Orphan contracts cause issues in bancassurance

Hanh Lien, a bancassurance client in Ha Noi, said that she had not been consulted by any insurance agent so far, and only received periodic messages asking for premium payments.

“If you want to buy insurance, buy it directly from an insurance agent. Do not buy through banks as banks lack insurance expertise. I bought bancassurance once and ended up being not consulted by anyone,” she said.

Lien’s case is not uncommon and is called an “orphan insurance contract,” indicating that insurance clients are left without any support from their agents.

The situation is worse when banks end their partnership with insurance firms, adding uncertainty to bancassurance contracts.

Can Van Luc, chief economist at BIDV, underscored bank clerks’ inexperience in insurance as the main cause for low-quality bancassurance, leading to client dissatisfaction.

The economist believes that a sound legal framework for bancassurance is needed to promote its growth and safeguard clients.

Nguyen Thanh Ha, chairman of the SB Law Firm, shares this view. He said some regulations on bancassurance had been developed but were still in their infancy.

Notably, it is insurance agents, which are actually bank clerks, but not banks themselves that are involved in the lawsuit as a related party once disputes arise.

"Clients buy bancassurance on grounds of banks' reputation since they believe the banks will be held responsible once disputes arise. Unfortunately, that is not the case, putting clients at a disadvantage. If regulations on bancassurance are not refined, do you think insurance consultants at banks would improve their performance?" he said.

Thai Quynh Mai Dung, a member of the National Assembly, called for stringent regulations to end "orphan insurance contracts."

Specifically, she suggested insurance laws be modified in a way that prohibits acts of deliberately refusing to pay insurance benefits or delaying such payments without valid reasons.

She also called on insurance firms to closely supervise their agents' operation, ensuring that clients have their rights fully observed.

According to BIDV's Research and Training Institute, the penetration of bancassurance in the total life insurance premiums increased significantly from 17 per cent by late-2019 to 30 per cent in 2021.

Bancassurance is beneficial to both banks and insurance firms.

For banks, it is a source of income that allows banks to diversify their operation and reduce credit risks. Insurance firms, on the other hand, can turn bank distribution systems to their advantage and benefit from the banks' client base.