Vietnam Law & Legal Forum Magazine is your gateway to the law of Vietnam

Official Gazette

Sunday, January 26, 2020

Taking out a policy on the nation’s insurance industry in the post-WTO era

Updated: 13:57’ - 25/12/2006

Vu Nhu Thang
BSc in Economics, LL.M

The most significant bilateral commitments made by Vietnam in opening its insurance services market are scheduled in the Bilateral Trade Agreement between the United States and Vietnam (BTA), which was concluded in 2001. Since then, Vietnam’s insurance sector has recorded robust growth. The total insurance premiums written amounted to 2% of GDP in 2005, which helped increase domestic savings, and channel them to investment. Thirty-two insurance companies participated in the domestic market by 2005. The number of foreign insurers doubled compared with that of 2000. In terms of ownership, there are 12 wholly foreign-owned companies, six joint ventures, 11 domestic joint stock companies, and three state-owned insurers. Among foreign insurers, six are from the United States and five from the European Community (EU).

The insurance sector has played an increasingly important role in economic growth. In terms of indemnification, insurance claims paid in 2005 rose remarkably to VND 4.4 trillion, 5 times claims paid in 2000. This has not only assured the financial stability of individuals, families and organizations, but also enabled business facilitation. The amount of capital investment in the economy had increased 10 times by 2005 compared to 1999. This was an important source for securities investment and investment projects. Foreign insurers climbed gradually from 35% of total capital investment from the insurance sector in 2003 to 47% in 2005.

The BTA has served as an important step towards membership in the World Trade Organization (WTO) and continuance of economic reform. Moreover, a significant implication of the BTA is that Vietnam’s commitments are likely to be regarded by other countries as grounds for both bilateral and multilateral negotiations. The road towards WTO membership was begun with observatory status in the General Agreement on Tariffs and Trade in June 1994. To join WTO has been a strategic measure in Vietnam’s economic integration. Vietnam was approved to become the 150th member of WTO by the General Council on November 7, 2006. As part of its accession negotiation, Vietnam submitted a schedule of commitments on liberalizing domestic services, including insurance. This schedule constitutes an integral part of Vietnam’s accession agreement.

Table 1 summarizes the commitments of two schedules in insurance services, and shows the liberalization from 2001 until 2011, the date by which all commitments on opening insurance services must be fully implemented.

 Scope of business

Similar to the BTA, market access in WTO commitments for cross-border supply of insurance services is applicable to certain insurance services, namely insurance services in international transportation; reinsurance services; insurance brokerage and reinsurance brokerage services; and consultancy, claim settlement and risk assessment services. Foreign insurers are permitted to engage in cross-border transactions with foreign invested companies or foreigners working in Vietnam. Vietnam has agreed to ensure no limitations on market access with respect to Mode 2.

Statutory insurance services, including civil liability of vehicle owners, insurance in construction and installation, insurance for oil and gas projects, and insurance for projects and construction of high danger to public security and environment, are permitted to be supplied by wholly foreign-owned companies from 2008. While there is no commitment on the supply of insurance agent services under Mode 3 in the BTA, these services have been fully liberalized at the multilateral level.

With regard to reinsurance, Vietnam committed in the BTA that the rate of 20% liability to be ceded to the Vietnam National Reinsurance Company will be postponed from 2006. However, under multilateral commitments, the supply of reinsurance services under Mode 3 has been subject to no restrictions on market access.


In terms of equity participation and commercial presence in Vietnam, the BTA commitments allow U.S. companies to set up joint ventures with Vietnamese partners with U.S. equity participation less than 50% from 2004, and up to 100% by 2006. At the multilateral level, foreign insurers are permitted to establish either joint ventures or wholly foreign owned companies from the date of accession. The form of branches of foreign non-life insurers will be allowed by 2011 in accordance with prudential regulations.

Movement of natural persons

At the multilateral level, limitations on market access in supplying insurance services under Mode 4 are consistent with horizontal commitments, which apply to all services, including insurance services, provided through the presence of foreign natural persons in Vietnam. Accordingly, Vietnam inscribes no commitments on market access, except for measures relating to entry and temporary stay of five categories of natural persons, namely intra-corporate transferees, other personnel, service sales persons, persons responsible for setting up a commercial presence, and contractual service suppliers.

National treatment

Full national treatment is granted to Modes 1, 2 and 3 at the multilateral level. This commitment is more liberal than that of the BTA, where national treatment is not guaranteed for the provision of certain “mandatory” insurance services under Mode 3. With respect to Mode 4, Vietnam undertakes commitments with limitations, whereby only five categories of natural persons will enjoy full national treatment when supplying insurance services in Vietnam.

In general, it is observable that Vietnam’s commitments on liberalization of insurance services in WTO are more liberal than BTA commitments and make Vietnam’s insurance market more open to competition by foreign insurances services and service suppliers.

