Small companies can hardly grow and that even lead to many consequences.
The fierce competition on the non-life insurance market has raised concerns that the current number of 30 non-life insurance companies is too many for the market capacity. That could lead to consequences for management agencies, insurance companies and customers.
For example, there may be unfair competition, lack of control in agents’ operation, lack of customer care, neglected compensation activities, difficulty in recruiting high-level personnel and qualified managers, etc.
Leader of an insurance company said that it is necessary to “brake” the granting of new establishment of non-life insurance companies, or only permit the establishment of strong institutions, especially in terms of financial resources.
“Although the markets of Japan, South Korea, and China are hundreds of times bigger than Vietnam, the number of insurance companies is smaller. Despite having the same number of non-life insurance companies like Vietnam, Japan has a total annual revenue of hundreds of billions of US dollars, while this number in Vietnam is only about 1.5 billion US dollars. Most notably, most non-life insurance companies of Vietnam have small capital and weak technology,” said the above-mentioned leader.
According to Do Hong Son, director of Vietnam Insurance Consulting Service Joint Stock Company, in order to maintain the apparatus of a unit dealing with risks in assets and people such as non-life insurance, the revenue of the business must reach about one to 1.5 trillion dong.
“With the current revenue of the non-life insurance market, the having 10 to 15 companies is reasonable, of which three of them should generate more than five trillion dong of revenue, five of them should have revenue of over three trillion dong, and the rest must have revenue of more than one trillion dong,” said Son. He added that if the revenue is less than one trillion dong, the cost of running the business is insufficient. Certainly, a company with a small revenue may still be profitable and ensure operational safety, but it will be difficult to develop in the long run.
“Insurance is a specific industry which collects prepaid money. The newly established companies will also be profitable if they can collect premiums and compensation has not incurred. However, after six to seven years of operations, the number of companies at the risk of loss and inefficient operation will increase, because many companies compete for one “piece of cake”. In fact, in some similar markets to Vietnam, very few insurance companies with revenue of less than one trillion dong operates effectively, Son emphasized.
In the US market, many small insurance companies still operate normally mainly thanks to the use of electronic applications, especially they do not run the compensation assessment system. These companies use independent claim assessment and do not need to open many offices, thus they can reduce operating costs.
In Vietnam, most insurance companies have less than one trillion dong of charter capital as well as revenue. Under the current regulations, the minimum charter capital of these companies shall be 300 billion dong. The charter capital of most newly-established companies is just enough to meet the requirement.
According to leader of another insurance company, a “strong” branch of a large insurer has high revenue than a small company.
For a market with many insurance companies, management agencies will encounter difficulties in control, small companies can hardly compete and gradually operate less effectively, etc. Therefore, in parallel with restricting the establishment of new insurance companies, the management agencies should improve the condition of legal capital.
For life insurance market, the number of companies is currently 17, and the lowest charter capital is above one trillion dong. That is considered as a commitment of responsibility to customers, a financial fulcrum for customers against risks.
