the law on life insurance business in vietnam theoretical and practical issues

Many theoretical issues such as the concept of life insurance products, content of life insurance business, legal structure of life insurance business law including the parts and factors

HANOI LAW UNIVERSITY

TRAN VU HAI

THE LAW ON LIFE INSURANCE BUSINESS IN VIETNAM

THEORETICAL AND PRACTICAL ISSUES

Specialty: ECONOMIC LAW Code: 62.38.01.07

SUMMARY OF DISSERTATION

HANOI - 2014

HANOI LAW UNIVERSITY

Academic Supervisors: 1) Dr Bui Ngoc Cuong

2) Dr Nguyen Van Tuyen

Reviewer 1: Ass Prof Dr Nguyen Nhu Phat

Reviewer 2: Dr Nguyen Am Hieu

Reviewer 3: Ass Prof Dr Le Thi Thu Thuy

Dissertation will be examined by the Council of Dissertation Evaluation

at Hanoi Law University at ……… date ………

Dissertation is available at:

1) National Library of Vietnam

2) Library of Hanoi Law University

1 Rationale

Life insurance business has developed in the world for a long time, especially in developed countries But in Vietnam, insurance experts and regulators suppose that Vietnam life insurance market is still relatively new and potential Besides providing insurance benefits to society, life insurance is recognized as a role of effective channel for investment into the national economy with a capital of trillions of dollars worldwide

Life insurance market in Vietnam was officially recognized legally as issuing Decree 100/1993/ND-CP of the insurance business dated 12/18/1993 From then until now, the insurance legal system in general and legal system for life insurance business in particular is gradually improved and adjusted However, to meet the growing demands of Vietnam 's economy and of the process of international integration , the life insurance business law still needs to be amended and revised The dispute in life insurance was more and more growing, and in some cases originated from the inadequacies of the regulations The regulations of the insurance business activities such as design, distribution, investment, financial management showed limitations and drawbacks Regulatory supervision still revealed flaws, including the coordination between the governmental agencies and organizations involved have not really operated effectively

Currently, the research of theoretical and practical summary in life insurance business in term of legislations in Vietnam is not much Many theoretical issues such as the concept of life insurance products, content of life insurance business, legal structure of life insurance business law including the parts and factors contributing have been unsolved On a practical level, there have been no research work covering overall real situation in legislation of life insurance business in Vietnam in connection with legislative parts together, thus research recommendations have not

consisted of systematic conclusions Meanwhile, improving the legal and regulation in life insurance business is one of urgent requirements There are many international norms and practices have been applied in many countries but have not been recognized in term of insurance business laws

in Vietnam, especially the recommendations and guidelines issued by International Association of Insurance Supervisors (IAIS) to which Vietnam is a member

Therefore, it is essential, theoretically and practically, to have a thorough study of insurance business law in the present context in order to construct feasible solutions for purposes consolidating legal system then building an oriented-socialist economy The Author have chosen

dissertation topic “The legislations on life insurance business in Vietnam - The theoretical and practical issues” as name of thesis of Ph.D program

2 Research Purposes and Tasks

The purpose of the thesis is to develop a theoretical background for life insurance business law, and then to assess the statement of current legislation and recommend the solutions for improving legislation of life insurance business in order to meet the requirements of the economy and international integration For such purposes , the task of dissertation research are:

- Verify current and common perspectives, from which to build the legal theoretic for life insurance business i.e concept of life insurance products and life insurance business, determination of the basic principles and structure life insurance business law as well as the key factors

- Evaluate content of insurance business regulations, including the advantages and limitations of the current regulations The evaluation is performed in respect of structure of each part of the law in detail in order to detect gaps, and limitations of the current regulations

- Determine orientation and recommend solutions to improve the current legal regulations on life insurance business These orientations should be strictly close to Communist Party of Vietnam’s directions and

the government’s policy to promote the healthy development of the insurance market The given solutions should be feasible scientific and be abstracted from theoretical basis as well as the assessment of the current situation

3 Research objectives and scope

Research objectives of the thesis includes:

- The system of laws on life insurance business includes the Insurance business Act, the legal documents guiding the implementation

of the Insurance Business Act and other legal documents related as the Enterprise Act, Civil Code, Commercial Act, Consumers' Rights Protection Act

- The scientific opinion has been the individual authors and institutions announce in the study of insurance business in general and the life insurance business in particular, both domestic and international

Scope of research is limited as follows:

- Study objectives are legislative system of life insurance business

in Vietnam since the Insurance Business Act enacted in 2000 until now The period before the Insurance Business Act in effect is excluded from the scope of the research

- The thesis research focused on a system of laws and regulations covering life insurance business in general, does not go into the specific rules to regulate some specific life insurance products

