Law on life insurance business in Vietnam - Theoretical and practical issues

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benefits, but also in customer "care" services. Banks with good services and attentive customer service attitudes will of course have a higher competitiveness in the insurance market.

Fifth, the basic technical basis of life insurance products is the law of the majority, mortality table, technical interest rate and average fee.

To design a life insurance product, as a type of commercial insurance, the insurance company must rely on certain technical foundations to simultaneously achieve two parallel goals: bringing benefits to insurance participants at a reasonable cost, while also bringing profits to the insurance company.

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Like other insurance products, the first technical basis of life insurance products is based on the law of the majority. The law of the majority is understood in two basic aspects. First , the law of the majority requires that life insurance participation must include many people. The insurance fund will be contributed by many people to pay for cases of loss or commitment to pay by the insurance company. Due to the probability factor, if the number of people participating in the insurance fund is not enough, then of course the insurance company cannot have enough financial capacity to carry out insurance. Second , determining the risk ratio is only accurate in the case of a survey with a large enough number. This is often illustrated by the situation of tossing a coin with two sides, heads and tails, accordingly, the more times the coin is tossed, the more the number of heads or tails will tend to be equal.

In addition to the law of the majority, life insurance relies on a second very specific technical basis, which is the mortality table, which is built on the statistical principle of a large number of individuals living through different ages. Normally, there are two types of mortality tables: live mortality tables and dead mortality tables. Live mortality tables determine the number of people living to a certain age x out of the total number of people surveyed, while dead mortality tables determine the number of people dying at a certain age x out of the total number of people surveyed [89, p.185]. In addition, mortality tables are also divided into two types: population mortality tables (established through official surveys by responsible agencies) and empirical mortality tables (adjusted based on the experience of life insurance companies) [37, p.23]. Currently, there are two commonly used international mortality tables: the 1980 Mortality Table ( Commissioners Standard Ordinary , abbreviated as CSO 1980) and the 2001 Mortality Table (CSO 2001). To ensure fairness, the laws of some countries require a consistent application of a mortality table as the basis for insurance companies to calculate insurance premiums for customers. For example, in the United States, since 2009, CSO 2001 has been uniformly applied according to the regulations of the National Association of Insurance Commissioners (NAIC). According to the assessment

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In general, the CSO 2001 enables policyholders to pay lower premiums for the same amount of insurance, compared to the previous calculation under the CSO 1980 [146].

The next characteristic technical basis of life insurance products is the technical interest rate. Since most life insurance products are economical, in order to compete, insurance companies must ensure a certain minimum reasonable interest rate to attract insurance participants, called the technical interest rate. This interest rate is often calculated to compensate for inflation on the received insurance premium, and if possible, increase the benefits for insurance participants. In theory, the technical interest rate is often based on the bank's non-term capital mobilization interest rate, government bond interest rate, etc. [82, p.13]

The final technical basis of life insurance products is the average premium. In fact, the mortality rate of insured people in each age group is different, and their labor and income are also different. Therefore, if calculated in detail, the actual insurance premium (also known as the natural premium) that the insurance buyer must pay will be different for each year and each stage in the life of the insured person. This causes inconvenience not only for the insurance buyer but also for the insurance company in the process of managing the insurance premium. Therefore, in reality, insurance companies providing life insurance products all offer the same premium (called the average premium) that the insurance buyer must pay for each year. In the early years, the insurance premium will be higher than the actual premium, and in the later years it will be lower than the actual premium.

Sixth, life insurance products are usually provided for a relatively long term . Most non-life insurance products have a much shorter term than

BHNT. Most non-life insurance products have a term of insurance from one year.

years or less, especially property insurance and civil liability insurance. However, in life insurance, the insurance period is relatively long to ensure the interests of both the insurer and the insured. For insurance companies, a long insurance period will ensure the investment capacity of the business from insurance premiums, thereby ensuring the savings of the insurance contract. A long insurance period also helps the insurance buyer to be able to pay insurance premiums to participate in high-value insurance contracts, meeting their insurance, savings and investment needs. Particularly for term insurance products, due to their purely insurance nature, they can be provided with a short insurance period, usually one year.