Opportunities and challenges

Trade liberalization in insurance services under the WTO framework will make Vietnam’s insurance services sector more efficient and stable through higher competitiveness, better market access, and positive spillover effect on the financial market.

Competition that comes along with existing and newly arriving insurance service suppliers will provide both incentive to and pressure on domestic insurers to increase corporate governance and efficiency. The participation of foreign insurers could facilitate transfer of technological and managerial know-how. Domestic insurers may have an incentive to adopt international standards and prudential practices so that they can adjust to competition, as well as standardize and rationally expand operations by offering new financial services. Strengths of domestic insurers include broad customer networks and prestige in supplying insurance services in Vietnam. In addition, they enjoy good understanding of customer habits and culture and a wide network of local branches. Diversity of high-quality insurance services supplied by foreign insurance companies operated in Vietnam will force domestic insurers to improve their service quality and to avoid losing their customers by raising financial strength and applying information technology. Accordingly, liberalization of the insurance sector will probably improve service quality and variety of services to meet different needs of customers. Areas for new insurance products might include credit insurance for export and import, and liability insurance services, such as professional liability. As a result, consumers will enjoy the benefits of a fully-fledged domestic insurance market.

The second positive effect of liberalization would be to help domestic insurers extend their business to foreign markets. By enjoying the most-favored-nation treatment and commitments of other WTO members, Vietnam’s insurance services and service suppliers will be subject to less restrictive and discriminatory measures. Domestic insurers, therefore, are expected to expand their markets of business activities to other WTO members. However, one deficiency is that domestic insurers have engaged in the provision of limited insurance services internationally, such as insurance for certain oil projects invested abroad by domestic oil companies, or reinsurance services and agency for loss adjustment. Moreover, although there are reinsurance services supplied by local insurers to foreign insurers abroad, this activity is very insignificant, and accounted for less than US$ 10 million in 2005. Accordingly, as long as most domestic insurers are focusing on the domestic market, the expansion of their activities to other markets is likely to be limited. It is arguable that greater market access to foreign territory would be a long-term rather than short-term and medium-term benefit.

Third, liberalization of insurance services may have a positive spillover effect on securities market development through mobilization of capital for economic development. Because of increasing demand for capital from both the government and enterprises, available funds in the insurance sector will be an important source for the securities market’s operations and development. Insurers could play a critical role in channeling savings to domestic investments as well as enhancing the efficiency of the financial system by reducing transaction costs, increasing liquidity, and facilitating economies of scale in investment.

The recent robust growth in the private sector and the expansion of international trade represent a need for qualified and diversified insurance services. This need has been significantly intensified since entrepreneurs have been more willing to create and expand their business ventures if they can secure adequate insurance protection. According to a study of the Institute of Financial Science (2004), most manufacturing enterprises observe foreign participation in the domestic insurance market as a positive factor for enlarging their choice of insurance services. In addition, more enterprises and business activities, both domestic and foreign, will be developed because of better investment climate for investors. This trend would ultimately bring about a higher demand for insurance services. To some extent, insurance contracts could be considered as a guarantee for the quality of products exported to other countries. Therefore, it can be argued that further liberalization of the insurance sector would be a response to such a need.

On the supply side, the increasing development of Vietnam’s insurance market has contributed to the expansion of foreign trade and the international community’s confidence in Vietnam’s renewal and integration. For example, the trade agreement with the EU shows that trade liberalization in insurance services and foreign trade are closely interrelated. Moreover, the increasing presence of foreign insurers in the domestic insurance market, including the establishment and operations of insurance companies in Vietnam, would ensure foreign investors’ needs for insurance services are satisfied, and make them more confident of Vietnam’s better investment environment. Because foreign investors who conduct investment business in Vietnam may wish to be insured by foreign insurers operating in Vietnam, it is necessary to increase foreign participation in Vietnam’s insurance market. It becomes clear that foreign participation in Vietnam’s insurance market, on the one hand, and further facilitation of external trade and investment, on the other, work together and support each other.

Fierce competition

Weaknesses of domestic insurers include limited financial capacity compared to foreign companies; weak technological infrastructure and management system; lack of expertise and training; lack of customer orientation and weak focus on service quality. Other weaknesses for development of domestic insurers could include a less-developed securities market and inexperienced individual customers. But Vietnam’s commitments in WTO accession make the domestic insurance market relatively liberal. Implementation of commitments requires Vietnam to open its insurance sector to foreign competition, and domestic insurers might consequently lose their markets. Foreign insurers currently overwhelm the domestic life insurance market. As a majority of the non-life insurance market was still held by domestic insurers, the total market share of the domestic insurer was stable at 60% during 2003-2005. This trend, however, might be changed in the future.