4 Research Methodology

To accomplish the tasks of research and research purposes, under the generalized sense, methodology for study was employed Marxism - Leninism approach in solving research tasks For each specific content, the thesis mainly took use of analytical methods, statistical methods, methods

of comparative jurisprudence and the historical method

5 Scientific sense and practical applications

The thesis is monographs to build a system of on legal reasoning

on life insurance business as well as assessment of comprehensive life insurance business in term of the current law and regulations related to Therefore, the result of research will contribute additional knowledge in the field of legal science in general and law of economics in particular

The research results of the thesis have practical applicability First, the thesis contributes a scientific basis for the improvement of business life insurance law and regulations in Vietnam Secondly, the thesis would contribute to the knowledge of the legal system that should be useful for the regulators, insurers and the insured in application of regulations effectively

6 The research structure

Besides the introduction and conclusion, the thesis has consisted four chapters:

- Chapter 1: Overview of Research

- Chapter 2: The theoretical issues about life insurance business and legislation on life insurance business

- Chapter 3: Current situation of the life insurance business laws in Vietnam

- Chapter 4: The recommended solutions to improve the life insurance business laws in Vietnam

CHAPTER 1 OVERVIEW OF THE RESEARCH

The topic “The legislations on life insurance business in Vietnam - The theoretical and practical issues” is unprecedented research and the first study solved at the level of Ph.D thesis at jurisprudence However, each aspect of the research is the subject mentioned many studies at different levels at home and abroad, Some results of the these studies should be used, but have not solved all tasks of research, especially under the legal aspects of science

The limitations of the previous research results can be summarized

as follows : firstly, the lack of systematic sense before building the basic

concepts and lack of determination the structure of life insurance law;

secondly, limitations in results in term of theory, the lack in mention to

comparisons among Vietnam law, other countries law and international norms in assessment

From the considerations in research results, the author of thesis has defined the problems that is needed to solve in the thesis, identified specific tasks on theoretical study of current law, from which to recommend solutions in order to improve legal legislation in life insurance business

CHAPTER 2 THE THEORETICAL ISSUSES ABOUT LIFE INSURANCE BUSSINESS AND LEGISLATION ON LIFE INSURANCE

BUSINESS

2.1 THE THEORETICAL ISSUSES ABOUT LIFE INSURANCE BUSSINESS

2.1.1 Life Insurance and life insurance products

a) Concept of life insurance

In the historical development of the insurance industry, life insurance as a commercial service appeared later than non-life insurance business, also associated with the introduction and development of probable and statistical science After about two and a half centuries of development, life insurance market in the world grew at a large scale along with relatively completed legal system

In Vietnam, life insurance is financial services are relatively new

In term of legislation, life insurance market was formally re-established over 20 years ago under the introduction of Decree No.100 dated 18/12/1993

Despite appearing quite some time, but now the concept of life insurance is still not consensus The differences in concept of life insurance were resulted in different approaches in the theoretical literature and in legal systems in countries around the world, but it can be stated that the reasons of differences in definition could be identified as follows First, the difference in opinion varying in countries due to the different socio-economic condition, economic development policies in general and life insurance market development Second, the development of the life insurance market encourages creativity in life insurance business with new products that consist features to satisfy various needs of customers Finally, difference in approaches (in aspect of economic, legal or state administration etc.) that led to various definitions

However, most researchers and laws of the countries are basically agreed on the following characteristics of life insurance:

First, in technical of life insurance business, object of life

insurance is lifetime of the insured

Second, insured events commonly are relatively diversified with

diversity causes

Third, life insurance includes saving and investment elements i.e

the insurance benefit is usually greater than accumulative premium paid up

by customers

Then, in summary and in term of legal science,, life insurance should be defined as follows "life insurance is a kind of commercial insurance under which insurers agree and commit to pay a specific amount when specific insured event occur in case the insured live or die in a given time, with or without the investment benefits, with conditions that premiums is paid by the policyholder under agreements

c) Concept of Life insurance product

Life insurance product is a specific commercial product of life insurance business In other words, the life insurance is understood principles,

as "technical" that insurers design products suitable to their customers

With the approach, we can see there are some basic characteristics

of life insurance products following:

First, life insurance products as well as other insurance products,

but it has property of the asset

Second, as well as other insurance products, life insurance product

business requires special business processes: Revenue estimated before expenses incurred and the uncertainty expenses incurred depending each product as well as each customer

Third, life insurance products served for multi- purposes and insurers

often offer multiple type of life insurance products for different customers

Fourth, life insurance product is identified through life insurance

contracts and activities of insurers to meet the customers’ need depending

on contract implementation

Fifth, the technical basis of the basic life insurance products is the

law of large numbers , mortality tables ,technique interest rates and average premium

Sixth, life insurance products are delivered with a relatively long

duration

d) Types of life insurance products

Under aspects of insurance commitments, there are 3 types of life insurance products mainly includes endowment life insurance, term life insurance, mixed life insurance

In term of number the insured in the insurance policy, life insurance products including individual or group insurance