Long insurance terms also affect the management techniques for insurance products as well as legal regulations to protect the rights of the insured or beneficiary. The management technique of life insurance products (except for term insurance) is a residual technique, according to which the insurance responsibility of the insurance company is extended for many years, so the management of fees must also be recorded for many years to ensure the ability.

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insurance payment. Unlike non-life insurance products, the law on life insurance business records many regulations to protect the rights of insurance participants such as extension of premium payment, exemption from review, right to advance payment from the surrender value, etc. The reason for such regulations is that due to the long insurance period, there are many factors that affect the plan to implement the commitments of the parties in the insurance contract.

c) Classification of life insurance products

Currently, in the world as well as in Vietnam, life insurance products are increasingly diverse in types to meet different needs of customers. However, the common classification methods that are generally agreed upon in most insurance markets are based on some basic criteria such as: According to the insurance commitment method of the insurance company; according to the number of insured people in the insurance contract; according to the combination of life insurance and non-insurance products; according to the time of insurance liability commitment and the level of insurance liability commitment of the insurance company. Specifically as follows:

According to life insurance business, there are 3 main types of life insurance products: life insurance, death insurance and mixed insurance.

Life insurance is a type of life insurance product in which the insurer commits to pay a certain amount of money (one time or periodically) when the insured event occurs, that is, the insured person lives to a certain agreed time, provided that the policyholder pays the insurance premium. In other words, life insurance is a type of insurance product for the life of the insured person.

Pure life insurance products are currently hardly deployed by insurance companies for two main reasons: first , the level of protection of this type of insurance is not high, while in the current market there are other financial products that are more attractive in terms of the income earned such as saving money or buying certificates of deposit, bonds, etc.; second , the social security policy of the state is getting better and better, especially in developed countries, which has reduced the need for protection from life insurance products.

Therefore, most insurance companies today only provide periodic payment life insurance products (commonly known as life annuities ) [89, p.180]. In periodic payment life insurance products, the insured person is more secure because his life is protected for a long time after a certain point in time. In this product, the insurance buyer can pay the insurance premium once or periodically, then from the agreed time, the insurance company will periodically pay the insurance money to the insured person until that person dies or a certain point in time. If the insurance company commits to paying periodic insurance money from the time the insured person reaches retirement age, it is a voluntary retirement insurance product. This is a type of insurance that can replace social insurance and retirement because they have many things in common.

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The insurance product with the opposite commitment to life insurance is death insurance. Life insurance is a life insurance product in which the insurance company commits to pay a certain amount of money when the insured event occurs, that is, the insured person dies during the insurance period, on the condition that the insurance buyer pays the insurance premium according to the agreement.

Term insurance is characterized by being more protective than saving. The insurer is only required to pay the insurance money if the insured dies during the insurance period, so this obligation is uncertain. Therefore, the total term insurance premium is often much lower than the insurance money that the insurer commits to pay to the beneficiary.

Among term insurance products, there is a relatively special product called longevity insurance (or whole life insurance). In this product, the insurer will pay the insurance money to the beneficiary when the beneficiary passes away at any time, as long as the life insurance contract is still in effect. In some of these types of term insurance products, the insurer limits the life of the insured to 99 or 100 years old, however, the insured usually does not have to pay the premium until that time. Longevity insurance has high protection, but it requires long-term participation in the insurance.

Some authors believe that longevity insurance is a type of life insurance that is not the same as term insurance, because the insurer will definitely have to pay when the insured person dies [2, p.162]. However, the author believes that the risk factor for the insurer is that the time is unknown, or in other words, the insurance period is indefinite. Theoretically and legally, there is no need to have a limit on the insurance period for term insurance.

The most popular life insurance product on the market today is mixed insurance. Mixed insurance is a type of life insurance in which the insurance company commits to pay a certain amount of money (one time or periodically) when the insured event occurs, that is, the insured person lives until the end of the insurance period or dies during the insurance period, on the condition that the insurance buyer pays the insurance premium according to the agreement.

