Why does the State Bank propose to ban banks from selling investment-linked insurance?

The State Bank is drafting a Circular regulating the issuance of new Licenses, issuance of additional business contents to Licenses, and a number of regulations on the organization and operation of commercial banks, foreign bank branches, representative offices in Vietnam of foreign credit institutions, and other foreign organizations with banking activities.

A notable point of the draft Circular is to supplement the content on the scope of insurance agency activities of commercial banks and foreign bank branches to comply with Clause 2, Article 113 of the Law on Credit Institutions 2024.

According to the draft Circular, when the License granted by the State Bank to a commercial bank or foreign bank branch includes insurance agency activities, the commercial bank or foreign bank branch is allowed to conduct insurance agency activities for insurance products in accordance with the provisions of the law on insurance business, except for investment-linked insurance products.

When performing insurance agency activities, commercial banks and foreign bank branches must comply with the provisions of law on insurance business and relevant legal provisions.

Explaining the reason for excluding investment-linked insurance products, the State Bank said that for investment-linked insurance products, it is necessary to regulate in a way that does not allow commercial banks and foreign bank branches to carry out this activity because investment-linked insurance products can easily confuse customers with capital mobilization and investment trust products that commercial banks provide to customers.

Previously, in the Law on Credit Institutions 2024, the State Bank of Vietnam prohibited banks from selling non-compulsory insurance associated with the provision of banking products and services in any form.

Clause 2, Article 113 of the Law on Credit Institutions 2024 stipulates: "Commercial banks are allowed to conduct insurance agency activities in accordance with the provisions of the law on insurance business, in accordance with the scope of insurance agency activities as prescribed by the Governor of the State Bank".

Clause 5, Article 15 stipulates prohibited acts: "Credit institutions, foreign bank branches, managers, operators, and employees of credit institutions and foreign bank branches shall associate the sale of non-compulsory insurance products with the provision of banking products and services in any form."

What does investment-linked insurance include?

Investment-linked insurance business is regulated in Clause 1, Article 101 of Decree 46/2023/ND-CP.

Accordingly, investment-linked insurance includes general insurance and unit-linked insurance.

Investment-linked insurance products have the following characteristics: The benefits of investment-linked insurance contracts are separated between risk insurance benefits and investment benefits. The insurance buyer cannot choose to participate only in investment benefits without participating in risk insurance benefits; The insurance premium structure is separated between the investment fee and the initial fee as prescribed in Point a, Clause 1, Article 99 of this Decree; The insurance buyer is entitled to the entire investment results from the investment fee after deducting the fees prescribed in Points b, c and d, Clause 1, Article 99 of this Decree; The insurance buyer is flexible in determining the insurance premium and the insurance amount as agreed in the insurance contract.

The minimum term of an investment-linked insurance contract with periodic basic premium payment is 10 years, the minimum term of an investment-linked insurance contract with one-time basic premium payment is 5 years.

The minimum term of an investment-linked insurance contract is stipulated in Clause 3, Article 101 of Decree 46/2023/ND-CP as follows: The minimum term of an investment-linked insurance contract with periodic basic premium payment is 10 years, the minimum term of an investment-linked insurance contract with one-time basic premium payment is 5 years.

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