Manulife taps Vietnamese insurance market

Manulife targets Vietnam's middle class to sell life insurance.

From his 12th-storey office window in Ho Chi Minh City, David Matthews has a bird's-eye view of the crumbling Reunification Palace. Thirty years ago, the North Vietnamese army stormed the wrought-iron gates of the complex (then South Vietnam's presidential palace in what was known as Saigon), marking the end of the Vietnam War. But a bloody past is the last thing on Matthews' mind. General director of Manulife Vietnam, the British expat has his sights set on turning the Canadian-owned insurer into an overseas success story.

A lot has happened since Manulife Vietnam opened its doors in 1999, making it the first 100% foreign-owned life insurance company to establish roots in the communist country. Since then, the company has grown to 12 offices in nine cities and has carved out a 12% market share of the formerly state-controlled industry. By tapping into the country's emerging middle class and its quest for financial security, Manulife Vietnam has signed up almost 300,000 customers. And in 2002, a network of agents–currently 4,000 strong–helped Manulife Vietnam generate first-ever profits exceeding $1.6 million. But operating a market-driven, foreign-owned business in Vietnam is an undertaking rife with uncertainties. In less than six years, Vietnam's economic reforms have enticed five more foreign-owned insurers to the country, greatly increasing Manulife's competition. Meanwhile, the nation is still struggling to gain entry into the World Trade Organization. Last year's near-double-digit inflation rate was the highest in the past five years. And an avian flu pandemic could seriously jeopardize Vietnam's economic health.

Such are the risks of conducting business in a developing country. In fact, Manulife Financial, a leading Canadian-based financial services group operating in 19 countries and territories worldwide, spent six years trying to get the Vietnamese government to issue the company a foreign investment licence. In the end, says Matthews, Manulife Vietnam received the go-ahead–but not without enduring the “drawn-out process” of convincing Communist officials to open their doors to outside competition.

Allaying local fears is a crucial component in establishing a foothold in a foreign market, according to Harold Skipper. A professor of risk management and insurance at Georgia State University, Skipper says, “There is a whole litany of myths about foreign insurance companies setting up shop in developing countries.” Many of these myths revolve around concerns that foreign insurers will fail to reinvest in the local economy while at the same time “displacing indigenous insurance capacity.” But earning the trust of government officials is only the first hurdle. Winning the race means convincing Vietnam's 83.5 million citizens that they should part with their hard-earned money to purchase little-known products such as retirement plans and health insurance packages. “Raising awareness is the fundamental challenge that Manulife has to work on to enter a new market like Vietnam,” says Yuen Pau Woo, a chief economist at the Asia Pacific Foundation of Canada in Vancouver.

Fortunately, Manulife has discovered the ideal target demographic in Vietnam's emerging middle class. Economic reforms such as improved international trade relations, greater openness to foreign investments and the reduction of state-owned enterprises have culminated in one of the fastest-growing economies in Asia. With the country's economy growing at 8% annually, Vietnam's poverty rate has plummeted to 27% in 2004 from 58% in 1992. Today, the top 20% of urban households earn an average US$370 a month, the purchasing power parity of US$2,000 in the United States. And it's precisely these “up-and-coming urban professionals,” says Matthews, who are looking to insurance policies for financial security and long-term protection. “Awareness of the value of life insurance has increased exponentially over the last five years,” he says. The average cost of a Manulife Vietnam policy premium is US$250 annually, and Matthews expects to add another 80,000 policyholders to his customer base by the end of the year.

Manulife Vietnam isn't the only insurer hoping to cash in on the country's first generation of yuppies. Among the upscale restaurants and chi-chi boutiques to have cropped up along Vietnam's debris-strewn streets are three other foreign-owned insurance companies. (Two more were recently licensed and will start sales soon.) To safeguard its piece of the industry pie, Manulife has turned to innovative products and practices such as its recently offered “value preservation option,” which grants policyholders the opportunity to hedge the value of their policy against inflation or movements in the U.S.-Vietnam exchange rate. In 2002, the company implemented a software program that scans and stores customers' records online, allowing agents to instantaneously keep track of any changes in policy information. A company-wide intranet grants agents 24/7 access to corporate data, and policyholders can read about new products on Manulife Vietnam's customer website.

Technological advancements aside, the race for market domination in Vietnam is only heating up. This year heralds the 10-year anniversary of Hanoi's decision to join the World Trade Organization. To date, it has completed negotiations with only eight of the 27 countries that requested bilateral talks. Time is running short if Vietnam still plans on WTO membership by the date of the Hong Kong Ministerial Conference in December.

But Vietnam's insurance providers aren't in any rush for the country to reach a resolution. “The WTO is a double-edged sword,” says Woo. “In the same way that it's going to improve Manulife's access to the Vietnamese market, it will also improve access for all the other insurance providers.” That's because Vietnam's acceptance into the WTO ultimately hinges on its willingness to relax restrictions on trade relations and intellectual-property rights–factors that will make it easier for foreign companies to enter the marketplace. As a result, Woo says that many foreign-owned companies prefer to operate in “a partially closed regime” that is more likely to stave off fresh competition than welcome newcomers.

Matthews is quick, however, to dispel any notion that Manulife Vietnam is watching the clock in hopes that the country will miss its December deadline. Instead, he says that Vietnam's inclusion in the organization would lend the country “credibility on the world stage” and that increased competition would only raise awareness of the benefits of life insurance.

If a burgeoning insurance industry doesn't attract the attention of Vietnam's wealthy, the threat of avian influenza should. As of mid-May, there were 76 reported cases of bird flu in Vietnam since January 2004, 38 of which were fatal. Most human cases have been linked to direct contact with infected poultry. But if the virus mutates to allow for human-to-human transmission, Southeast Asia could have a pandemic on its hands. So far, Vietnam's economy has been able to withstand a few slings and arrows: beginning with the SARS outbreak in 2003 and avian flu reports in 2004, the economy was still able to show a growth rate of 7.7%. But Bernard Wolf, an economics professor at York University's Schulich School of Business, warns that an outbreak of bird flu is “a wild card for the economy [that] could have catastrophic consequences.”

For the director of a company whose life insurance coverage does not exclude avian flu, Matthews is remarkably unfazed. “If there were thousands of deaths, that obviously would have some impact; we have a quarter of a million policyholders,” he says. “Having said that, most of our policies are written in urban areas.” It's indeed true that the disease has primarily inflicted those who live in rural areas and who work in proximity to fowl–a profile that is likely to discount the majority of Manulife Vietnam's urban-dwelling policyholders. “The typical Manulife customer is someone who is fairly well off, who has access to world-class health care, who is well-informed, and who is less likely to catch [avian flu] than the average person,” says Skipper. That may be cold comfort to health officials and economists, but for Manulife Vietnam it's one less obstacle on the path to profitability.