Vietnam, Cambodia, Laos – Promising potential

The insurance markets of Vietnam, Laos and Cambodia are showing promising potential. Mr Saman Wijaya Bandara of EY Vietnam gives a succinct insight into each country’s industry, looking at players in the market, products, regulatory development and distribution trends.

Despite the recent impact of the economic downturn and the global financial crisis, the insurance industries in Vietnam, Laos and Cambodia continue to demonstrate strong growth.

While they may appear as promising and prosperous markets, investors and insurers need to be aware of the existing challenges. Some commonalities of the challenges that lie in the Indochina region are the lack of standardised regulations, improper pricing strategy and claims handling, and unqualified agents.

With the above-mentioned challenges, all three markets are sharing the same risk and uncertainty. For those who practise in the area, a local expert is necessary to guide them through the local terrain. Despite these however, the markets remain promising and there will be a lot of opportunities for expansion. With low market penetration and a young demographic, the emerging markets of Vietnam, Laos and Cambodia have a high potential of becoming a substantial regional market.


Total GWP in 2013 reached VND47,010 billion (US$2.2 billion), an increase of 14% in comparison with last year’s figure.

However, life and general insurance experienced opposite trends; while general insurance suffered the lowest growth rate since 1993 at 7%, life insurance grew dramatically at an estimated rate of 23.1%.

Tough economic conditions and the increasing numbers of natural disasters and accidents restrained the growth rate of the general insurance market. Meanwhile, an increase in the quality of new business promoted the developments of life insurance market.

Players in the market

Vietnam’s insurance market currently has 29 general insurers and 16 life insurers. There were two newly established companies in 2013 which are PVI Sunlife and Phu Hung Life Insurance. It is noticeable that PVI Sunlife, despite being a new player in the market, accounted for 13% of new business explosion in 2013 taking third place in the market. Its revenue was VND1,000 billion for the year.

In terms of market share, top insurers in life business accounted for three-quarters of total market share in 2013. In which, Prudential was leading company with 32.54%, followed by Bao Viet with 27.16% and Manulife with 11.27%. In total, foreign companies accounted for nearly 70% of gross written premiums of the life insurance business.

On the other hand, general insurance market is still dominated by domestic insurers with Bao Viet being the market leader with 23% of market share, followed by PVI and Bao Minh with 21% and 10% respectively.

Product development

In general insurance, the most updated data from Association of Vietnamese Insurers shows that motor vehicle insurance, property & casualty insurance and personal accident & health insurance were the main income drivers for general insurers’ gross written premium (28%, 22% and 21% of GWP in 2013 respectively).

Personal accident & health insurance have been surging, thanks to rising urban incomes, improved products, and a stretched government health insurance system.

The very extreme case of agricultural insurance is also to be noted. In 2013, agriculture insurance while making up the smallest proportion of total market premium ie 1%, incurred the highest claim rates of 295% (this rate was 38% in 2012).

It is also to be noted that microinsurance such as agricultural insurance can be used as an opportunity to build brand and a new customer base rather than as a profit generator at the outset. Domestic players also tend to focus on traditional products, so certain areas remain underdeveloped, especially for SMEs such as business interruption and credit risk.

In life insurance, life policies are predominantly savings focused. In 2013, endowment still accounted for the largest percentage of total GWP, ie 58.5%. However, it is to be pointed out that the percentage of endowment in total GWP has continuously decreased – from 66.5% in 2012 and 70% in 2011. Investment insurance came in second place with 32% (24.2% in 2012) of total GWP.

With the introduction of Circular No.115/2013/TT-BTC issued by the Ministry of Finance, voluntary pension insurance product officially entered the market, bringing new opportunities for life insurance companies. Manulife & Dai-ichi were the first two life insurers which introduced this new product to the market.

Regulatory development

The government and Ministry of Finance are in progress to strengthen regulations and improve legal framework for insurer and customers.

The issuance of Circular No.124/2012/TT-BTC dated 30 July 2012 (“Circular 124”) concerning insurance businesses and Circular No.125/2012/TT-BTC dated 30 July 2012 (“Circular 125”) concerning the financial mechanisms of insurance companies have represented significant changes in laws and regulations in Vietnam insurance market and are supposed to contribute to a better competitive environment and increased transparency.

