Law in need of overhaul

The insurance sector has come a long way in the past decade

The Law on Insurance Business was adopted by the National Assembly on December 9, 2000 and took effect from April 1, 2001 (the “Law”).

Throughout its 10 years in implementation, the Law sets out the rules and provides support to the development of the local insurance sector. Since the adoption of the Law, the number of insurance companies and insurance brokers in Vietnam has dramatically increased, from 14 to 50 in 2010, covering corporate forms, ownerships, products and services.

However, significant changes have been seen during the period, including Vietnam’s accession to the WTO with a number of services commitments, the new introduction or amendments of a number of principal laws in Vietnam. These include the Civil Code (2005), the Law on Enterprises (2005), the Law on Investment (2005), the Law on Tendering (2005), the Law on Competition (2004).

These require the necessary amendments of and supplementations to the Law, to make it in compliance with Vietnam’s WTO commitments, to be consistent with other laws and provide better support to the insurance sector.

Pursuant to the programme on making laws and ordinances by the National Assembly in 2010, the draft law on amendments of and supplementations to a number of articles of the Law# (the “Draft”) has been made, planned to be submitted to the National Assembly by the end of 2010 for approval. The issues to make the Law compliant with Vietnam’s WTO commitments include:

Cross-border supply of insurance services

Recognising the cross-border supply of insurance services by foreign insurance organisations and individuals, committed by Vietnam in the WTO commitments, the Draft proposes to add some additional information.

In the event foreign insurance organisations and individuals participating (i.e. selling) in the insurance service under the mode of cross-border supply, such foreign organisations shall be responsible for all risks arising from cross border insurance policies and disputes arising from the insurance policies.

These shall be settled in accordance with provisions of the Civil Code (2005) on civil relations with foreign element and the laws of the origin country. As it a sensitive subject, the Draft just proposes the measures in principle and the government shall give detailed guidelines for implementation based on management rules permitted by the WTO.

These conditions will be applicable to foreign insurance enterprises, deposit requirements in Vietnam equivalent to insurance liabilities in Vietnam and other related matters to protect the rights of individuals and organisations participating in insurance overseas.

Branch of foreign non-life insurance enterprises

Recognising the right to set up the branch of foreign non-life insurance enterprises in Vietnam, pursuant to Vietnam’s WTO commitments, after five years from the date of Vietnam’s WTO accession, the Draft proposes to add that a foreign non-life insurance enterprise with a head office located in a country which is a WTO member shall be permitted to operate in Vietnam, amongst other permissible forms, in the form of a branch. The issuance of the permit for the establishment and operation of such branch shall be under the Ministry of Finance’s (MoF) authority.

Reinsurance

According to the Law, in the case of reinsurance with foreign insurance enterprises, the insurance enterprise must reinsure a part of the liability for which insurance has already been accepted with a domestic reinsurance enterprise in accordance with the regulations of the government.

However, under the WTO commitments of Vietnam, the mandatory reinsurance with a domestic reinsurance enterprise is no longer valid. Therefore, the Draft proposes to remove this provision on mandatory reinsurance with a domestic reinsurance enterprise. According to which, insurance enterprises may cede to and reinsure from other insurance enterprises, including insurance enterprises in and outside Vietnam.

Types of insurance products

The Law# stipulates two types of insurance products including life insurance products (with basic five products) and non-life insurance products (with basic 11 products). Meanwhile, there are many other insurance products which have been created after the issuance of the Law and are in existence in the insurance market.

However, these have not been stipulated in this Law (e.g. investment linked insurance, guarantee insurance). Thus, in accordance with international practices, the Draft proposes a broader classification of insurance products. According to which, insurance products shall include life insurance and retirement insurance, non-life insurance, (voluntary) health care insurance. These insurance products shall be later stipulated in detailed by the MoF.

Priority of the Law on Insurance Business as a specialised law

The priority is to better support the interpretation of the Law during its implementation where there are inconsistencies between the Law and other relevant laws of Vietnam, including the Civil Code, the Law on Investment and the Law on Enterprises.

The Draft proposes to confirm that in the event there is a difference between the provisions of the Law and other relevant laws of Vietnam, relating to insurance business, the provisions of the Law shall prevail.

Forms of insurance enterprises

Based on the old laws on enterprises, state-owned enterprises, and foreign investment in Vietnam, the Law provides five forms of insurance enterprises. These are state-owned insurance enterprises, shareholding insurance companies, mutual insurance organisations, joint venture insurance enterprises and 100 per cent foreign-owned insurance enterprises.

However, to make the Law fully consistent with the new Law on Enterprises (which combined all of the old laws on enterprises, state-owned enterprises and foreign investment in Vietnam), the Draft proposes to have five forms of insurance enterprises.

These are shareholding insurance companies, mutual insurance organisations, limited liability companies with one member (the investor is an insurance enterprise), limited liability companies with two members and more (a 100 per cent foreign capital insurance enterprise or a joint venture company between foreign insurance enterprise and one or more than one Vietnamese legal entity) and branch of foreign insurance enterprise.

Cooperation and competition in insurance business

To be consistent with the Law on Tendering and the Law on Competition, the Draft proposes to add the provisions on competition and tendering applicable in insurance sector. The government shall issue the detailed guidance on this area.

Conditions for the issuance of licences for establishment and operation

In addition to current conditions as provided by the Law (such as the amount of paid-up charter capital is not less than the level of legal capital required by government regulations), the Draft proposes that organisations participating in capital contributions to set up an insurance enterprise, insurance brokers must have financial capacity and insurance business experience.

It is viewed that the additional conditions have been stipulated in some legal instruments guiding the Law. However, the Draft proposes to add it in the Law to make it stronger.

Changes which must be approved by the MoF
In addition to changes which must be approved by the MoF# (such as changes in the name of the insurance enterprise and charter capital) and the time-limit for announcing the approved changes by the insurance enterprise, the Draft proposes two more changes. These must be approved by the MoF and include the change of actuary and the overseas investment activity by insurance companies.

The Draft also proposes some changes which must be notified in writing to the MoF upon the change, including changes in deputy chief executive officer, representative office, chief accountant and supervision board chief.

Funds for protecting insurance purchasers

In addition to compulsory reserve funds to supplement to the charter capital and ensure the solvency of the insurance enterprise and other reserve funds as stipulated in the Law#, the Draft proposes to add that an insurance enterprise must establish a fund for protecting insurance purchasers based on the premium income.

The point of time arising insurance liability

Under the Law, it is unclear how to understand and define the point of time upon which the insurance liability arises. The Draft proposes that, insurance liability shall arise when an insurance policy has been entered into between the insurance enterprise and the insurance purchaser and the insurance purchaser has paid the insurance premium.

It also proposes that there is a proof that the insurer has agreed to insure and the purchaser of insurance has paid the insurance premium, or the insurance policy has been entered into and the insurance enterprise agreed in the insurance policy that the premium is owned by the insurance purchaser to the insurance enterprise.

Insurance agents

With a view to standardising the training activities and the issuance of insurance agency certificates, the Draft proposes that individuals conducting insurance agency activities must have a certificate of training as an insurance agent practice, issued by a legal training centre. Currently, under the Law, the certificates are issued by either insurance companies or by the Vietnam Insurance Association.#