam

Sales activities interruption

In the context of dominant agent distribution channel of Vietnam’s insurance market, the social distancing order including gathering restriction imposed by the government to curb the spread of the virus has negative impact on the sales activities of the agent network, who usually rely on conferences and face-to-face meetings with their clients in order to sell new business.

Technology is used more and more by the agents, but this is mostly from an enablement standpoint. In the longer term, the crisis will accelerate the digitization of sales channels, to better enable agents to do more business digitally rather than face-to-face and of course, will likely open up new lines of direct sales.

A strong push for digitalization

There is no doubt that the Covid-19 pandemic will propel insurers to increase the digitization of their operations and interactions with clients. Agent networks need to be more digitally-enabled.

Flexible and remote working are needed across all sectors including insurance due to the coronavirus and this new way of working creates the opportunity for insurers to test and ensure that their businesses have sufficient connectivity to support more staff working off-site and in flexible ways. At the same time, more focus will fall on the automation of processes for greater cost efficiencies and resilience – now, and in the future too.

Insurance businesses - as other businesses in other sectors - need to embark on the digital transformation of their organizations, to become more agile, responsive and connect enterprises and continue to invest in this journey.

Earnings and solvency challenges

The volatility and falling interest rates within the financial markets will likely impact insurers from earnings and solvency perspectives.

Movements in equity prices, interest rates and credit spreads create tremendous asset liability management risks for insurers as yield curves flatten, especially life insurers, due to their holding of long-term assets and liabilities. The Vietnamese government bond yield has steadily decreased since the beginning of 2020, especially for the bonds with terms of more than 10 years and this trend is expected to remain in the near future. Low market interest rate can result in solvency margin challenge for life insurers because of potential increased insurance reserves.

Generally, insurers may need to (i) reassess their investment portfolio to mitigate the potentially reduced investment earnings and (ii) closely monitor solvency ratios in order to meet economic and regulatory capital requirements.

How have local insurers reacted to the impacts?

In general, the local insurers have quickly responded to Covid-19 pandemic. Some insurers quickly launched the Covid-19 insurance product to the market but then this product was stopped by the government.

Remote working as a new way of working of the employees has been encouraged by many insurers. More importantly, we have seen several insurers speeding up their digitalization journey with several digital solutions being launched such as e-recruitment, e-application, e-collection, e-claim to efficiently and effectively respond to the suddenness of the impact of the pandemic. 

Should the local insurers adjust their business plan for 2020 like others in the service industry?

Many insurance companies may not meet the performance target for 2020 which was set before the coronavirus outbreak. However, the financial impact cannot be estimated reliably at this point in time because it depends on many external factors including the development and the end of the Covid-19 pandemic.

The pandemic will certainly end, but how it will change the Vietnamese client’s behavior?  And how should the local insurers prepare for this event?

The Covid-19 pandemic may cause many people to reconsider their personal financial planning including insurance need. People will buy more health insurance products and saving products to be more resilient under tough situation in work and life. In respect of behavior, the Vietnamese consumers will prefer to be approached, sold and serviced for insurance products on-line or digitally.

In order to catch the consumer trend, insurers should (i) review their products portfolio and revamp or develop new products to better meet the consumers’ needs and (ii) accelerate the digital transformation to equip themselves with the platform, technology and skills to seize the market opportunities.

Insurers should also strive for more transparency in communication with consumers to increase the consumers’ awareness on insurance products and reinstate trust in the idea of a true and hassle-free financial protection at the time of need.

What do you think about the performance of the insurance industry in 2020? Would there be any M&A deal and why?

As mentioned above, in 2020 the overall growth target of the insurance industry may not be achieved because the insurance market performance will depend on how the Vietnamese economy and businesses recover after the Covid-19 pandemic ends.   

In the long-term, Vietnam’s insurance market is still very attractive for investors especially foreign investors in the context of low penetration rate and emerging middle class with rising of household income. The investors, who are looking for or doing mergers & acquisition (M&A) deals to enter the insurance market, will continue to execute their M&A plans.