Issue of July 2023 – New points of Decree 46/2023/ND-CP of the Government dated July 1,2023 guiding the Law on Insurance Business

On July 1st 2023, the Government issued Decree 46/2023/ND-CP detailing the implementation of a number of articles of the Law on Insurance Business (“Decree 46”). In particular, it stipulates a number of issues such as financial conditions to be granted establishment and operation Licenses of insurers, reinsurers, foreign insurance branches in Vietnam, capital conditions, responsibilities of the Ministry of Finance, etc. Decree 46 officially takes effect from the date of signing.

In this Legal Update, we would like to summarize and clarify the notable new points of Decree 46. 

1. Insurance operation

This is one of the new points of Decree 46. Accordingly, Decree 46 has added guarantee insurance to become one of the operations of non-life insurance. In addition, according to the provisions of Article 1.3 of the Law amending and supplementing a number of articles of the insurance business Law No.61/2010/QH12 dated November 24th 2010, the health insurance operation includes the following types:

(i)      Human accident insurance;

(ii)     Medical insurance;

(iii) Healthcare insurance. 

However, in Article 5 of Decree 46, accident insurance and healthcare insurance have been replaced by health and body insurance.

2. Additional conditions for some management titles

Decree 46 has added conditions and standards for the titles of Head of Internal Audit Department, Head of Risk Management Department, and Head of Compliance Control Department. Specifically:

(a) Conditions and Standards for the Head of the Internal Audit Department

(i) General standards are specified in Article 81.1 of the Law on Insurance Business No. 08/2022/QH15 of the National Assembly dated June 16th 2022 (“Law on Insurance Business 2022”).

(ii) Having at least 3 years of directly working in one of the fields of insurance, finance, banking, accounting, or auditing.

In addition, after 01 years from the effective date of Decree 46, the Head of the Internal Audit Department will need to have a university degree or higher in insurance majors. If not having a university degree or higher in insurance majors, he/she must have a university degree or higher in one of the majors in economics, finance, banking, business administration, law, accounting, or auditing, and have an insurance certificate issued by insurance training institutions legally established and operating domestically or abroad.

(b) Conditions and standards for the Head of Risk Management Department, Head of Compliance Control Department

In addition to the general criteria specified in Article 81.1 of Law on Insurance Business 2022, starting one year from the effective date of Decree 46, in order to become the Head of the Risk Management Department, the Head of the Compliance Control Department will need to meet the following additional conditions:

(i) The head of the risk management department must have a university degree or higher in risk management or actuarial science. If not having a university degree or higher in risk management or actuarial science, he/she must have a university degree or higher in one of the majors of insurance, economics, finance, banking, business administration, law, accounting, auditing and have a training certificate in risk management or actuarial science issued by training institutions legally established domestically or abroad.

(ii) The head of compliance control must have a university degree or higher in insurance. If not having a university degree or higher in insurance majors, he/she must have a university degree or higher in one of the majors in economics, finance, banking, business administration, law, accounting, or auditing and have insurance certificates issued by insurance training institutions legally established and operating domestically or abroad.

(iii) Having at least 03 years working directly in one of the insurance, finance, and banking areas.

3. Registration of insurance products

According to the provisions of Article 40 of the Government’s Decree 73/2016/ND-CP dated July 1st 2016 detailing the implementation of the Law on Insurance Business and the Law amending and supplementing a number of articles of the Law on Insurance Business (“Decree 73“), insurer and foreign insurance branches in Vietnam must register insurance products with the Ministry of Finance. In order to be approved, insurers and foreign insurance branches in Vietnam are required to submit rules, terms, and premium schedules for insurance products to be implemented.

As stipulated in Article 32.1 of Decree 46 insurers and foreign insurance branches in Vietnam must register and obtain approval from the Ministry of Finance for methods and basis for calculating insurance premiums of insurance products belonging to life insurance, health insurance, and motor vehicle insurance, except for motor vehicle owners’ civil liability insurance prior to deployment. After that, insurer and foreign insurance branches in Vietnam will actively develop product rules and terms suitable from time to time and do not need approval from regulatory agencies.

4. Legal capital of insurer and insurance broker 

Decree 46 has raised the legal capital level of insurance and insurance broker,  specifically as follows:

In addition, Decree 46 also adds regulations on the minimum allocated capital for branches of foreign non-life insurers and foreign reinsurers’ branches as follows:

At the same time, Decree 46 also sets out the roadmap and duration for insurance business enterprises and insurance branches mentioned above to complete the supplement of charter capital/self-funding capital according to the new regulations as follows:  

For the insurer, reinsurer established, organized, and operating before the effective date of Decree 46, whose charter capital is lower than the prescribed minimum charter capital: before 01/01/2028, the charter capital must be fully supplemented and deposited as prescribed.