Mixed insurance is a popular product because of its multi-purpose. First, it has full protection like term insurance, but has savings and investment like life insurance. The insurer will definitely have to pay the insurance money depending on which insurance event occurs first: the insured dies during the insurance period or the insurance period ends and the insured is still alive. Mixed insurance products are currently very diverse and have many different names depending on the naming method of the insurer as well as the benefits that the insurer offers to customers.

According to the number of insured people in the life insurance contract, life insurance products include individual insurance and group insurance.

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Individual insurance is a life insurance product in which only one individual is insured. Group insurance is a life insurance product in which a group of individuals are insured. Group insurance products are suitable in the following main cases: (i) husband and wife jointly purchase insurance to ensure the life of the last surviving person or the heir after both husband and wife pass away; (ii) enterprises purchase insurance for employees or key leaders of the enterprise;

(iii) travel companies purchase insurance for customers during their trips, etc.

The important difference between individual and group insurance is the number of people insured under the contract. In individual insurance, only one person is insured, while in group insurance, there are many insured people. Insured people in group insurance are usually related to each other in terms of interests, or have a relationship with the policyholder. In theory, each individual insured in group insurance can be issued a separate insurance policy, but all are based on the group life insurance contract that has been concluded.

According to the combination of life insurance and investment trust services provided by insurance companies, there are two types of life insurance products: pure life insurance products and investment-linked life insurance products.

Pure life insurance products are insurance products with all the attributes of life insurance, without any investment benefits. Pure life insurance products also have additional benefits (additional benefits) recognized from additional non-life insurance products that insurers provide to customers, of course on the condition that customers must pay additional fees. These additional products are quite diverse, such as critical illness premium waiver insurance, critical illness insurance, etc. However, these benefits are only intended to increase insurance benefits, not investment benefits. Profit sharing (if any) is the sharing of profits by insurers with insurance participants, not the main purpose of the insurance product.

Investment-linked life insurance products are life insurance products in which, in addition to the insurance benefits similar to pure life insurance products, the insurance buyer also participates in the insurance company's investment fund and receives investment profits from this fund. Investment-linked insurance products were created by GRDinney in 1971, then developed by James CH Anderson since 1975 [104, p.111].

To date, investment-linked life insurance products have two basic forms: universal life and unit life. In universal life, the insurer receives investment results from the common investment fund from the insurance premium. In unit-linked life, the policyholder has the right to choose to invest his insurance premium to buy units of the linked funds.

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The unit established by the insurance company enjoys all investment results and bears all investment risks corresponding to the portion of insurance premium spent on investment.

In principle, the insurance premium in investment-linked insurance products is separated between the insurance premium and the investment premium. In the investment premium, the insurance buyer acts as a fiduciary investor, responsible for his/her investment according to the fiduciary agreement with the insurance company. Investment-linked insurance products are considered to be competitive with financial products in the banking and securities markets because the insurance buyer can participate in one or more investment funds of the insurance company from a portion of the paid insurance premium.

According to the time and level of insurance liability commitment , life insurance is classified into official insurance and temporary insurance.

Official insurance is a life insurance product provided by an insurance company based on a valid life insurance contract between the insurance buyer and the insurance company. Temporary insurance is a life insurance product provided by an insurance company to the insurance buyer during the period from when the insurance buyer signs the life insurance contract, pays the insurance premium until the insurance company officially accepts the insurance. Temporary insurance is usually a unilateral commitment of the insurance company to the customer. Due to the nature of the life insurance contract, the insurance buyer usually has to sign the contract in advance, then the insurance company will review and accept the insurance. To increase the level of protection for the insured after the insurance buyer has paid the first fee, insurance companies often provide a temporary life insurance product, according to which, if the insured dies during the time the insurance company considers and agrees to the insurance, the insurance company will pay an amount of money as committed to the insurance buyer. The validity of the temporary life insurance product ends as soon as the insurer accepts the insurance by signing the life insurance contract, which means switching to the official insurance product.

In academic terms, the term temporary insurance has a different meaning. According to Jérôme Yeatman (2001), temporary insurance is the guarantee of the rights of a third party related to a contract, if the insured (the obligor) dies before the term of this contract. For example, the bank acts on behalf of the borrower to buy life insurance products for them [89, p.178]. However, the author believes that, in this case, it is simply a form of individual or group term life insurance products.