In term of combination of life insurance and non-insurance provided by insurance companies, the two types of life insurance products

is pure life insurance products and investment-linked life insurance

2.1.2 Life insurance business

a) Concept of life insurance business

Definition of life insurance business is not easy to identify due to

different approaches To build the concept, consider the basic characteristics of life insurance business activities as follows:

First, the life insurance business must meet legal requirements Second, life insurance business covers insurance benefits delivering

through insurance products and investment result from the idle premium reserve Investment from the premium reserve is considered as life insurance business for the following reasons: (i) insurers always hold a substantial amount of premium and have the right to use resources for investment , (ii) investment operations of insurance companies from reserves is of the nature of the insurance business operations, and quite differentiate from gambling and bet; (iii) investment activities of insurers have crucial significance to the survival of the insurers, (iv) life insurance products are more and more focusing on investment factors than traditional insurance for protection

From the above arguments, we can give a definition of life insurance business as follows:

Life insurance business is a type of business requiring license in which insurers provide its services via insurance products, investment of collected premium and other capital to guarantee their commitments to the insured under legal regulation

b) Content of life insurance business

The provision of life insurance services

The provision of life insurance services through insurance products

includes the following:

- Insurers design insurance products based on its self-control in

business in compliance with regulations of law

- Insurance distribution is a process to bring the insurance products

to the customers via different channel such as direct distribution or indirect

distribution (including agent and broker, bancassurance, etc.)

The outcome of distribution process is contract will been signed

between insurers and policyholders Life insurance policies in particular and insurance policies in general are kind of pre-composed contracts by insurers due to complicated and special insurance relations In theory, life insurance regulations in the policy have characteristics of common contracts term and standard contract terms According to the approach of European Union law, a majority of the contract terms included in a contract

is considered as standard contract in order to protect customers, the sample

is considered as standardized contract to protect consumers The insurers usually emphasize to clients that insurance regulations are inseparable parts

of policies

Investment from the collected premium

Investment activities of insurers have the following basic

characteristics:

First, investment requires long-term investing to stable income Second, investment scale is larger than investment in non-life insurance

Third, investment connects closely to life insurance product design

Investment activities of insurers should require two important priorities: safety of the investment portfolio and the liquidity of invested assets

2.2 ARGUMENT ON LAW OF LIFE INSURANCE BUSINESS

2.2.1 Principles of life insurance business law

- Third, the laws have to ensure the sound competition through the design and distribution of life insurance products, premiums rating and other benefits of customers

- Fourth, to ensure the freedom of business is done, there are legal regulations to limit the incompetent insurers, state unfair competition as well as aggressive behaviors harm to the fairness and transparency in the insurance market

b) Protection the customers’ benefits

Besides the principle of protecting the legitimate interests of all parties to the contract, the principle of protecting the policyholders give prominence for reasons:

First, insurance policies general and life insurance policies in

particular are very complicated

Second, most of the content of insurance policies are drafted and

issued by insurers, often referred to as standard clauses Therefore, it is necessary for the regulations to establish mechanisms to balance its position between the parties in insurance contracts

Third, the insurance benefits depend on behavior of insurer can

lead to unfair contract performance of insurers

Fourth, protecting the insured to maintain the public trust for the

insurance industry

Law of all countries generally established for protecting the rights

of the insured

2.2.2 Structure of Insurance Business Law

Structure of insurance business law can be looked at from different perspectives with different goals To analyze the structure of life insurance business law, the most convenient way is looking from the essential social relations that arise from the life insurance business Seen from position of

the insurance business, insurance business law need to cover the following:

First, the law should regulate to group of social relations of insurer

as a legal status with business functions such as regulation of life insurance licensing activities, regulations on organization and personnel, regulations

on delivering life insurance products , regulation of investment activities of

insurers and regulations on the solvency of insurance companies

Second, the law should regulate to group of social relations

between insurers and the policyholders in a relation via insurance contracts such as status of the insured, content and form of contract, the validity of

contract

Third, the law should regulate to group of social relations between

regulators and insurers in monitoring activities as defined in information

transparency obligations, authority, content and methods of supervision

2.2.3 Key elements affect on Law of Insurance Business

Legislation in the development process was affected of various factors such as : (i) The perspectives of government on development of the life insurance market in each specific period, (ii) the requirement for development of the life insurance market with new products and better transparency, (iii) international law and international practices in term of life insurance business as the WTO rules or guidelines from the IAIS ; (iv) the interaction between the parts of the law such as corporate law, contract law, consumer protection law etc., (v) and finally to consider proficiency of compliance to laws by the relevant entities including insurers , the insured, regulators and the Court in settling disputes arising from insurance policies

CHAPTER 3 CURRENT SITUATION OF LIFE INSURANCE BUSINESS IN VIETNAM

3.1 CURRENT SITUATION OF REGULATIONS ON LIFE INSURERS

3.1.1 Regulations on licensing for life insurer