The handshakes for exclusive distribution of bancassurance has brought about hundreds of billions of dong in commission to banks and this figure is expected to continue rising in the near future.
Over the last period, the domestic financial market has recorded many cooperation deals between banks and insurers. For example, Sacombank signed exclusive bancassurance contract with Dai-ichi Life, and similar contracts were signed between Techcombank-Manulife, Vietinbank-Aviva, LienVietPostBank-Dai-ichi Life, HDBank-Dai ichi Life. The aforementioned cooperation contracts often have 15-20 year duration.
Though contract value is not revealed, according to a source of news, banks may receive 20-35 percent of commissions from service fees if they involve in this cooperation. Looking at banks’ 2017 business results, we can see that there was great contribution from bancassurance segment.
For example, in 2017, Techcombank recorded the net profit of 3.811 trillion dong from service operation, the highest in the banking system. Techcombank said the net interest from service operation in 2017 swelled as much as 95 percent from 2016 thanks to the one-time fee related to insurance product, causing Techcombank’s revenue from trust and agent services to soar from 61 billion dong in 2016 to 1.543 trillion dong in 2017. Without considering this agent fee, Techcombank’s revenue from basic fees only increased more than 20 percent from 2016.
Techcombank is currently the bank that accounts for the largest market share in bancassurance segment. In 2017 alone, the bank’s Annual Premium Equivalent (APE) reached nearly 649 billion dong, up 44 percent from 2016 and tripling from 2015, leading Vietnam banking market.
Also in 2017, Techcombank’s revenue from payment service and cash touched 1.465 trillion dong, still accounting for the highest proportion out of the bank’s total major premium revenue. However, this proportion, as Sacombank said, will gradually give way to the rise of insurance commissions.
In September 2017, Techcombank and Manulife Vietnam Insurance Company officially announced to sign the exclusive insurance cooperation contract for 15 years. At that time, CEO of Techcombank Nguyen Le Quoc Anh expected the cooperation would help this bank earn more than 10 trillion dong premium revenue within the next five years.
Two other cases, i.e. SHB and MB, are even more impressive than Techcombank in terms of growth in insurance business. In 2017, SHB’s service operation recorded the net interest of 1.355 trillion dong, an increase of four times compared to 2016.
SHB leaders said the net interest from the bank’s service operation increased thanks to a number of items, most notably insurance. At the beginning of October 2017, Dai-ichi Life Vietnam Insurance Company and SHB signed long-term strategic contract for 15 years.
For MB, the net profit from service operation in 2017 rose 65.7 percent, reaching 1.130 trillion dong (income from service operation was 3.222 trillion dong and expenses from this operation were 2.092 trillion dong). Noticeably, MB’s revenue from insurance business in 2017 hit 1.850 trillion dong (accounting for 57.4 percent), up 7.8 times from 2016.
Apart from cooperating with partners who are insurance companies, at the beginning of 2017, MB Ageas Life Insurance Co., Ltd (MB Ageas Life) was officially was established based on the joint venture cooperation between the Belgium Ageas Insurance group, Muang Thai Life Insurance (MTL) and MB.
Six months ago, VPBank signed exclusive cooperation for 15 years with AIA, thereby providing a series of life insurance products. According to VNDirect Securities Company, the revenue from the initial support under the contract with AIA contributed nearly 900 billion in 2017.
This is one of the bases for this securities company to say that VPBank can entirely complete the plan set for 2018. The commission from bancassurance is forecasted by VNDirect to contribute an additional 1.445 trillion dong to VPBank’s non-interest income in 2018-2020.
Similarly, the product distribution of Bao Long Insurance Corporation contributed about 800 billion dong to the total revenue of SCB in 2016 and this revenue increased to trillions of dong in 2017.
Many other banks also earned hundreds of billions of dong from exclusive contracts lasting dozens of years with insurance partners.
According to SSI Research, in Vietnam, bancassurance revenue increased from one percent in 2013 to about 10-12 percent in 2017. In the first three quarters of 2017, it is estimated that about $3.2 billion original insurance, equal to seven percent of total premium of insurance sector was sold via bancassurance channel, up 66.7 percent year-on-year.
Currently, Vietnam has about 50 domestic and foreign life insurance and non-life insurance companies operating. However, potential in insurance sector in Vietnam is still very large because the life quality is increasing and the people are more aware of the importance of insurance. The reality shows that nowadays, insurance has been present in many sectors from assets (housing, transportation, warehouse, etc.) to people (death, accident, medical examination, etc.) with many forms and utilities.
Bancassurance in Vietnam is assessed to have much potential when only 0.7 percent of the population participates in life insurance. The proportion of bancassurance revenue is only six percent out of the total insurance premium, while in the world, this proportion reckons for nearly 70 percent.
With the decline of the Net Interest Income (NII), banks are forced to look at opportunities to enhance income from fees, of which, choosing bancassurance is a strategy for banks. That is also the reason why Sacombank and Dai-ichi Life Vietnam signed exclusive insurance agent contract for 20 years, the longest in insurance market in the field of bancassurance.
Sacombank estimates that the revenue from monopoly fees and commissions may bring the bank three trillion dong in the first five years, making up 15-20 percent of the service income. In the following years, this revenue will account for 25-30 percent of the total revenue from service.
Among 20 banks having revenues from service to contribute to profits, Sacombank was the only bank to record the proportion of profit from service that contributes to the total profit before excluding banking fee at more than 30 percent. In 2017, profit from service brought about 2.625 trillion dong to Sacombank, equal to 30.3 percent of the total operating income in the period.
SSI said insurance sale will contribute more and more to banks’ revenue from service. Currently, the five leading banks in this segment are Techcombank (23.1 percent), Vietinbank (10 percent), BIDV (8.8 percent), Maritime Bank (6.1 percent) and CitiBank (5.6 percent) and the market promises to have strong growth.
Despite its potential, bancassurance also has potential concerns for banks. Most noticeably are the pre-paid insurance premiums, especially one-time payment insurance, when being accounted by the bank, will cause earnings (followed by net profit) from insurance to hike. This is the future profit recorded in advance so it is somewhat higher than the reality.
Besides, there are some limitations of cross-selling. These limitations may originate from individual intentions of parties in the cooperation. While banks are busy with marketing, offering for sale to increase revenues from commissions that insurers discount, the post-sale service is not properly paid attention to because bankers are still unable to understand products and services as real insurance staff. Banks sell life insurance by confidence of customers in banks while the remaining part belongs to insurance company.
For insurance companies, direct sellers are not employees of insurance companies so complaints from customers, if available, only came to bank employees. Meanwhile, life insurance is completely different from savings products. Once customers have purchased insurance, they need to be taken cared of for a long time till the end of contract duration.
