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Proposal to Improve Insurance Business Law

CHAPTER 3

ORIENTATION FOR IMPROVING THE LAW AND SOME RECOMMENDATIONS


3.1. Orientation to improve the law

As mentioned in Chapter I and Chapter II, although the Law on Life Insurance has undergone one amendment and supplement (in 2010), the law on life insurance contracts and invalid life insurance contracts in Vietnam still has some limitations as follows:

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- Some regulations are still incomplete and inaccurate, such as regulations on insurance liability exclusion clauses, cases of incorrect age declaration, payment of insurance benefits to beneficiaries and transfer of life insurance contracts;

- Some regulations to ensure the rights of the Insured, the Insured, the beneficiaries and to ensure the stable development of the life insurance business have not been recorded in Vietnamese legal documents such as regulations on the time to review the life insurance contract (the period of time during which the Insured has the right to review the terms and conditions of the contract to decide whether to continue participating in the insurance or not);

Proposal to Improve Insurance Business Law

- Insurance business law in Vietnam does not yet have specific regulations on handling cases of insurance fraud and practical measures to combat insurance fraud;

- There are still some shortcomings in recording cases of invalid life insurance contracts, the time limit for requesting the court to declare the life insurance contract invalid, as well as the lack of regulations on how to handle and determine damages when the life insurance contract is invalid, leading to confusion for insurance companies, insurers and the Court in resolving contracts and participating in litigation when there is a request to declare the life insurance contract invalid.

LKDBH 2000 has some limitations as mentioned above regarding the conclusion of life insurance contracts and the issue of invalid life insurance contracts; these contents have not been amended or supplemented in LKDBH 2010, so lawmakers need to perfect the law in this field on the basis of respecting the following orientations:

- Implement and perfect the law on concluding life insurance contracts and invalid life insurance contracts on the basis of closely following the Party and State's policy on developing the financial and insurance markets. On February 15, 2012, Prime Minister Nguyen Tan Dung signed Decision No. 193/QD-TTg approving the Strategy for developing the Vietnamese insurance market for the period 2011 - 2020. The general objective of the Strategy is to develop the insurance market in line with the orientation of socio-economic and national financial development in each period; ensure the implementation of international commitments to which Vietnam is a member. At the same time, enhance the safety, sustainability and efficiency of the market and the ability to meet the diverse insurance needs of organizations and individuals; contribute to stabilizing the economy and ensuring social security, approaching international standards and practices on insurance business and gradually narrowing the development gap with countries in the region. Based on the above objectives, the Strategy has set out a number of specific targets, accordingly striving for the total revenue of the insurance industry to reach 2% - 3% of GDP by 2015 and 3% - 4% of GDP by 2020. The scale of insurance reserve funds to meet the obligation to pay compensation and insurance money to customers by 2015 will double and by 2020 will increase 4.5 times compared to 2010. The total capital mobilized for the economy by insurance enterprises by 2015 will increase 1.7 times compared to 2010; by 2020, it will increase 3.5 times compared to 2010; by 2020, it will increase 3.5 times compared to 2010, equivalent to 3 - 4% of GDP. The insurance industry's contribution to the state budget by 2015 will double that of 2020 and quadruple that of 2010. At the same time, the state management agency for insurance business strives to fully comply with 50% of the principles of insurance management and supervision issued by the International Association of Insurance Managers by 2015; by 2020, it will fully comply with the principles of insurance management and supervision issued by the International Association of Insurance Managers. Regarding the basic solutions to achieve the set goals, the Decision clearly states that it is necessary to focus on perfecting the legal system in the field of insurance business; improving the safety of the system, operational efficiency and competitiveness of insurance enterprises; encouraging and supporting enterprises.

Develop and diversify insurance products; diversify and professionalize insurance distribution channels; enhance the effectiveness of state management of insurance business; promote international cooperation and integration in the insurance sector.

- To meet the requirements of international economic integration of our country, build a legal system on the conclusion of life insurance contracts and invalid life insurance contracts compatible with international commercial laws and practices on the basis of flexibly applying the achievements of the laws of countries with developed insurance industries in the world, international treaties and international practices to suit the conditions of Vietnam.

- Research and summarize the practical application of LKDBH in Vietnam, especially the practice of court trials to discover the advantages and disadvantages of LKDBH in concluding life insurance contracts and the issue of invalid life insurance contracts; thereby continuing to implement regulations suitable to practice and at the same time supplementing or amending inappropriate regulations, perfecting LKDBH in Vietnam.

- Strengthening the control of life insurance transactions by law in the direction of protecting the legitimate interests of insured persons, insured persons and beneficiaries, on the other hand, resolutely fighting against insurance fraud, developing a healthy and sustainable insurance market in Vietnam.

In short, amending and supplementing the contents related to the conclusion of life insurance contracts and invalid life insurance contracts is practical, ensuring the rights of consumers of life insurance products and legal effectiveness and ensuring the rule of law.

