Methods and factors for calculating insurance premiums for motor vehicle insurance in Vietnam

Methods and factors for calculating insurance premiums for motor vehicle insurance in Vietnam (Internet image)

1. Methods and factors for calculating insurance premiums for motor vehicle insurance in Vietnam

According to Article 25 Circular 67/2023/TT-BTC guiding the methods and factors for calculating insurance premiums for motor vehicle insurance in Vietnam as follows:

- Non-life insurers and branches of foreign non-life insurers may apply any method for calculating premiums for motor vehicle insurance products, subject to meeting the following requirements:

+ The premium shall comply with Point d, Clause 2, Article 87 of the Law on Insurance Business;

+ The premium includes net premium, product implementation costs, and expected profit.  Net premium, product implementation costs, and expected profit shall be built in accordance with clauses 2, 3, 4 of Article 25 Circular 67/2023/TT-BTC;

+ The following risk-related elements shall be used as the factors for calculating insurance premiums: 

++ Vehicle type as defined by the law on road traffic;

++ Business purpose (business vehicle, non-business vehicle);

++ ehicle use purpose (passenger vehicle, cargo vehicle, special-purpose vehicle);

++  Vehicle production year. 

In case of applying additional risk-related elements in addition to the elements mentioned above, non-life insurers and branches of foreign non-life insurers shall ensure that they have data in accordance with Point a, Clause 2, Article 25 of Article 25 Circular 67/2023/TT-BTC;

+ The specific cases and grounds for increasing or decreasing the premium shall be registered.

Premium increases must be based on factors that increase the insured risks.

Premium reductions must ensure that the premium after the reduction is not less than the net premium in any case and is based on one or more factors that reduce, disperse, share risk, or reduce product implementation costs of motor vehicle products, including the number of vehicles insured, the choice of deductible, deductible amount, the claims history, the distribution method for the product, and other factors (if any).In case of premium reduction due to direct sales, the amount of premium reduction shall not exceed the insurance agent commission rate as prescribed in Article 51 of Circular 67/2023/TT-BTC;

+ The premium of additional insurance clauses shall be commensurate with the insurance conditions and liabilities; in case the additional clause expands the coverage of insurance, the premium shall be increased; in case the additional clause narrows the coverage of insurance, the premium shall be reduced but in no case shall it be reduced to less than the net premium.

- Net premium is the premium amount that is intended to ensure the fulfillment of obligations that have been committed to the policyholder, corresponding to the insurance terms and conditions. Non-life insurers and branches of foreign non-life insurers may build net premiums for a one-year insurance period of motor vehicle products, subject to meeting the following requirements:

+ The net premium is determined based on the actual statistical data of the non-life insurer or branch of foreign non-life insurer, ensuring scale and continuity over a minimum time series of 5 consecutive years.

In case the statistical data does not meet the scale and continuity requirements, the insurer or branch of foreign non-life insurer may use the following sources:

++ Net premium published by competent authorities;

++ Public and official statistical data published by competent domestic organizations to determine net insurance premiums;

++ Net premium provided by the parent company or foreign reinsurance company/reinsurance organization. In this case, the reinsurer must be rated at least "BBB" according to Standard & Poor's or Fitch, "B++" according to A.M.Best, "Baal" according to Moody's or equivalent ratings from other organizations with the function and experience of rating at the latest financial year compared to the time of submitting the application for registration of premium-charging methods and bases and must have experience in reinsurance for this type of risk in the Vietnamese or Asian market. Imp case of adjusting the net premium of the reinsurance company/reinsurance organization (increase or decrease), the insurer or branch of a foreign non-life insurer must provide an explanation for the reason.  The use of net premium provided by the reinsurance company/reinsurance organization must be consistent with the insurance benefits that the non-life insurer or branch of foreign non-life insurer plans to provide in the rules and terms of the insurance product.

+ Net premium is determined specifically for each risk or for a number of the following risks: collision, collision (including collision with other objects); overturn, fall, sink, fall; being hit by other objects; fire, explosion; natural disasters; theft; and other risks (if any).

- Short-term net premium (insurance period of less than 1 year) or long-term net premium (insurance period of more than 1 year) shall be determined on the basis of the net premium for a one-year insurance period and must have an explanation of the assumptions for allocating risk corresponding to the insurance period.

- Non-life insurers, branches of foreign non-life insurers must ensure that assumptions about costs and profits included in insurance premiums do not exceed 50% of the total insurance premium.

- Documentation explaining the methods and factors for calculating premiums is set out in Appendix IV issued with Circular 67/2023/TT-BTC.

2. Regulations on notification of online insurance provision in Vietnam

According to Article 6 Circular 67/2023/TT-BTC, insurance enterprises, branches of foreign non-life insurance enterprises, mutual organizations providing microinsurance, and insurance brokerage enterprises must notify the Ministry of Finance (Hanoi, Vietnam) about providing insurance services and products on the network environment within 07 working days from the time of providing insurance services and products on the network environment. The information about the enterprise, the insurance service, product, the method of providing, and other related information must be provided according to the template stipulated in Appendix II issued with Circular 67/2023/TT-BTC.

Appendix II

Within 90 days from the effective date of Circular 67/2023/TT-BTC, insurance enterprises, branches of foreign non-life insurance enterprises, mutual organizations providing microinsurance, and insurance brokerage enterprises must notify the Ministry of Finance (Hanoi, Vietnam) of the information stated in Appendix II for insurance services and products being provided on the network environment before the effective date of this Circular 67/2023/TT-BTC.

To Quoc Trinh

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