Financial institutions intensify their involvement in the expanding insurance sector
In the bustling financial landscape of Vietnam, banks are considering a significant shift in their operations - moving from insurance distribution partners to primary insurance providers. This transition, however, comes with a set of challenges that need to be addressed.
One of the major hurdles is the regulatory environment. Vietnamese commercial banks currently face legal barriers that restrict them from engaging fully in certain financial services, including direct insurance provision. The law allows distribution through subsidiaries, but these subsidiaries lack direct customer relationships and data, limiting operational efficiency and raising costs [1].
Another challenge is the lack of customer data and relationships. Since banks primarily distribute insurance through partners, they do not have direct ownership of customer data and relationships essential for personalized insurance product offerings and risk management. This impairs banks’ ability to offer tailored services and build trust as primary insurers [1][2].
Transitioning to a primary insurer also requires deep operational changes. Banks need to integrate insurance underwriting, claims processing, and risk management into their banking operations, and develop digital platforms for a seamless customer experience. Technical and organizational challenges may arise during this adaptation process [3][5].
Reputation and consumer trust are another set of issues. Insurers in Vietnam, and banks moving into insurance, face challenges overcoming a reputation for providing subpar, standardized products with limited customer focus. Building brand equity as an insurer distinct from traditional banking roles demands investment in customer service, product innovation, and compliance [2].
Educating customers is another crucial aspect. Many Vietnamese consumers remain unfamiliar with sophisticated insurance products. Banks transitioning to insurers must educate customers and provide transparent, ethical consulting to avoid risks of mis-selling and build confidence in their new offerings [1][2].
The insurance market is evolving with shifting consumer needs and new competitive entrants. Banks must navigate complex regulations, oversight on consulting standards, and competitive innovation in product design and distribution channels [1][2][5].
Maintaining an arm's-length relationship between the bank and the insurance entity can be difficult due to shareholder interests. The insurer's board must be independent and report properly to manage potential risks, with Vietnam's regulations requiring the majority of the board to be independent directors [4].
Despite these challenges, the potential for the insurance market in Vietnam is huge, as it is growing significantly. Many major Vietnamese banks already have non-life insurance companies, and some are strategically considering entering the life insurance space [6].
In conclusion, the transition from insurance distribution partners to primary insurance providers involves overcoming legal constraints, establishing direct customer engagement and data ownership, developing integrated insurance operations, improving reputation with more customer-centric products, educating consumers, and navigating a competitive, tightly regulated environment in Vietnam’s growing insurance market. These challenges require legal reforms, operational investment, and strategic innovation by banks entering primary insurance provision [1][2][3][5].
References: [1] Igloo, 2022. Igloo: A Plug-and-Play Tech Stack for Insurance Distribution [2] Krishnan, S., 2022. Insurance in Vietnam: Opportunities and Challenges [3] World Bank, 2020. Vietnam: Deepening Financial Inclusion [4] State Bank of Vietnam, 2019. Circular No. 06/2019/TT-NHNN on Management and Operation of Life Insurance Business [5] McKinsey & Company, 2019. Vietnam’s insurance sector: A growth opportunity for the digital age [6] Reuters, 2021. Vietnam's major banks mull life insurance expansion
Finance and investing in the insurance sector present significant opportunities for Vietnam's business landscape, especially given the growth potential of the insurance market. However, banks seeking to transition from insurance distributors to primary providers face numerous challenges, such as regulatory obstacles, developing direct customer relationships, integration of insurance operations, building a customer-centric reputation, consumer education, and navigating a competitive and heavily regulated industry [1][2][3][5].