3.2. Recommendations for improving insurance business law

From practical work in the field of life insurance, on the basis of referring to the laws of countries around the world on concluding life insurance contracts and invalid life insurance contracts, the author recommends some issues as follows:

3.2.1. On concluding life insurance contracts

- About insurance business organization model:

LKDBH 2010 amended and supplemented Article 59 of LKDBH 2000 in the direction: Insurance business organizations include: joint stock insurance companies;

limited liability insurance company; insurance cooperative; mutual insurance organization. The form of mutual insurance organization is only regulated in the 2010 Law on Insurance and not in the Enterprise Law. In addition to the above types of enterprises, the 2010 Law on Insurance also regulates the model of insurance cooperative. To implement the regulations on insurance business organization, the Government needs to issue a decree and the Ministry of Finance needs to issue a circular guiding the specific implementation of Article 59 of the 2010 Law on Insurance Business Organization on insurance business organization models, in particular, recording the legal regulations on the organization, establishment and operation of the model of Mutual Insurance Organization and Insurance Cooperative.

- Regarding regulations for beneficiaries:

Vietnamese law does not have any regulations on the beneficiary having an insurable interest with the Insured. However, the Life Insurance Management Institute (LOMA) of the United States as well as some countries in the world have a stricter view on beneficiaries. In the case of individuals purchasing insurance for their own lives, the risk assessment rules of most US insurance companies stipulate that the beneficiary must have an insurable interest with the Insured when issuing the contract. In the case of individuals purchasing life insurance for others, the laws of some US states and the majority of US insurance companies' risk assessment rules stipulate that both the Insurer and the beneficiary must have an insurable relationship with the Insured. According to some insurance product terms being implemented in Vietnam (for example, the An Gia Thinh Vuong term with product codes BV-NA10 to BV-NA13 of Bao Viet Life Corporation), the insurance company has stricter regulations on this subject, specifically as follows: " The person entitled to insurance benefits (Beneficiary) is designated by the Insured with the consent of the Insured". It is thought that this is not only a regulation to ensure the rights of the Insured but also necessary to avoid insurance fraud. Therefore, the author proposes to record the condition that the beneficiary must have insurable interests for the Insured in case the Insurer purchases insurance for the death of another person.

In addition, Clause 1, Article 38 of the 2000 Law on Insurance stipulates: Any change of beneficiary must have the written consent of the insurer. As analyzed in Chapter II, to ensure the rights of the insured (to know and control who the insurer designates to receive insurance benefits when concluding a life insurance contract for the event of his/her death), the author proposes to supplement Clause 1, Article 38 of the 2000 Law on Insurance in the direction that "any change of beneficiary must have the written consent of the insurer and the insured".

- Regarding the responsibility of providing information about the contract of the insured and the beneficiary

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Article 19 of the 2000 Insurance Law stipulates: When concluding an insurance contract , the insurance enterprise has to:

The insurance company is responsible for providing full information related to the insurance contract, explaining the insurance terms and conditions to the insurance buyer; the insurance buyer is responsible for providing full information related to the insured object to the insurance company. Thus, Article 19 of the 2000 LKDBH only regulates the responsibility of providing information of the insurance company and the insurer, while the life insurance contract relationship also has many other subjects participating in the stages of concluding and implementing the contract such as the insured and the beneficiary. Meanwhile, the model terms of the insurance companies state that the responsibility of providing information belongs to the insurance company, the insurer, the insured and the beneficiary (depending on each term). In fact, in many cases, the insurer does not know the health and physical condition of the insured. The insurance application form always has separate questions for the insurer and the insured. When participating in the insurance contract, the insured himself/herself declares and signs the insurance application form if he/she is an adult or the legal representative of the insured performs these tasks if the insured is a minor. Thus, the insured himself/herself as well as the legal representative of the insured must also declare truthfully when entering into the contract. The beneficiary must provide truthful information if the information is exploited, especially during the contract implementation and settlement of insurance benefits. Therefore, the LKDBH needs to clearly stipulate the responsibility of the insured and the beneficiary to provide information in Article 19 of the LKDBH 2000.

- Regarding the provisions on insurable benefits:

+ The 2000 LKDBH regulation on the conditions for having an insurable interest of “nurturing and maintenance” is incorrect because these are two types of relationships with different conditions and are mutually exclusive (if a person has a maintenance obligation towards another person, he/she no longer has a maintenance obligation towards that person). Therefore, the above content needs to be amended in the direction that the relationship between the BMBH and the Insured must satisfy one of the two conditions of (i) nurturing or (ii) maintenance to have an insurable interest. The author proposes to amend Point c, Clause 2, Article 31/2000 LKDBH, “Brothers, sisters, people with a maintenance and maintenance relationship” to “Brothers, sisters, people with a maintenance or maintenance relationship”.

+ LKDBH needs to amend and supplement the provisions on insurable benefits in the direction that in addition to the subjects specified in Clause 2, Article 31, BMBH is an organization that can buy insurance for other subjects: cadres, civil servants, employees and other members of agencies, enterprises and other organizations; borrowers, depositors at banks and credit institutions. In addition, it should also allow the purchase of insurance for humanitarian reasons, for example, it is possible to buy insurance for poor and orphaned children to create an education fund for children or buy insurance for the poor and people in special circumstances.

