How insurance policies become banks' golden egg

At the end of 2017, Vietnamese lender Sacombank and Japanese insurer Dai-ichi Life signed an exclusive bancassurance deal with a record-long duration of up to 20 years. Bancassurance is an arrangement between a bank and an insurance company through which the insurer can sell its products to the bank's customers.

Since then many lenders in Vietnam have signed exclusive deals with insurers to sell their products through such a business arrangement. The list of major partnerships include Techcombank and Manulife, VPBAnk and AIA Vietnam, ACB and Sun Life Vietnam, MSB and Prudential, Vietcombank and FWD and SHB and Dai-ichi Vietnam.

The bancassurance arrangement has been growing in Vietnam as it is a win-win for both lenders and insurers.

Insurers can approach a large customer base at banks, while banks take advantage of insurance policies to urge their customers to make deposits or acquire loans. Most banks task their employees with selling these policies to customers under the supervision and quality control of the insurers.

In the first half last year, revenues from bancassurance accounted for 41% of total revenues from new insurance contracts. The ratio is forecast to reach 50% soon, which means banks will overcome insurance companies’ salespeople as the main revenue contributor for insurers.

Banks, in turn, gain big from the commission of successful sales. In fact, profits from bancassurance rank second behind lending for many lenders.

Lender MB is leading the sector in terms of bancassurance revenues, even though it does not have an exclusive deal with any insurer. The bank is the majority shareholder in two insurers, MIC and MB Ageas Life, which cover both life and non-life insurance.

Last year, MB recorded over VND10 trillion from insurance revenue, up 20% year-on-year, and nearly double from 2020. Insurance accounted for 70% of MB’s revenue from services.

Private lender VPBank posted over VND3.3 trillion from insurance last year, up 40% from 2021, accounting for 30% of revenue from services.

Techcombank saw revenue from insurance rising 12.4% to VND1.75 trillion last year.

HDBank did not release its insurance revenue for all of last year, but in the first six months it saw the figure double year-on-year to VND1 trillion.

Analysts of Rong Viet Securities said that HDBank’s revenue came from selling products of Dai-ichi Life and FWD. They added that if the lender is able to sign an exclusive deal with an insurer, the value of the deal could be equal to that of big private and state-owned lenders.

Among state-owned banks, Vietcombank’s exclusive partnership with FWD for 15 years is worth $400 million, the biggest value in bancassurance deals in Vietnam to date.

Vietcombank leaders told a general meeting in 2021 that bancassurance brought the lender nearly VND3 trillion that year.

However, as banks make more money from bancassurance, issues with customers are also rising.

With high revenues comes big pressure for bank employees to meet their sales targets, and many bank customers have been complaining that they are forced to buy insurance policies when applying for loans.

"This is not compulsory, but if you buy an insurance policy your chances of getting the loan will be greater and it will be easier for me to convince my boss," a bank employee told a customer who was applying for a loan last November.

The employee said that for a VND2 billion loan, the customer should buy an insurance policy of VND60 million.

To encourage employees to sell more insurance policies, banks are not hesitant in giving out big bonuses.

MB, for example, spent over VND1.8 trillion in commissions for insurance sales last year. VPBank spent VND1 trillion.

The Ministry of Finance repeatedly gave warnings about this trend. It said that many bank employees force customers to buy insurance policies without giving them sufficient information, making them confused between making deposits and buying policies.

This violates the "volunteer" principle which is stated in legal documents related to the insurance business, it added.