Potentially fierce competition may cause the failure of some insurers, especially domestic, and then affect the efficiency and stability of the insurance sector. For the benefit of consumers and fair competition, any under-performing company, should be left behind and closed. It would require insurers to consolidate their financial capacity and heighten competitiveness to develop. From the governmental standpoint, this competition should be properly addressed by better regulation and supervision to assure the financial health of all local insurers, and then improve their credibility, rather than simply prohibiting competition.

Besides fierce competition, market access would give rise to a cherry-picking problem, whereby foreign insurers will service selectively the market, and only set up and expand their activities to profitable services and geographical areas. In response to this argument, it can be said that those less profitable services, if not be well served in the past, could, nevertheless, not be expected more with foreign participation in the domestic market. Skipper (1997) commented that there is no perfect national insurance market in the world. Second, cherry-picking seems to be less problematic because government may follow a policy to promote insurance services on a non-discriminatory basis, rather than prohibition of trade.

Increasing regulatory transparency

One of the fundamental obligations of the General Agreement on Trade in Services (GATS) is Article III on regulatory transparency. Transparency in policy making and application of laws is a prerequisite for Vietnam to comply with WTO agreements. Vietnam is obliged to make public all laws, regulations and judgments relating to trade issues as well as to increase transparency of its foreign trade system and ensure the uniformity of trade policies and laws applied throughout the country.

Besides regulatory transparency, Article XVII of GATS on national treatment indicates an assurance of competitive conditions among all companies regardless of their ownership or origin. Consequently, equal treatment between domestic and foreign insurers in the provision of services will put domestic firms under pressure to restructure and innovate in corporate governance in order to enhance their efficiency. This regulatory equity also puts a restraint on administrative intervention in the domestic insurance sector. In other words, it would eliminate regulatory discretion and arbitrariness. These commitments will be an important factor to ensure a fair and equal investment environment. Arguably, this endeavour would enhance the governmental reputation in the eyes of both the international community and investors.

Liberalization of services in general, and insurance services in particular, requires regulations, including increasing the strength and quality of certain regulations, and introducing new rules that facilitate the transition to a more open system. Moreover, the theory also suggests that the rationale for insurance regulations is to address consumer protection and systemic stability. On the one hand, liberalization will put pressure on domestic regulators and supervisors to ensure consumer protection with regards to services supplied not only by insurers headquartered in Vietnam, but also other foreign insurers. On the other hand, national treatment probably makes it difficult for regulators to protect domestic insurers. Supervisory authority needs to ensure that strong competition from foreign insurance services and service suppliers does not seriously affect the solvency of domestic insurers nor undermine public confidence in the insurance market. It means that a more liberal insurance sector would require a more complex and effective regulatory and supervisory framework to ensure better consumer protection. Under the Annex on Financial Services of GATS, government is not limited in introducing prudential measures for consumer protection and systemic concerns. Accordingly, prudential regulation and supervision of the insurance sector must be strengthened to protect consumer interests. It may take time to enhance the regulatory and supervisory framework, as well as capabilities of regulators and supervisors.

Case study: Japan, the EU and China

Japan made commitments on liberalizing its insurance services market in the Second Protocol (1995), whereby in Mode 3, foreign life insurers were required to retain in Yen currency an amount corresponding to their technical and claims reserves for Yen-dominated insurance policies until June 1996. To implement this commitment, in domestic law, the requirement of Yen currency has been abolished since April 1, 1996. The WTO Secretariat reported that criteria for granting licenses and the requirement of solvency margin are the same for Japanese and foreign insurers. In parallel with ensuring national treatment between domestic and foreign insurers, Japan also amended certain enforcement regulations of the insurance law to introduce more stringent solvency margin standards and disclosure requirements.

According to the WTO Secretariat, while undertaking commitments on liberalization of insurance services, the EU introduced new legislation to increase solvency requirements of life and non-life insurers, especially in the areas of maritime, aviation and general liability business. 

China undertakes full commitments on national treatment with regard to supply of insurance services in Modes 1, 2, and 3, except for supply of statutory insurance services and complete removal of 20% compulsory cession by 2006. China has revised laws and promulgated regulations and rules on implementation of these commitments. License is required to supply insurance services in China, and foreign-funded insurers must satisfy several requirements, including solvency standards and other prudential measures. Specifically, foreign-funded insurers are not required to cede to the China Reinsurance Corporation a portion of the primary risks for non-life, personal accident, and health insurance under the 2002 revised China Insurance Law. The level of competition becomes more intense due to effects of implementation of WTO commitments on China’s insurance services, including abolition of discriminatory measures which violate Article XVII of GATS. Accordingly, supervision has been strengthened, including monitoring minimum solvency requirements, regulations on allocation of technical provisions, and raising capitalization.

