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Why and how cars in Vietnam are badly insured?
What you need to know about car insurance in Vietnam, and generally about insurance, is there are no protective laws for the consumers specific to the insurance sector. As the insurance sector is so new and not strongly capitalized and not reputable, the regulations are minimal to unexisting. There are no standards nor common legal frame. Therefore if you want adequate coverage, you need to request and negotiate ‘in writing’ the various clauses you may need, especially if your care is out of the mainstreet locally produced brands. Therefore luxury (above VND1.3 Bn), EV, imported, sports or vintage collectors require special attention to the coverage and selection of the insurer.
There are 3 types of salesman, the 3 types of users and 4 types of risks to protect you effectively. In principle, the risks to cover for car insurance are the same but in practice in Vietnam; the contracts are very different in limits and scope. The car insurance knowledge and advice are very limited as only 2 in 100 people own a car, and in many cases their chauffeur drive. For example, flooded engines have special clauses, theft of spare parts or the price of a life or disability are very different in à court of law.
The 3 types of car insurance salesperson
Of course, depending on the interest of the salesperson the advice is biased or in worse case completely inadequate or non protective. The car dealer, the owner friend/family member insurance agent or a googled car insurer
The salesperson is the brand car dealer
The main interest of the car salesman is for the owner to legally circulate and produce the registration card and the compulsory liability insurance to the traffic police.
The price for the insurance should be minimal as the car dealer is paid on the car value, model, upgrades and accessories the car dealer can maximize.
In no way is he paid on selling a suitable and comprehensive insurance nor has any knowledge on the car insurance market players and best-in-class.
Having said that, most car dealers have been courted by insurers to become their privileged partner for new car sales. This corporate monopolistic agreement was based on their mutual interest, between car brand & insurer, obviously the car buyer interested was not represented.
You will have the minimum to take out your car to the road or a biased advice by the resident insurer: more on this below.
Yes it is compulsory. Nevertheless in 2023 the compulsory Public liability insurance is limited to VND150 Mio, for bodily injury, disability or death and VND100 Mio for material damage. Knowing the average value of cars in circulation is VND1.3 Bn or the cost for lifetime disability the equivalent of $6,500 is definitely too limited if one stick to the compulsory insurance.
The salesperson is a friend/family member of the owner
The main interest of the owner of the car is to get money back on the value of his car and have the minimum compulsory insurance to show to the traffic police. In Vietnam tradition, a car owner will want to ‘help’ a friend or family member selling insurance so the car insurance purchase will make him a commission that he may be willing to retrocess to you as a discount for referring him to your business. There are 3 problems with this situation.
First, the likelihood that the sibling sells car insurance is low therefore the advice can not be professional.
Second, your sibling may ask you back what is your need to cover, which is not a proper way to give value-added advice. For instance, most Vietnamese owners are only interested in recouping the car value or repairs at the cheapest price possible. There are some additional questions a professional advisor would like to clarify: if you want car replacement value as new, as depreciated after a few years usage, repairs at the car brand center, electric damage to flooded engine (‘thuy kich’ clause).
Third, your sibling may introduce a friend to the salesman of a car insurer…
The salesperson is a car insurer
The car insurer sales will sell you his unique product.
The pricing will depend on 3 factors that have nothing to do with your market price and value-for-money criteria.
To make the sale regardless of his company is specialized in high end cars, imported, have repair agreements or original garages network over the country from Sapa to Can Tho. His job is to sell you a policy and it’s his first priority.
The second consideration in pricing its corporate decision based on their loss ratio on car insurance. The past performance of the insurer portfolio of car claims -last year- will dictate your inflated price. In other words, if the market price is base 100$ and the insurer had a claims ratio of 130% last year, it is likely their price will be inflated in the range of base 115$ to catch-up.
The 3rd consideration is their portfolio level of confidence in pricing. Let’s say if the car insurer has a modest car value base like Kia sedan, and your car is an expensive imported BMW with related costs the insurer is not familiar with, you will be quoted with an arbitrarily inflated loading on the premium ‘just-in-case’ with a ‘margin for errors’.
Of course, it is not the job of the insurance salesman to show you the competitors competitive pricing offers nor to disclose his company’s weaknesses in refund service or car repair network.
Notwithstanding the inflated price for a bigger commission, the insurer salesman traditionally set aside for your friend/family member to share a kickback on the deal without you knowing. A local practice not widely nor proudly advertised.
The 3 buyers have different interests to insure
The owner, the driver or the accountant, and the Expat rental user have different interests. In this chapter, we will expose the point of view of the various parties and specially some cultural differences when it comes to responsibilities and liabilities to pay for the consequences.
The car owner who rents the car to the Expat
The car owner wants to comply with the law with compulsory insurance at the minimum.
But also he is interested in getting at least the replacement value of his car, if he drives himself or his appointed chauffeur does. In case the owner rents, Vietnamese owners don’t want to pick up the insurance costs, they tend to transfer the responsibility to repay the property to the renter to avoid paying for the voluntary car value coverage.
