Understanding regulations on new business insurance law

The definitions of managerial-level and controlling personnel are available in Articles 80.1, 80.2 and 80.3 of the new law (LIB).

In particular, managerial-level personnel at the insurance enterprises and reinsurance enterprises refer to chairperson and members of the board of directors, or chairperson and members of the board of members. It also refers to director or general director, deputy director or deputy general director, and legal representatives, as well as chief accountant, branch director, chief of representative office, heads of professional departments, and equivalent titles under the company’s charter.

As for foreign branches in Vietnam, managerial-level personnel consist of director, deputy director, chief accountant, heads of professional departments, and equivalent titles under the regulations on organisation and operation of foreign branches in Vietnam.

Controlling personnel at the insurance/reinsurance enterprises, and foreign branches in Vietnam (collectively known as “insurers”) include head of the controlling committee or a controller, risk head, compliance head, internal audit head, and appointed actuary, who all have legal independence in professional expertise.

Regarding one of the principles for holding position pursuant to Article 82, it requires that appointed actuary, risk head, and compliance head are not permitted to concurrently take on managerial-level positions at the same insurer, and to concurrently work for other insurers.

With reference to Article 32 of the second draft detailing implementation of a number of articles of the LIB, it is understandable that if the appointed actuary has infringed the principle for holding the position under Article 82, the Ministry of Finance will consider and issue a decision on temporary suspension of performance of rights and obligations of such an actuary, and then a decision on suspension in the case of failure of compliance with the law within the time limit.

Independence and information

When it comes to the situation of financial constraint, budget, or headcount limit, or a shortage of qualified personnel, the insurers may have to come up with a solution of appointment of a controlling person concurrently taking on two controlling positions.

If this is the case, it may be asked what the term “legal independence in professional expertise” means in controlling personnel under Article 80.3; and if there is no prohibition by the LIB, whether or not a controlling person is permitted to concurrently take on the controlling positions at an insurer.

The two questions take into account three lines of defence model as stipulated in Circular No.70/2022/TT-BTC from November 2022 on risk management, internal control, and internal audit of the insurance/reinsurance enterprises and branches of foreign non-life insurance and reinsurance enterprises.

Such questions seem to go unanswered in the applicable regulations. Therefore, it is suggested that the upcoming guidance shall provide clear answers to ensure correct understanding and full compliance of the insurers.

In addition, Article 81 of the law provides the conditions applicable to managerial-level and controlling personnel. As a result, the onus is on the insurers to take timely and proper actions of reviewing the managerial-level and controlling personnel’s qualifications, credentials, and capacity, and also the existing concurrence agreements for the conformity with the applicable regulations.

In terms of the outsourcing activities, Article 90.2 stipulates that if outsourcing for part of processes and operations directly related to insurance business activities, the insurers shall still bear the final and sole responsibility with the policyholder and also other statutory obligations. In this respect, the LIB goes silent on the definition on what processes and operations are directly related to insurance business activities. In other words, the guidance on how to distinguish the processes and operations directly or indirectly related to insurance business activities.

The interpretation of “process and operations directly related to insurance business activities” shall therefore be incorporated into the upcoming decree and circular for clarification.

Under Article 117, the insurers must make public the information required on their websites and be responsible before the law for the content of the announced information. The information for announcement shall be made periodically, regularly and irregularly.

Specifically, the valid court’s verdicts and decisions related to the operation of the insurers under Article 120.1.g of the LIB are information for irregular announcement. If the court’s valid verdicts related to the operation of an insurer and its specific customers are in place, the insurer is imposed to carry out the irregular announcement on its website in line with the principles for announcement under Article 117, which requires an insurer make the announcement accurately, promptly, and in compliance with the law.

As far as it is referred to the second draft decree on personal data protection, there are two kinds of personal data – basic and sensitive ones.

Basic personal data may consist of full name, date of birth, gender, phone number, nationality, ID or passport number, marital status; while sensitive personal data may include personal data on gender, health, gender, genetics, and finance, etc. In this situation, it may lead to a concern of how to comply with the obligations of irregular announcement of the court’s valid verdicts and decisions which may contain both basic and sensitive personal data of the insurer’s customers consistent with not only the LIB but also other regulations like regulations on personal data protection which are expected to be soon issued.

Consequently, more guidance for effective implementation of information announcement may be enacted with close attention paid to the consistency of different regulations with the law and vice versa.

Internal control

According to Article 12.3 of Circular 70 regarding the principle of the internal control activities, an officer of the insurers is not permitted to concurrently take on the positions and duties having conflicting or overlapping purposes and benefits. It appears unclear that the term of “an officer of the insurers” in question refers to all employees of the insurer at all levels and layers; or the employees of the insurer at “non-managerial levels or layers” and does not include managerial-level and controlling personnel of the insurer.

Hence, the interpretation of “an officer of the insurers” shall be inserted into the guidance for clarification and avoidance of any misunderstanding.

Beyond that, the review and correction of the term “an officer of the insurers” for not only the law’s remaining articles but also its guidance are required for consistency.

The LIB has been in the spotlight together with significant changes such as supplementing the regulations on establishment of branches of foreign reinsurance enterprises in Vietnam; and on foreign investors entitled to own shares or capital portions up to 100 per cent of the charter capital of insurance/reinsurance enterprises in accordance with international rules; or harmonising the LIB with other regulations such as the Civil Code for integrity and consistency, or in reducing administration formalities.

We hope that the LIB and its guidance will strongly promote the healthy, rapid, and sustainable development of the insurance market in Vietnam at both national and international levels for the sake of the government, insurance enterprises, and customers.

Capital advantages, brand reputation, and insurance consumption behaviour are being deemed the reasons why the majority of insurance brokerage market share in Vietnam is in the hands of foreign companies.

Vietnam’s non-life insurance market has continued to attract foreign investors in the first months of this year.