In sum, the application of commitments needs to be incorporated into domestic legislation and regulations. There is evidence that enhancement of prudential regulations is considered a crucial measure when implementing commitments in insurance services, including national treatment.


Vietnam’s insurance market is relatively open to foreign participation under its commitments on WTO accession. While regulatory equity for all insurance services and service suppliers, regardless of origin, must be accorded in compliance with these commitments, more complex prudential regulations should be enhanced. Prudential regulations should be centered on ensuring the financial health of insurers so that they are able to fulfill their obligations towards consumers, and then preserve the stability of the domestic insurance market.-


- Kokko, Ari. Growth and reform since the Eighth Party Congress. In Duncan McCargo, ed., Rethinking Vietnam, Routledge Curzon, London and New York, 2004.

- Chen, Chien-Hsun and Hui-Tzu Shih. Banking and Insurance in the New China: Competition and the Challenge of Accession to the WTO. Edward Elgar: Massachusetts, 2004.

- Gamberale, Carlo and Aaditya Mattoo. Domestic Regulations and Liberalization of Trade in Services. In Development, Trade and the WTO - A Handbook edited by Hoekman, Bernard; Aaditya Mattoo and Philip English. Washington, D.C.: World Bank, 2002.

- Institute of Financial Science. Assessment on the impacts of opening market for Vietnam insurance sector and some suggestions to develop insurance market in line with global integration process. Hanoi, 2004.

- Krajewski, Markus. National Regulation and Trade Liberalization in Services: The Legal Impact of the General Agreement on Trade in Services (GATS) on National Regulatory Autonomy. The Hague/London/New York: Kluwer Law International, 2003.

- Ministry of Finance. Vietnam Insurance Market 2004, 2005.

- Ministry of Planning and Investment – UNDP. Studies on the Competitiveness and Impact of Liberalization in Financial Services: The Case of Insurance Services. Hanoi, 2006.

- Schedules of Specific Commitments – Japan, China; Trade Policy Review – Japan, EU, China. <>

- Skipper, Harold D. Jr. Foreign Insurers in Emerging Markets: Issues and Concern. International Insurance Foundation, Occasional Paper No. 1, Washington, D.C., 1997.

- International Trade in Insurance. In  Harmonization versus Competition: International Financial Markets edited by Claude E. Barfield. Washington, D.C.: AEI Press, 1996.

- Thai Ba Can and Tran Nguyen Nam. Phat trien Thi truong Dich vu Tai chinh Vietnam trong Boi canh Hoi nhap. Hoc vien Tai chinh, 2004.

- Vietnam–Schedule of Specific Commitments (27 October 2006).

Table 1. Vietnam’s commitments in insurance services: past, present and future


Mode of supply


BTA 2001

WTO commitments 2006

Phased in 2011

(a) Life insurance, excl. health insurance services

(b) Non life insurance services

(c) Re-insurance and retrocession

(d) Insurance intermediation (such as brokerage and agency)

(e) Services auxiliary to insurance

Mode 1


None for insurance services provided to foreign-invested enterprises, foreigners working in Vietnam; reinsurance services; insurance services in international transportation; insurance brokerage and reinsurance brokerage services; advisory, claim settlement and risk assessment services.

Similar to Vietnam BTA 2001









Mode 2












Mode 3


None, except:

Branches depending upon the Insurance Business Law;


Joint ventures with US capital contributions less than 50% by 2004; and up to 100% by 2006;

Unbound for insurance agent services;

Statutory insurance business supplied by joint ventures with US capital contributions by 2004; and by companies with 100% U.S. invested capital by 2006;

Abolition of compulsory cession of 20% of the contracted liabilities to the Vietnam Reinsurance Corporation by 2006

None, except:






Companies with 100% foreign invested capital not permitted to engage in statutory insurance business.


By 2011, branches of non-life insurers being permitted subject to prudential regulations.

By 2008, companies with 100% foreign invested capital engaging in statutory insurance business.




None except for statutory insurance business




Mode 4


Unbound, except as indicated in the horizontal commitments

Unbound, except as indicated in horizontal commitments.





Unbound, except as indicated in the horizontal commitments

Unbound, except as indicated in horizontal commitments




Large market share of non-life domestic companies;

Consumers’ network

Local branches of domestic insurers


Shortage of qualified insurance products;

Lack of managerial skills;

Less developed securities market;

Lack of prudential regulation;

Under-capitalized domestic companies;

Inexperienced individual consumers.



Better competitiveness;

Improving service quality;

Positive spillover effect on financial system;

Facilitating external trade and investment;

Limited access to markets of other WTO Members.

Reducing market share of domestic insurance companies;

Fierce competition;

Regulatory transparency, equity, complexity.


Send Us Your Comments:

See also:


Vietnam Law & Legal Forum