Tài liệu The law on life insurance business in vietnam – theoretical and practical issues

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MINISTRY OF EDUCATION AND TRAINING MINISTRY OF JUSTICE 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 The dissertation is completed at: 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 INTRODUCTION 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 -2consisted 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 -3the 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 -4on 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. -5The 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 INSURANCE BUSSINESS ISSUSES ABOUT LIFE 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. -6Despite 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 socioeconomic 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. -7With 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 -8different 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 -9between 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 BUSINESS ON LAW OF LIFE INSURANCE 2.2.1. Principles of life insurance business law a) Self-control in business To ensure the principle of self-control business, laws need to show the following: - First, the law should ensure equality between economic sectors to participate in the establishment, capital contributions to insurers. - Second, the law stipulates freedom in establishment of insurance companies in accordance with the process in development of insurance market. - 10 - 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 - 11 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 - 12 In general, licensing regulations for life insurance business in the law of Vietnam is similar to other countries. It is easy to see the similarity in the regulations in many countries such as France, Germany, Australia or the U.S., and in accordance with international standards, such as the IAIS guidance. However, besides these advantages, licensing regulations in the law of Vietnam showed limitations: Firstly, Law still does not allow foreigners obtaining license of life insurance business in the form of joint stock companies or branches of foreign life insurer in Vietnam. Second, regulations on reinsurance is irrelevant when allows reinsurers can operate in 3 types of business re- life insurance , non-life reinsurance and health reinsurance. 3.1.2. Regulation on operational and management structure in life insurance companies Regarding the organizational structure and apparatus of insurers, in general the regulations of the current law of Vietnam has asymptotic common with those of international standards, in particular the recommendations of the IAIS and similar legislation many countries. However, compared with the IAIS guidance as well as many national laws, the current regulations on the management and administration of insurance companies also have some disadvantages as follows: First, Vietnam law provides on a permanent organ of management in insurance company is the Board of Directors (the Board members) under the operational model of one level management but have not specified the independent members, while the IAIS guidance and many national laws are quite specific recognition of independent members. Second, current law does not ensure balance in control of the management apparatus ie not separate the two specified positions between Chairman of the Board of Directors (the Board members) and Chief Executive Officer (General Director) . - 13 3.1.3. Regulation on life insurance product distribution According to the majority of the regulations of the law of Vietnam for distribution life insurance services is consistent with the nature of the business sector and in common with regulations in many countries around the world. Besides these advantages, the current regulations, there are some limitations as follows: First, the Insurance Business Act was not clear in classifying life insurance business and understanding about life insurance products. Second, the current regulations on life insurance products approval is not clear and transparent to ensure the rights and responsibilities of the related parties. Third, the current law is defined as insurance agents not having independent status is not reasonable. Besides, bancassurance has been deployed for a long time without specific regulations. 3.1.4. Regulation on porfolio and activitie of investment by life insurers The laws of Vietnam may be supposed regulations of the law on investment by insurance companies in Vietnam are quite similar to regulations in many countries worldwide. Besides the advantages gained, the regulations of the law covering investment activities of life insurance companies are still some shortcomings as follows: First, the regulations on investment limits are quite simple, and does not ensure balance principle between safety and profitability in investment activities. Second, regulations on trust investment is not clear, can distort the investment restrictions in practice. Third, there is a conflict between the Insurance Business Act and the Credit Institutions Act related to loans. 3.1.5. Regulations on solvency of life insuers a) Regulations on legal capital - 14 Regulations on legal capital for insurance business in general and life insurance in particular are relatively popular in the world, and the legal capital regulations under Vietnam law are consistent and equivalent regulations of many countries in the world. However, applying the same legal capital level for all life insurers without consideration about the risk and risk tolerance of insurers will lead to mis-judgement on solvency of insurers. b) Regulations on techical reserves The laws of Vietnam may be supposed that is quite similar to international practices and regulations and laws in many countries when provides compulsory technical reserve for life insurers. However, besides these advantages have been achieved, the regulations are still some shortcomings as follows: First, the technical basis using CSO 1980 to evaluate mathematical reserve is not really relevance . Second, although the law allows insurers may select one of the methods of mathematical reserves under international rules , but the Ministry of Finance does not issue specific instructions. Third, the law also not be stipulated compensation reserve in the case insurance companies refuse to pay claim and although the policyholders have the right to take legal proceed to Court for a period of three years from the date of refusal. c) Regulations on solvency margin There is a general comment that the minimum solvency margin regulations in Vietnam Law is quite similar, even stricter than those prescribed in other countries are. However, there are some shortcomings in the rules and practice of the solvency of insurance companies following: First, the assessment of solvency has not consistently followed the model of the European Union or the model of the U.S - Japan . Second, regulations on deduction value assets in accounting when - 15 determining the solvency margin is not suitable currently. Third, the method of calculating the solvency margin is now only based on liquidity risks of property without consideration other risks in business operation. d) Regulations the Insured Protection Fund An important forward step of the Insurance Business Act after amended in 2010 is the existing of regulations for setting-up the Insured Protection Fund. However, besides recognizing the advantages gained, the regulations of the Insured Protection Fund are having shortcomings, includes: First, the name of the Fund did not cover all the objects that need to be "protected" in life insurance business. Second, the law provided limited function of the Fund in operation, thus not consistent with international practice. Third, the Fund's legal status is unclear and administer of Fund is The Association of Vietnamese Insurers (AVI) should be not appropriate. 