The Law on Insurance Business adopted by the National Assembly on 9 December 2000, took effect from 1 April 2001 (the “Law”). Throughout 10 years of its implementation, the Law has contributed to enhance the development of the local insurance sector. On account of its application, the number of insurance companies and insurance brokers in Vietnam has been dramatically increased, from firstly 14 to 50 in 2010, with various types of enterprise form, ownership structure, product and service. However, after 10 years, the insurance market has been developed significantly as well as there has been a number of important events affecting its development, including Vietnam’s accession to the WTO with a number of service-related commitments, with the enactment or amendment of a number of the principal laws in Vietnam, such as the Civil Code (2005), the Law on Enterprises (2005), the Law on Investment (2005), the Law on Tendering (2005), the Law on Competition (2004), etc., it is essential that certain amendment and supplementation be made to the Law, in order to comply with the Vietnam’s commitments upon accession to WTO, to be consistent with other related laws, and to better support the development of the insurance sector in such new situation.

Pursuant to the National Assembly’s agenda of drafting laws and ordinances in the year of 2010, the bill to amend and supplement to a number of articles of the Law[1] (the “Bill”) has been made and expected to be submitted to the National Assembly in its session at the end of 2010, for approval.

Below is a brief summary on critical changes that are proposed in the Bill in order to achieve the following main objectives:

1)      To make the Law be compliant with the WTO commitments of Vietnam:

Cross-border provision of insurance service

Recognizing the cross-border provision of insurance services by foreign insurance organizations and individuals, which is, among others, one of Vietnam’s WTO commitments, the Bill proposes to include a case where foreign insurance organizations and individuals selling the insurance service from outside Vietnam through its border, they shall be responsible for all risks arising out of and relating to such cross-border insurance policies. And, disputes arising from such insurance policies shall be settled in accordance with provisions of the Civil Code (2005) on civil relations with foreign element and the laws of the concerned foreign country. Since this is a sensitive matter, the Bill merely proposed the basic principles. Then, the Government shall set out detailed guidelines for its implementation based on prudential management rules permitted by the WTO, such as conditions applicable to the foreign insurance enterprises, deposit requirements in Vietnam equivalent to their insurance liability in Vietnam and other related matters in order to protect legitimate rights and interests of individuals and organizations purchasing overseas insurance.

Branch of foreign non-life insurance enterprise

Recognizing the right to set up the branch of foreign non-life insurance enterprise in Vietnam, pursuant the WTO commitments of Vietnam, after 5 years from the date of the its WTO accession, the Bill proposes to include an additional regulation that foreign non-life insurance enterprises having their head offices located in one of countries being a member of the WTO, shall be permitted to operate in Vietnam, amongst other permissible forms, in the form of a branch. The issuance of the permit for establishment and operation of such branch shall be under the authority of the Ministry of Finance.

Reinsurance

According to the Law, in case of reinsurance with foreign insurance enterprise, the insurance enterprise must reinsure partly the liability for which insurance has already been accepted, with a domestic reinsurance enterprise in accordance with the regulations of the Government[2]. However, under the WTO commitments of Vietnam, the mandatory reinsurance with a domestic reinsurance enterprise is no longer valid. Therefore, the Bill proposes to remove said provision on mandatory reinsurance with a domestic reinsurance enterprise. Accordingly, insurance enterprises may cede to and take over reinsurance from other insurance enterprises, including insurance enterprises inside and outside Vietnam.    

Types of insurance products

The Law[3] stipulates two types of insurance products including life insurance products (with basic 5 products) and non-life insurance products (with basic 11 products), while many other insurance products have been evolved after the issuance of the Law, and are being marketed, but not yet stipulated in this Law (e.g. investment-related insurance, guarantee insurance). Thus, in order to be consistent with international practices, the Bill proposes a broader range of insurance products. According to such range, insurance products shall include life insurance and retirement insurance, non-life insurance, (voluntary) health care insurance. These insurance products shall later be stipulated in details by the Ministry of Finance.