Besides, a number of recently issued and upcoming regulations have positive impacts on the insurance market:

• Revision of the Law on Personal Income Tax to increase starting point of taxation on personal income from VND4 million to VND9 million per month and deductions for each dependent from VND1.6 million/month to VND3.6 million/month budget effective 1 July 2013 and Circular 123/2012 on Enterprise Income Tax making life insurance premium paid for employee under labour contract or collective labour agreement and company financial regime, tax deductible, may encourage growth of life insurance business, especially at the company level.

• Issuance of Circular 115/2013/TT-BTC issued by the Ministry of Finance, effective on 15 October 2013, has encouraged life insurers to offer new pension products. Under Circular 115, only life insurance companies with equity of more than VND1 trillion (US$47.62 million) would be allowed to offer this type of retirement insurance. In addition, they must deposit more than VND200 billion to the voluntary pension fund without withdrawal to ensure their responsibility.

• The Ministry of Finance and the State Bank of Vietnam are completing a draft guidance circular on the bancassurance market, which will assist its development.

• The Ministry of Finance is drafting new accounting regime for life insurers, which is intended to improve the regulatory management for life insurance business.

However, the regulation in the area of risk management in the insurance industry has a long way to go.

Distribution trends

Traditional career agency remains the dominant channel for general insurance companies with 60,000 agents in 2013. Other channels are branch networks, insurance brokers and bancassurance.

There has also been a rapid uptake of smart phones – with Vietnam’s young population. Leveraging mobile technology can help insurers reach the new young, tech-savvy customers. Integration of emerging alternative channels with the traditional channels can provide a competitive advantage in a segment where it can be difficult to differentiate products in personal lines.

Similar to the general insurance market, traditional career agency is also the main distribution channel of life insurance with 226,133 agents in 2013, an increase of 0.08% from 2012.

Banccasurance is relatively new in Vietnam; however, there is a growing interest in this alternative channel as it can provide access to significant customer base. It is anticipated to grow in importance as retail banking services continue to evolve and the “unbanked” population decrease. The least popular channel is online channel which may be constrained by low broadband penetration rates.


Economic development and the requirement of third-party motor liability insurance are the recent key drivers to increase the written premium here.

However, some drawbacks are observed in Laos’ business environment: not completely standardised regulation system; uneven economic developments among different geographical areas; and easy requirements in obtaining driver license. In addition, Laos’ drinking culture contributes to a high level of accidents which has a substantial impact on the non-life business.

Players in the market

The insurance market in Laos has a rather low level of competition due to limited presence of insurers and lack of interest from global insurers.

In 2013, there were eight enterprises in Laos’ insurance industry generating a total GWP of US$35 million (estimated figures). Of those, Allianz General Laos, mainly supported by the Laos government, is the largest insurer which accounted for about 57.15 % of total industry GWP in the year.

Lao Viet Insurance Company (LVI), supported by Lao-Viet Bank (LVB) and Banque pour le Commerce Exterieur Lao Public (BCEL), is the second largest insurer. It accounted for 17% of total industry GWP. LVI is also the first Vietnamese enterprise successfully serving a large number of Vietnamese clients who are currently living in Laos.

Laos’ insurance industry is expected to grow in 2014 and 2015 with the emergence of two other insurers, one of which is a Chinese insurer – it will be having a significant advantage as China is the biggest foreign investor in Laos recently. Most insurers in Laos leverage on support from their shareholders as a strategy to increase their market shares as well as attracting agents from competitors to increase GWP.

According to Laos’ regulations, insurers are allowed to provide both life & general products. Among the eight insurers in the market, there are only two insurers (Allianz General Laos & Toko Assurance Co Ltd) offering life insurance products.

Regulatory development

The regulatory framework governing Laos’ insurance industry is not standardised yet and have shown certain limitations to market access. Besides, there are several insurance activities which are not covered by the Insurance Law such as reinsurance activities and bancassurance. The insurance regulatory framework is based on Insurance Law of 1990, Decree on Insurance Law implemented in 1992, the Revised Insurance Law (was approved and implemented in 2012).

Regarding accounting regulations, effective on 1 January 2015 onward, the insurance industry in Laos will adopt IFRS.

Product development

General insurance segment made up the most part of the total value of gross written premium in 2012. Lao’s general insurance industry is restricted to property, transportation, motor and casualty insurance, which generate a significant proportion of premium.