3.2. CURRENT SITUATION OF REGULATION ON LIFE INSURANCE CONTRACTS 3.2.1. Regulations on the policyholders The insurance business Act covered relevent issues for the policyholders and showed similarities with national law and international practice. However, there are some shortcomings, as indicated in the following major contents: First, the law has not clearly defined the rights and obligations of the insured and the beneficiary. Second, the concept of insurable interest seemed be inconsequential to the nature of human insurance, including life insurance. 3.2.2. Regulations on the content of life insurance contracts Regulations on content as prescribed by the laws of Vietnam as well as actual agreement are consistent with international practice. - 16 However, besides the positive regulations of the law on life insurance contracts, there are some shortcomings of the following: First, there are inconsistency between Civil Code and Insurance Business Act about benefit payment regulation when the insured person die in the human insurance (including life insurance). Second, Insurance Business Act does not define some common terms in life insurance contract, although the terms are often used in the law and the legal guidelines, which lead to many different interpretations. Third, Insurance Business Act is not specified on the policy transferring in life insurance sector. Fourth, not the concept of standard clauses have not been defined, even how to adjust in compliance with standard contracts give the differences interpretation among Civil Code, Protection of Consumers' Rights Act and Insurance Business Act. Fifth, Protection of Consumers' Rights Act not defined a approval as a kind of registration 3.2.3. Regulations on the form of life insurance contracts Provision for insurance policy in writing is basically consistent with international practice. However, provision on the form of insurance policy is sketchy, as indicated in the following points: First, the lack of legal recognition of elements forms insurance policy. In fact, many policyholders are not aware of terms and conditions pre-printed in the policies playing as important role in agreement. Second, current law does not contain regulations on how to print and present an insurance policy. The print font size too small or faded colors can make policyholder ignore the important regulations. 3.2.4. The validity of life insurance policy and its nagtive effect in practise The Insurance Business Act has no specific regulations on validity of insurance policy but explicitly stated in the case the policy void. It is - 17 seen with the regulations on void policy cases in the law in Vietnam which are similar to many national laws. Besides the logical content, the Insurance Business Act showed some inadequacies in regulation when insurance policy considered void, it is clear with the contradictions the provision in Article 19 and Article 22 leads to the different legal consequences. In the process of implementing insurance policy in fact, still occurred many negative cases such as fraud and disputes of insurance contracts. Insurance fraud tended to increase with more sophisticated tricks in recent years. The capability of judge in trial is still relatively low. 3.3. CURRENT REGULATIONS ON LIFE INSURANCE BUSINESS SUPERVISION 3.3.1. Regulations in information disclosure In general, legal requirements for information disclosure have gradually reached the international standards in comparison with the recommendations by the IAIS and laws of many countries and have been consistent with the level of development of the life insurance market. However, the author assumed still exist some problems as follows: First, It is not compulsory in the law for disclosure on standard clauses in the website of insurers . Second, the law does not contain regulations on database exchange between insurers on information of policyholder to prevent insurance fraud. Third, regulations on accounting and financial reporting of life insurers are still insufficient. 3.3.2. Regulations on supervisory authority in life insurance business Similar in laws of other countries, Vietnam has Insurance Supervisory Authority (ISA) in charge of insurance supervision under the Ministry of Finance. Besides the advantages of regulations on supervising competence in life insurance, there are the following limitations: - 18 First, the assignment of mission and juridical power of state agencies are unclear and inadequacies that were derived from breakdown by sector in supervising financial markets thus active of supervision became less effective. Second, supervisory authorities, including the ISA, are commonly have two functions i.e issuing legal regulations and supervising thus make the supervision less effective. Third, the important role of Association of Vietnamese Insurers (AVI) in monitoring the insurance business is not legislated. 3.3.3. Regulations on supervisory subject matters and manners on life insurance business. In general, the legal framework on supervison in insurance business is relatively clear and in accordance with international practice. However, these regulations also exposed some shortcomings of the following: First, supervisory objectives defined in the legal documents are relatively generic, less emphasis on protecting the rights of the parties in insurance agreement as those in developed countries’s law. Second, although much of supervisory subject matters are specified but the supervisory framework has not been defined, especially lack of internal audit model. Third, because legal regulations is not specific on supervisory activities on life insurance products may less effective. Fourth, the law has not yet specified the supervisory method and process and in fact only done mainly indirect supervision rarely perform direct one CHAPTER 4 THE RECOMMENDED SOLUTIONS TO IMPROVE THE LAW ON LIFE INSURANCE BUSSINESS IN VIETNAM
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