2.1.2. Life insurance business activities

a) Concept of life insurance business

Defining what is life insurance business is not easy because there are many different approaches. To build the concept, it is necessary to consider the basic characteristics of life insurance business as follows:

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Firstly , life insurance business is a conditional business activity.

Most research works and legal systems of many countries share the same view that life insurance business must be a conditional business field, that is, the law must set higher requirements for insurance companies than for businesses operating in normal fields. The higher requirements often focus on the following contents:

- Firstly , the conditions for establishing life insurance companies are often stricter than those for normal businesses. For example, in terms of capital scale, the law often requires a certain level of compliance to ensure the ability to operate and be responsible for the insurance contracts being implemented.

- Second , during the operation process, life insurance enterprises must meet many conditions. For management personnel, the law requires them to meet professional and experience requirements, as well as ethical standards. The level of transparency required in the management process is often very high, with an accounting system that has more specific and detailed regulations than a normal enterprise.

- Third , life insurance companies must comply with regulations to ensure solvency to protect the interests of insurance customers. To do this, insurance companies must set aside operational reserves, establish mandatory reserve funds and comply with investment limits according to regulations of each country with different levels of relaxation or strictness.

Second , life insurance business is a business activity that includes providing life insurance services through insurance products and investing from idle insurance premium reserves.

As analyzed in section 2.1.1, life insurance products have differences compared to non-life insurance products in terms of insured objects, insurance technical basis, insurance period and especially the insurance participation objectives. With such characteristics, life insurance business often has its own legal regulations, in addition to the general regulations as for non-life insurance business.

Currently, most authors in research works define life insurance business activities as the provision of life insurance products by insurance companies to customers through the conclusion and implementation of life insurance contracts. In addition, many researchers often state that: in addition to life insurance business activities, the investment activities of insurance companies are extremely important, closely related and supportive of insurance business activities, and investment is even considered a basic function of insurance companies [49, pp. 2-3].

The above views, although all emphasize investment activities of

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DNBH but in reality still separates life insurance business activities from investment activities. However, such concept of life insurance business is not correct for the following basic reasons:

- Firstly , insurance companies always have a significant amount of capital available from insurance premiums and have the right to use this capital for investment.

As analyzed above, in the insurance business in general and life insurance in particular, revenue from insurance premiums will arise before the most important expense, which is compensation costs, and will be accumulated in the form of operational reserves. Therefore, with the available insurance premium reserve, plus equity, insurance companies can carry out investment activities on the basis of ensuring the ability to pay for insurance contracts when an insurance event occurs. Therefore, investment activities from reserve sources are always associated with insurance business and are an indispensable part of insurance business activities. The use of insurance premium reserve sources for investment by insurance companies is essentially similar to the use of mobilized capital by credit institutions to provide credit, on the basis of ensuring the ability to pay deposits to depositors according to the provisions of law.

The right to invest from the premium reserve of the insurance company is always recognized by the laws of countries. This is explained by two basic reasons: on the one hand , the insurance company is a business entity, so it has the right to use all available resources to generate profits for shareholders/members contributing capital, thereby contributing material wealth to society through tax revenue; on the other hand , investment activities will contribute to increasing the financial capacity of the insurance company to ensure payment for financial obligations arising from the insurance contract according to the agreement with the insured. Investment activities also contribute to increasing social capital for more effective use.

- Second , the investment business of insurance companies from premium reserves is an activity that belongs to the nature of insurance business, allowing to distinguish insurance business from gambling.

Although both are based on probability theory and are of a lucky nature, if gambling is purely based on luck, the investment activities of insurance companies help insurance companies not to be too dependent on this factor. Insurance companies do not only rely on the fact that insurance participants do not encounter risks, or in other words, the income of insurance companies mainly depends on the efficiency of investment, not just on the difference between insurance premium revenue and compensation costs or insurance payments. Therefore, investment efficiency will be able to ensure that insurance companies face risks from insurance contracts. Even when there are risks of a mass nature, insurance companies can still ensure the ability to pay when they have good investment efficiency.

Law on life insurance business in Vietnam - Theoretical and practical issues - 5

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