- Regarding the legal consequences of the insurer informing the wrong age of the insured when entering into a life insurance contract:

As clearly analyzed in Chapter II, the provisions on the legal consequences of the BMBH notifying the wrong age of the insured in Clause 2, Article 34 of the 2000 Law on Insurance are inconsistent with the provisions on contract cancellation in Article 425 of the 2005 Civil Code. Because, the provision on refunding the surrender value means simultaneously recognizing that the insurance contract is still valid from the time of signing until it is cancelled. Besides, not all human insurance contracts have a surrender value when the contract has been in effect for two years or more. Furthermore, Clause 2, Article 34 of the 2000 Law on Insurance only stipulates that the BMBH notifies the wrong age of the insured without mentioning the fault factor (intentional or unintentional) of that act. The problem is, suppose the BMBH intentionally provides

If the information about the insured's age is false, then (i) the sanction of contract cancellation according to Clause 2, Article 34/LKDBH 2000 or (ii) suspension of the insurance contract and collection of premiums until the time of suspension according to Clause 2, Article 19/LKDBH 2000 or (iii) handling of the invalid contract according to Point d, Clause 1, Article 22 of the Law on Insurance Business 2000 will be applied.

Thus, Clause 2, Article 34 of the Law on Insurance Business needs to be amended as follows: “In case the insurer intentionally or unintentionally informs the wrong age of the insured, but the correct age of the insured is not in the insurable age group, the insurer has the right to cancel the contract, refund the insurance premium paid to the insurer after deducting the related reasonable expenses and is not responsible for compensating for damages or paying the insurance amount when the insured event occurs to the insured”.

On the other hand, because the Law on Insurance Business as well as the Civil Code have not mentioned the time value of the amount of money that the parties have kept for each other, for example, the insurance amount at the time that the insurer paid the insurer (when the contract was terminated due to incorrect age notification) has a different value from the amount that the insurer paid to the insurer (at the time of signing the contract), especially when that amount has been kept for a long time, therefore, to ensure the rights of the parties, taking into account the time value of money when the contract is cancelled is necessary and needs to be expressed consistently in the Civil Code as well as in the Law on Insurance Business.

- Regarding the time of insurance liability:

The time of arising of insurance liability is one of the particularly important provisions of the insurance contract. Article 15 of the 2000 Law on Insurance stipulates that “Insurance liability arises when the insurance contract has been concluded or when there is evidence that the insurer has accepted the insurance and the insurer has paid the insurance premium, unless otherwise agreed in the insurance contract”. This provision has been amended in Article 15 of the 2010 Law on Insurance: “Insurance liability arises when one of the following cases occurs: 1. The insurance contract has been concluded and the insurer has paid the full insurance premium; 2. The insurance contract has been concluded, in which there is an agreement between the insurer and the insurer that the insurer owes the insurance premium; 3. There is evidence that the insurance contract has been concluded and the insurer has paid the full insurance premium.”

If the 2000 LKDBH emphasized the agreement between the parties on the time of arising insurance liability, the 2011 LKDBH removed the case where the parties can agree on the time of arising insurance liability, except for the case of agreement on insurance premium debt. However, this provision may make a series of current life product terms no longer suitable due to the provisions on waiting periods, for example 01 year for pathological risks, 02 years for risks due to suicide or HIV, etc. Thus, will the product terms that were issued during the validity period of the 2001 LKDBH no longer be suitable for the 2010 LKDBH automatically become invalid? Furthermore, when developing new products, can insurance companies set regulations on waiting periods for certain risks for insureds? Therefore, the Ministry of Finance needs to provide detailed guidance on whether (i) product terms issued during the effective period of the 2001 LKDBH that are no longer consistent with the 2010 LKDBH will automatically become invalid; (ii) When developing new products, insurance companies have the right to set regulations on waiting periods for certain risks for insureds.

- Regarding the exclusion of insurance liability:

Article 16/LKDBH 2000 stipulates: “1. The exclusion clause of insurance liability stipulates the cases where the insurer does not have to compensate or pay insurance money when an insured event occurs; 2. The exclusion clause of insurance liability must be clearly stated in the insurance contract. The insurer must clearly explain to the insurer when concluding the contract. 3. The exclusion clause of insurance liability does not apply in the following cases: (a) The insurer violates the law unintentionally; (b) The insurer has a legitimate reason for delaying the notification of the insurer about the occurrence of the insured event. Thus, it can be seen that, according to the provisions of LKDBH 2000, the acts that give rise to the exclusion of insurance liability are all performed by the insurer. This provision is reasonable for property and civil liability insurance, however, for life insurance it is not really close and meaningful because the insurer. As analyzed in Chapter II, LKDBH needs to unify regulations on cases of insurance liability exclusion in life insurance in one article and clearly stipulate that insurance companies do not have to pay compensation.

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