With the net revenue totalling at US$15.2 million in 2013, motor insurance accounted for 43% of premium in the total market and it is currently the largest category in the non-life segment.

Distribution trends

Direct sale is the predominant distribution channel of the industry generating one-third of the total sales in the country.

Agents have rights to set up terms and conditions with insurers. However, there are limitations of insurance agency due to lack of professional training. As a result, although insurers often incur high cost for recruiting and supporting agents, these agents may not bring a level of profit as high as expected because of lack of selling skills, customer service skills and ethical acknowledgement.


Cambodia insurance market has significant potential growth with fast-growing economy and income per capita as well as increasing concern of Cambodians over needs of insurance.

In particular, the income per capita of Cambodia is continuously increasing with a GDP compound annual growth rate of 11% over the past decade. Cambodia’s economy is predicted to be one which will have strong growth in 2014.

Increasing income also shapes people’s intention to buy insurance.

According to the recent figures from Agence Kampuchea Presse (AKP) issued on 10 February 2014, premium revenue of the Cambodia’s insurance sector increased approximately 14% in 2013 compared to that of 2012.

However, the industry also faces certain challenges. With the participation of new players from Europe, there will be a need to develop regulatory framework to handle new and modern products. There is also a lack of understanding of how product pricing and competition can affect profitability of insurance companies and it is critical for local insurers to develop specific skills for product development, underwriting, claims policy and processing, loss assessment and actuarial expertise in order to compete with foreign rivals.

The requirement that financial entities will have to move to IFRS starting from 2015 will also challenge local players as they work to fully comply within the time frame.

Players in the market

The insurance industry in Cambodia consists of 11 insurers, one reinsurer, one agent and one broker.

The life insurance industry is brand new having begun only in 2011-2012. The establishment of the life insurance industry is seen as an important further maturation of the financial services sector in Cambodia. There are currently three major life insurers: Cambodian Life Insurance, Manulife and Prudential. There are also two micro-insurers that offer low-cost life insurance products to rural customers which are Prevoir and MEADA.

In March 2014, Thailand’s Viriyah Insurance, one of the biggest insurers in the country, is seeking to expand its motor vehicle business in Southeast Asia. Viriyah Insurance is looking for local partnerships with companies in Cambodia, Malaysia and Myanmar, with a special emphasis on commercial truck coverage.

Aeon Insurance Service (Thailand), the insurance broker of Aeon Thana Sinsap (Thailand), is also looking at Cambodia. It will study doing business in Cambodia as part of its synergy with Aeon Group, which is constructing its first mall in Phnom Penh.

Product development

The Cambodian general insurance segment is led by the property insurance category, followed by engineering and construction insurance, motor insurance, marine, aviation and transit, and general liability insurance. The data showed that fire insurance reached US$13 million, an increase of 30% from 2012, followed by engineering and construction insurance of over $8 million and motor and car insurance of more than $7 million.

Microinsurance is very popular in Cambodia, with low-premium microinsurance products attracting the attention of the country’s low-income population.

The National Social Security Fund (NSSF) on April 2014 launched an initiative to provide health insurance to the nation’s workforce, a plan that the country’s largest employers’ associations said was premature.

Several insurers are also planning to bundle services with banks. For instance, Cambodia Life Insurance Company Plc plans to bundle services with banks to offer guarantees on mortgages while Manulife and Prudential are working with ANZ and ACLEDA banks.

Regulatory development

The Royal Government of Cambodia is adopting a new law on insurance. This review will provide Cambodia with one of the most advanced insurance regulatory schemes in ASEAN.

Amongst many other changes, the more important and notable changes will cover the following areas: Insurance companies’ liquidation process, microinsurance legal framework, life insurance legal framework; compulsory motor insurance.

The entire regulatory scheme is planned to be adopted by the end of 2014 (Law on Insurance – 1st quarter of 2014; sub-decree-4th quarter of 2014).

Moreover, since insurance is a growing sector in finance services industry, there will also be other regulatory developments such as solvency management, risk management, and customer protections.

Mr Saman Wijaya Bandara is Partner, Head of Insurance and Forensic Consulting at EY Vietnam, Laos and Cambodia (EY Indochina).

Source: AIR eDaily