In July 2020, when she turned 18, Ho Ngoc Anh Thu did not intend to buy insurance. She went to the Saigon Joint Stock Commercial Bank (SCB) to make her first ever savings account.
After high school she had dropped out to help her mother, a vendor, sell rice cakes and saved VND150 million (US$6,350).
The bank staff advised her to deposit VND100 million in a traditional savings account and VND50 million in "long-term investments with high returns" And if she agreed, she would receive a gift in the form of health insurance, she was told.
A year later she received a text message saying she owed VND50 million toward her life insurance premium.
It was then that she discovered it was a life insurance policy she had been duped into buying.
For a girl her age an annual premium of VND50 million is an overwhelming burden.
Many other people are also in a similar plight.
In October 2022 the first complaints were made against SCB, and soon the trickle became a torrent as numerous complaints were made to the Ministry of Public Security.
The complainants, mostly seniors, denounced the "Tam An Dau Tu" insurance policy with premiums of up to VND100 million a year distributed by Manulife through banks.
It is an investment-linked insurance policy (ILP), a product that has become popular in recent years.
Nhu Huyen, who was named an outstanding insurance salesperson for two years in a row by a bank in Ho Chi Minh City, tells VnExpress: "When they found out they had bought insurance, not just deposited in a savings account, customers would become confused and agitated. I remember their eyes. The gentler they were, the more guilty I felt."
As she became increasingly unhappy, Huyen decided to quit her job.
Looking back now, she calls those two years a period of "earning a lot of money but not being happy."
Every day she would sell three or four insurance policies with annual premiums of VND50-100 million.
"[It was] so easy. But now, when I work as a traditional insurance consultant, I find it hard to sell even one policy a month."
Banks have the upper hand
2015-2021 was the golden age of bancassurance, an arrangement for an insurance company to sell its products through a bank.
The bank is also entitled to a commission on the premium paid by a customer in the first year.
In the last few years, to smoothen the process of getting bank loans, customers have had to buy life insurance.
Many paid the premium for the first year and stopped with that.
The State Bank of Vietnam has repeatedly warned banks not to make buying life insurance a precondition for getting loans, but in vain.
Some banks pulled the wool over customers’ eyes by calling life insurance "smart savings" and "investment savings" with incentives.
Bancassurance was more successful than insurance companies had envisioned.
One top insurance executive recalls: "At the time I didn’t know if bancassurance would sell, but this was a marriage where the bank had the upper hand." He was referring to the fact that banks had nothing to lose even if people stopped paying premiums after the first year.
The general director of an insurance company further explained that the agreements between the two sides in bancassurance were very simple.
They only agreed on the number of years of cooperation, sales and expected number of insurance buyers.
Most agreements in the 2015-21 period did not allude to customer retention rate, the criterion considered the most important to assess the quality of the sales and consulting processes.
A senior executive at a top 10 insurance company told VnExpress that he repeatedly sought a tie-up with a bank, but was rebuffed when he asked for incorporating a customer retention rate in the bancassurance contract.
Many contracts have been terminated prematurely because banks found other insurers willing to pay more, and this competition has pushed upfront fees higher, he said.
"The higher the upfront fees, the more insurance policies a bank has to sell."
Bancassurance has grown at an extraordinary pace in the last seven years.
In 2016 it only accounted for 10% of new sales for the life insurance industry.
But by 2022 it had caught up with the traditional channel.
The growth in life insurance penetration since the introduction of bancassurance has been equivalent to 20 years’ growth earlier.
Chung Ba Phuong, chairman of TC Advisors Company and former insurance director at Techcombank, attributes the success of bancassurance to the power banks wield over customers and not because people "see good policies and so buy them."
The high rate of cancelations testifies to this.
A recent inspection of four insurance companies by the Ministry of Finance found that at least 30% of customers buying insurance through banks only paid the first year’s premium.
At some banks, the rate was 70%.
Overexploitation
During the two years of Covid, savings interest rates were at a record low.
Instead of depositing money in banks at 6% interest, people turned to other investment channels, especially securities.
The low interest rate environment actually made investment-linked insurance popular for a while.
The deputy director of a bank’s retail division says he found that when his staff introduced high-interest products, "customers liked them very much."
"Therefore, this product [ILP] was strongly promoted by insurers and banks though the sales process had many loopholes."
The essence of life insurance is to provide financial protection in the event of death or disability. But over time products morphed from purely "protecting against risks" into "protecting and saving" and eventually into "protecting and investing."
The ILP Ho Ngoc Anh Thu and many other people were persuaded to buy offers protection and investment but they do not clearly know about the two components.
