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| Revenue from cross-selling insurance of many banks was significantly affected |
The time for huge profits is over
Not long ago, reflecting on the contribution of cross-selling insurance channels to bank profits, Mr. Pham Van Thinh, a member of the National Assembly’s Economic Committee, cited the example of banks’ 2020 data. Accordingly, Vietcombank has a pre-tax profit of VND23,050 billion, the prepaid fee for the exclusive cooperation contract to sell life insurance is VND9,200 billion; ACB has a profit of VND9,596 billion, the prepaid fee received is VND8,400 billion, excluding the agent commission on the insurance premium received following the regulations of the insurance business… Thereby, Mr. Thinh emphasized that in the period from 2018 to 2022, revenue earned from life insurance agents accounts for a very large proportion of the profits of commercial banks.
However, after some cases of customers accusing banks of being forced to buy insurance, “ambiguities” in insurance contracts causing damage to buyers…, cross-selling of insurance activities at many banks in 2023 is no longer being “the goose that lays golden eggs” like in the previous period.
Looking at the 2023 financial statements of banks, it showed that many banks witnessed a significant drop in revenue from cross-selling insurance. For example, at Techcombank, revenue from insurance cooperation in 2023 decreased by 62%, reaching just over VND billion, currently accounting for just over 6.7% of total net profit from service activities, while the figure was 21.5% in 2022.
At TPBank, revenue from consulting and selling insurance services in 2023 reached more than VND377 billion, decreasing nearly 57% compared to 2022. After the thematic inspection at Sun Life Vietnam by the Ministry Finance, in June 2023, total insurance premium revenue collected through TPBank in 2021 reached more than VND789 billion. However, the rate of cancellation and termination of insurance contracts after the consideration period (first year) of the contracts Co-issued through TPBank is 73%.
At VIB, in 2023, revenues from insurance commissions reached over VND879 billion, declining 32.5% compared to the previous year. At MB, it reached more than VND8,228 billion, reducing more than 19% compared to 2022. Although MB directly owns two insurance companies, MIC (owning 68, 37%) and MB Ageas Life (owning 61%) in both life and non-life segments, 2023 was also the first year that MB reported a decrease in revenue in this segment after many years of positive growth.
Expectations for improvement as the market is increasingly regulated
Currently, the insurance market is becoming more and more regulated and transparent, especially when many circulars and regulations on the insurance business have been issued by the Ministry of Finance. In particular, cross-selling of insurance would have many impacts from the Law on Credit Institutions (amended) passed by the National Assembly earlier this year and will take effect from July 1, 2024. In particular, the Law prohibits attaching optional insurance products to the provision of other bank products/services in any form.
According to an analysis by SSI Securities Company, in recent years, borrowers have had to pay about 3-6% more of the total loan value for an insurance contract to be able to borrow money from banks, leading revenue from cross-selling insurance activities to become an important source of revenue for banks. However, SSI said that the stricter supervision of insurance sales through banking channels has caused the percentage of revenues from insurance sales to decrease at many banks.
Similarly, a report by Yuanta Vietnam Securities Company also said that insurance distribution activities through banking channels were significantly affected and needed a long time to recover, especially the group of banks with a high proportion of revenue from cross-selling insurance in total non-interest income such as VIB, ACB…
Faced with the impacts and the fact that revenue has decreased, in their business strategies, many banks have promptly pivoted to take revenue sources from other areas to compensate for the negatively affected areas. For example, a representative of Techcombank said that revenue from service activities is still high because it continues to be led by fees collected from payments, letters of credit (L/C), and cards… so it can compensate for the difficulties in the corporate bond and insurance markets. At VIB, total operating income in 2023 increased by 24.7% over the same period, mainly due to increased non-interest income thanks to net income from foreign currency and bond transactions, and significant revenue from recovering and handling bad debt…
However, experts assessed that revenue from cross-selling insurance at banks still had many opportunities to improve. Accordingly, along with efforts to bring transparency to the market from management agencies, banks need to be public and transparent in service provision activities; insurance businesses also need to proactively strengthen supervision, and employee training, and offer appropriate insurance services… so that people can improve their trust and knowledge of insurance services.