2)      To make the Law be consistent with the other relevant laws of Vietnam:

Priority of the Law on Insurance Business as a specialized law

To make the interpretation of the Law more consistent during its implementation, where there is certain differences between the Law and other relevant laws of Vietnam, including the Civil Code, the Law on Investment, the Law on Enterprises, etc., the Bill proposes a confirmation 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 in general, state-owned enterprises, and foreign investment in particular, the Law provides for five forms of insurance enterprises, including state owned insurance enterprises, shareholding insurance companies, mutual insurance organizations, joint venture insurance enterprises, and 100% foreign owned insurance enterprises[4]. However, to make the Law fully consistent with the new Law on Enterprises (which superseded all provisions of the old laws on enterprises, state-owned enterprises and foreign investment in Vietnam), the Bill proposes to comprise five forms of insurance enterprise, including shareholding insurance companies, mutual insurance organizations, limited liability companies with one member (the investor is an insurance enterprise), limited liability companies with two members and more (a 100% foreign capital insurance enterprise or a joint venture company between foreign insurance enterprise and one or more Vietnamese legal entity(ies)), and branch of foreign insurance enterprise.

Tender and competition in insurance business

To be consistent with the Law on Tendering and the Law on Competition, the Bill proposes to further include the provisions on competition and tendering applicable in the insurance sector. The Government of Vietnam shall issue its detailed guidelines in this regard.  

3)      To make the Law better cope with the development of the insurance market:

Condition for issuance of licenses for establishment and operation

Apart from the current conditions as provided by the Law (such that the amount of paid-up charter capital is not less than the level of legal capital prescribed by the Government, the form of the enterprise and its charter must comply with the provisions of laws, and the management personnel must have management skills, expertise and professional qualifications in insurance etc.), the Bill proposes to include a provision that the organizations and individuals participating in contribution of capital to set up an insurance enterprise or insurance brokers must have suitable financial capacity, and the organizations must have experiences in insurance business. It may be seen that the additional conditions have been stipulated in some legal instruments under the Law. However, the Bill proposes to further include this issue into the Law to ensure its stronger legal validity.

Changes that must be approved by the Ministry of Finance

In addition to changes that must be approved by the Ministry of Finance[5] (such as change of name of the insurance enterprise, charter capital, chairman of the members’ council, chief executive officer/managing general director, etc.), and the time-limit for announcing the approved changes by the insurance enterprise, the Bill proposes two further changes that require an approval of the Ministry of Finance, including those in actuary and the insurance companies’ overseas investment activity. In this connection, the Bill also proposes some changes that must be notified in writing to the Ministry of Finance upon the change occurrence, including those in members of the members’ council, deputy chief executive officer, director of branch, chief of representative office, chief accountant, chief of supervision board, the head of the divisions for insurance sale, insurance compensation, reinsurance, and investment.

Fund for protecting insurance purchasers

Besides compulsory reserve fund for raising the charter capital and ensuring the solvency of the insurance enterprise, and other reserve funds as prescribed by the Law[6], the Bill proposes to include a provision that an insurance enterprise must establish a fund for protecting insurance purchasers based on its premium income, in accordance with the regulations made by the Government. 

The point of time for arising insurance liability

Under the Law, it is unclear how to determine the point of time when the insurance liability should arise. The Bill, therefore, proposes that, insurance liability shall arise when an insurance policy is executed between the insurance enterprise and the insurance purchaser, and the insurance purchaser has paid the insurance premium; or there is a proof that the insurer has agreed to provide insurance and the purchaser of insurance has paid the insurance premium; or the insurance policy has been executed and the insurance enterprise has agreed in the insurance policy allowing the insurance purchaser to be indebted to the insurance enterprise for the insurance premium.

Insurance agents

With a view to standardize the training activities and issuance of insurance agent certificates, the Bill proposes an additional provision that individuals conducting insurance agent’s activities must have a certificate of training in insurance agent practices. Such certificate will be granted by a legal training center set up by the relevant competent authority. Currently, under the Law, the certificates are granted either by insurance companies or by the Vietnam Insurance Association.[7].

[1]     Note that the update herein is made based on Draft No.6 of the Bill amending and supplementing a number  of articles of the Law on Insurance Business.
[2]     Article 9.2 of the Law on Insurance Business.
[3]     Article 7 of the Law on Insurance Business.
[4]     Article 59 of the Law on Insurance Business.
[5]     Article 69.1 of the Law on Insurance Business.
[6]     Article 97 of the Law on Insurance Business.
[7]     Article 86.1.c of the Law on Insurance Business.