In theory, sellers are supposed to advise customers that risk protection is the important component in insurance, and leave the investment part to the latter’s discretion, only advising them about it if sought.
But in reality, ILP sellers would only say vaguely that customers stand to get high returns and also protection against health risks.
It became a common complaint from buyers that they were misled into believing savings deposits were bundled with insurance.
Others said they thought the bank would invest their money and insurance was a by-product.
ILP premium payments skyrocketed from VND3.8 trillion in 2019 to nearly VND22 trillion in 2022.
The Ministry of Finance, while admitting that ILP is a complicated product, has hauled up insurance companies for failing to monitor the quality of bancassurance consultancy.
According to the general manager of a private bank, ILP requires deep understanding on the part of buyers and proper consultation.
The lack of correct advice meant buyers did not clearly understand ILPs, which led to lawsuits later, he says.
Tran Nguyen Dan, a lecturer at the University of Economics in HCMC who regularly trains people in insurance, says ILP is a superior product compared to traditional ones but also a "double-edged sword."
In the U.S., ILPs came into being long after the insurance market did, meaning people understood them very well, he points out.
Insurers provide training for selling this complex product, but many agents are not interested in it.
In foreign countries, for six months a trainee agent is accompanied by a supervisor and does not receive the full commission.
In Vietnam, a person with similar experience could be a manager who trains others despite not being familiar with ILPs.
During consultations on insurance contracts, Dan says he found agents asking silly questions and their customers knowing almost nothing about the product.
Many insurers only focus on training agents in how to sell products, something that Minister of Finance Ho Duc Phuc acknowledged last month when talking to the media.
Even outstanding bancassurance sellers like Nhu Huyen admit to have received little training, which lasts only one or two days.
The bank had some professional training sessions, but according to Huyen, they did not go into depth about the products it was selling.
Huyen says she merely memorized the product features and resorted to exaggerating their benefits when talking to potential buyers.
According to Dan, the insurance industry started "running while only capable of crawling," and so agents without any knowledge sell complex products.
Crisis is opportunity for correction
The complaints that started at SCB and partner Manulife quickly spread to other banks and insurance companies.
"Everywhere, bewildered customers called to ask for cancelation of contracts," the general director of a leading insurance company says about the situation a few months ago.
Premium incomes declined in the first half of this year for the first time after a long period of double-digit growth.
The insurance industry, according to the association’s deputy general secretary, is facing its "biggest crisis ever."
The ministry is drafting new regulations such as requiring insurance agents to record their conversation with prospective clients and separating the insurance and banking counters at banks.
But experts fear these are not enough, and say what is required is a mechanism to address the deep-rooted problems in the system.
Dan suggests having a contract retention threshold the same way the central bank does for bad debts.
Until 2016 the Ministry of Finance’s insurance management and supervision department used to publicize the number of contract cancellations within the first three years of buying a policy.
But since 2016, when the bancassurance market exploded, this number has not been revealed.
Authorities do not haul up fast-growing businesses with low customer retention rates.
According to experts, a quality-focused approach is required to enable healthy development of the insurance industry.
Businesses should stop pampering their sales teams, they say.
Dan wants insurance agents to take exams before being allowed to sell complex products like ILP, and retested every year.
Since the beginning of this year the Ministry of Finance has mandated stricter norms for agents selling ILPs.
The rate of agents passing ILP exams has halved from last year, according to the director of an insurance company.
Many insurance executives say blacklisting agents involved in wrongdoing is not enough of a deterrent and a proper sanctioning mechanism is needed.
Besides, a common arbitration mechanism is needed in bancassurance so that banks and insurance firms are united when it comes to penalizing employees and do not seek to protect their own, he adds.
The deputy general director of a bank says customers should improve their understanding of commercial deals or at the least jettison their habit of signing whatever is put in front of them.
They need to carefully read contracts, and should not completely trust anyone, even if the consultant is a relative, he says.
The crisis has brought some positive changes.
The general director of a top three insurance company acknowledges that it has completely changed the relationship between banks and insurance companies.
They agree to correct past mistakes, especially in terms of sales quality, and some bancassurance contracts stipulate customer retention rates.
Private bank VIB, which recently renewed its bancassurance contract with Prudential, is one of those agreeing to a minimum retention rate.
The two sides have also set up a customer conduct standards council to deter employees from wrongdoing.
Prudential general director Phuong Tien Minh says this starts a new chapter in the bancassurance market.
"We accept a short-term decline to develop the long-term market."
Quynh Trang