For branches of foreign non-life insurers established, organized, and operating before the effective date of Decree 46, whose allocated capital is lower than the prescribed minimum allocated capital: before 01/01/2028, the allocated capital must be fully supplemented and deposited as prescribed.

For insurance brokers established before the effective date of Decree 46 with a charter capital lower than the prescribed minimum charter capital: before 01/01/2028, the charter capital must be fully supplemented to meet regulations.

5. Expenses for insurance business, reinsurance business

Expenses for the insurance business and reinsurance business amount to be spent and deducted incurred in the period after deducting receivables to reduce expenses incurred in the period of the insurer, reinsurer, and foreign insurance branches in Vietnam. Decree 46 has introduced new regulations on the payment of insurance agent commissions, bonuses, and insurance agent support in the amount to be spent and deducted incurred in the period of the insurer, reinsurer, and foreign insurance branches in Vietnam compared to Decree 73.

Accordingly, Article 50.3 of Decree 46 stipulates, the payment of insurance agent commissions, bonuses, insurance agent support, and other benefits in insurance agency contracts shall not exceed the maximum prescribed by the Minister of Finance.

Simultaneously, from 01/07/2023, these expenditures must be from insurance agency activities and clearly stated in the insurance agency contract, with specific quantitative criteria associated with results, achievements in exploitation, maintenance of life insurance contracts, and health insurance contracts of more than 01 years, quality of insurance agency activities. In addition, bonuses, insurance agent support, and other benefits must be clearly stated in the reward policy, agent support, financial regulations of the insurer, and branches of foreign non-life insurers.

6. Conditions of insurance agency organizations

Previously, according to the provisions of Article 83.1 of Decree 73, insurance agency organizations must meet the conditions for agency activities as prescribed in Article 86 of the Law on Insurance Business 2000 and must sign an insurance agency contract as prescribed in Article 87 of the Law on Insurance Business 2000. However, after more than 20 years of implementation, the law on the insurance business has clearly revealed the inadequacies and difficulties in insurance agency activities. Therefore, recently Decree 46 has introduced many requirements as well as conditions to more strictly regulate insurance agency organizations.

In addition to the general conditions stipulated in Article 125.2 of the Law on Insurance Business 2022, insurance agency organizations also need to meet the following additional conditions:

a) For insurance agency organizations being credit institutions and branches of foreign banks

(i)       A dedicated department shall be established to carry out insurance agency activities;

(ii)      The head of the department in charge of performing insurance agency activities must have at least 03 years of working experience in the field of finance, banking, and insurance and have a university diploma or higher in insurance. If not have a diploma from a university or higher in insurance, a diploma from a university or higher in another major and an insurance certificate must be obtained according to regulations of the Ministry of Finance;

(iii)      At each branch of a credit institution conducting insurance agency activities, at least 3 employees must be trained and have insurance agent certificates suitable to the type of insurance in which the credit institution acts as an agent. At each transaction office of a credit institution conducting insurance agency activities, at least 1 employee must be trained and have insurance agent certificates suitable to the type of insurance in which the credit institution acts as an agent;

(iv)     Having an appropriate information technology system, ensuring complete, accurate and timely provision of information related to insurance contracts exploited through agency organizations;

(v)      Having a process for monitoring and controlling the quality of the performance of insurance agency activities by employees in the agency organization.

(vi)      At each branch, the transaction office of a credit institution and a branch of a foreign bank must set up a separate transaction counter (or separate transaction desk) to carry out insurance agency activities, separate from other transaction areas and professional activities of the credit institution, or foreign bank branch.

b) For other organizations acting as insurance agents

(i)       The organization must have at least 3 employees directly performing insurance agency activities;

(ii)       Having a process for monitoring compliance with the principles of insurance agency activities under the provisions of the Law on Insurance Business 2022 for employees in the organization carrying out insurance agency activities.

Organizations that are carrying out insurance agency activities, must satisfy the above conditions within 01 years from the effective date of Decree 46.

In addition, throughout the operation process, insurance agency operating organizations must maintain and comply with the conditions of insurance agency operation. In case one of the conditions is not met, such an organization may not carry out insurance agency activities until it satisfies the prescribed conditions and must notify the insurers, branches of foreign non-life insurers, and mutual microinsurance organizations within 5 working days from the date of failure meet the conditions to operate as an insurance agent. After 6 months from the date of notification, if such an organization still fails to meet the conditions for insurance agency operation as prescribed, the insurers, branches of foreign non-life insurers, and mutual microinsurance organizations must terminate the insurance agency contract.

As usual, we hope you find this Legal Update helpful and look forward to working with you in the upcoming time.

Kind regards,

ENT Law LLC

The full version of this Legal Update can be found here.