Knowing the compulsory 3rd party liability is very limited to VND 150 Mio for bodily injury and death, VND 100 Mio for 3rd party property damage, the cover by all standards is insufficient.
Upon signing the rental contract, renter are advised to check those 2 cover carefully.
The corporate driver or the secretary/accountant buyer
The accountant wants no trouble with traffic police fines so the compulsory insurance is purchased.
Eventually both have no knowledge of what they need to buy, as they have never owned a car in their entire life and especially a high end luxury car.
Their instructions may be to buy the insurance so it is the cheapest and we are not infringing the traffic law.
In such condition, you may end up with the compulsory insurance Bảo hiểm trách nhiệm dân sự (TNDS) at a cost of VND 400,000/year for a 5-seat car or VND 800,000/year for à 6-to-11-seater car. The cover of your policy for compulsory Public liability insurance is limited to VND150 Mio, for bodily injury, disability or death and VND100 Mio for material damage. Knowing the average value of cars in circulation is VND1.3 Bn or the cost for lifetime disability, the equivalent of $6,500 is definitely too limited if one sticks to the compulsory insurance. You are under insured
The accountant or the driver may want to pay a higher premium to the sales agent to get à share of the commission for the ‘introduction’. Knowing the benefits and the concerns of the passenger/user is secondary or unknown.
The Expat rental driver or driven by a chauffeur
Most expats driving or renting a nice car with a driver assume the owner/driver/accountant knows the traffic laws and have protected themselves for the car. They assume by law and by self-interest that the common public and private interest are well taken care of on the contracts
This is an utterly wrong assumption as most car insurance contracts in Vietnam are minima and voluntarily purchased and renewed year-after-year.
The interest of the Expat is more thorough as they know what is purchasing a car insurance. They want to avoid paying undue bills in case of an accident. In other words, they are willing to buy car insurance to be protected for their liability in a professional.
Is the car value appropriate to indemnify the owner in case of damage or destruction?
Is the 3rd party cover enough?
Are the passengers and drivers properly insured in case of accident, hospitalization, disability or death?
What are the main differences in car insurance in Vietnam?
Car insurance clauses to insurer are 3 fairly simple for any Expat as as we drive à motorbike or a car back home it is compulsory, regulated and widely advertised.
Car insurance is very new in Vietnam and largely unregulated because:
- Most Vietnamese don’t trust local insurers
- Car owners use drivers so they don’t know the traffic laws or compulsory insurance
- Voluntary insurance top-up is seldom purchased as an additional cost
- contracts issued by insurers are minimal as owners are not familiar with insurance policies. As they want to save ‘unnecessary expenses’, in short they drive very expensive cars uninsured.
The basic need is simple: get back the value of the car and repairs with the original spare parts. This basic need is complicated in Vietnam, especially for sports and imported cars
Do you want a new replacement value or the amortized value. Some cars cost more due to increased import taxes 80% and special consumption taxes (luxury) 150%, therefore have been under or mis-declared by the importer. Some spare parts are not available off the shelf and need delays to import if possible at all.
The rainy season bring thigh high floods and a specific option needs to be purchased for ‘engine water attack, aka thuy kich when drivers caused an engine damage whereby the garage need to take out the engine to clean it or repair.
The compulsory 3rd party liability car insurance is insufficient
the compulsory Public liability insurance is limited to VND150 Mio, for bodily injury, disability or death and VND100 Mio for material damage. The base is a 30-month salary in case of a death or a pension for a disabled due to car accident.
A quick calculation of based on current GDP per capita of $3700/year equals 380$ salary x30 = $11,400/lethal accident. The compulsory VND 150 Mio ie. $6400 leaves you $5000 out-of-pocket.
Now an imported Porsche is worth VND 6Bn in average, the VND 100Mio compulsory pays for 1/60th of the damaged car. And guess what? the owners of such cars are usually highly connected to the authorities.
Driver and passengers
This is an option owners of cars never purchase. Any injury or death as a passenger or a driver, one will have to self pay: hospital surgery costs, disability income or death funeral indemnities.
Based on the above calculation, the court of law will base on a 30-month salary of a Vietnamese passenger. If we apply the Vietnam jurisdiction laws, the widow of a $5000/month salary expat employee may get US$150,000 for her loss. Obviously, it is not enough money to support a dependent family for more than 1-year. In many developed countries, car accident death is covered in the range of US$2-to-3 Mio as it is based on à lifetime income of the breadwinner. So who will make up for the shortfall if the passenger had no life insurance in place for a car accident in Vietnam.
Of course, if it is your company’s main client injured, the cost must be met: be it a medical evacuation to a Singapore trauma surgery or a ‘proper indemnity’ to sustain a family’s life in Europe for instance.
Anyway, in case of purchase it is a very limited cover, sold by tranches of $10,000, for death-only indemnity, often mistaken for hospital treatment allowance.
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