New regulations on methods and bases for calculating motor vehicle insurance premiums

The Ministry of Finance has issued Circular 67/2023/TT-BTC guiding a number of articles of the Law on Insurance Business 2022, Decree 46/2023/ND-CP dated July 1, 2023 of the Government detailing the implementation of a number of articles of the Law on Insurance Business. In particular, there are new regulations on the method and basis for calculating insurance premiums for motor vehicle insurance.

Method and basis for calculating insurance premiums for motor vehicle insurance

Article 25 of Circular 67/2023/TT-BTC provides guidance on methods and bases for calculating insurance premiums for motor vehicle insurance.

Specifically, non-life insurance enterprises and branches of foreign non-life insurance enterprises shall proactively apply appropriate methods for calculating motor vehicle insurance premiums, ensuring that they meet at least the following requirements:

Insurance premiums are constructed to ensure compliance with the provisions in Point d, Clause 2, Article 87 of the Law on Insurance Business.

Insurance premium includes net premium, product implementation costs and expected profit. Net premium, insurance product implementation costs and expected profit are built according to the provisions in Clauses 2, 3, 4, Article 25 of Circular 67/2023/TT-BTC.

The following risk-related factors are used as the basis for calculating insurance premiums, including: Type of motor vehicle according to road traffic laws; Business purpose (business vehicle, non-business vehicle); Purpose of use of motor vehicle (passenger vehicle, cargo vehicle, specialized vehicle); Year of manufacture of motor vehicle.

In case of applying additional risk-related factors other than the above factors, non-life insurance enterprises and branches of foreign non-life insurance enterprises must ensure that they have data as prescribed in Point a, Clause 2, Article 25 of Circular 67/2023/TT-BTC.

Carry out specific registration of cases and bases for increasing and decreasing insurance premiums.

The increase in insurance premiums must be based on factors that increase the insured risk.

The reduction of insurance premiums must ensure that in all cases the insurance premium after the reduction is not lower than the pure insurance premium and is based on one or more factors that reduce, disperse, share risks or reduce the cost of implementing motor vehicle insurance products, including the scale of the number of insured vehicles, the choice of deductible level, deductible level, compensation history, form of product distribution and other factors (if any). In case of insurance premium reduction due to direct sales, the reduced insurance premium level does not exceed the insurance agent commission rate as prescribed in Article 51 of Circular 67/2023/TT-BTC;

The premium of the additional insurance clauses must correspond to the insurance conditions and responsibilities; in case the additional clause expands the scope of insurance, the premium must be increased, in case the clause narrows the scope of insurance, the premium must be reduced, but in any case, it must not be reduced more than the net premium.

Pure insurance premium is the insurance premium to ensure the performance of the obligations committed to the insurance buyer, corresponding to the insurance conditions and responsibilities.

Non-life insurance enterprises and branches of foreign non-life insurance enterprises shall establish net insurance premiums for the 1-year insurance term of motor vehicle insurance products, ensuring that the following requirements are met:

Net insurance premiums are determined based on actual statistical data of insurance companies and branches of foreign non-life insurance companies, ensuring scale and continuity over a minimum time series of 5 consecutive years.

In case the statistical data do not ensure the scale and continuity, insurance enterprises and branches of foreign non-life insurance enterprises may use the following sources: Net insurance premiums announced by competent agencies and organizations; Public and official statistical data announced by competent domestic organizations to determine net insurance premiums; Net insurance premiums provided by parent companies or reinsurance enterprises, foreign insurance organizations accepting reinsurance; in this case, the reinsurance enterprise or organization must be rated at least “BBB” by Standard & Poor's or Fitch, “B++” by AMBest, “Baal” by Moody's or equivalent ratings by organizations with other rating functions and experience in the fiscal year closest to the time of submitting the application for registration of the method and basis for calculating insurance premiums and must have experience in exploiting reinsurance for this type of risk in the Vietnamese or Asian market.

In case of adjustment of net insurance premium of foreign reinsurers (increase or decrease), insurance enterprises and branches of foreign non-life insurance enterprises must explain the reasons.

The use of pure insurance premiums provided by reinsurance enterprises and organizations must be consistent with the insurance benefits that the insurance enterprise or foreign non-life insurance enterprise branch intends to provide in the rules and terms of the insurance product.

The net premium is determined specifically for each risk or for a number of the following risks: collision, impact (including collision with other objects); overturning, toppling, sinking, falling; being hit by other objects; fire, explosion; natural disasters; theft; and other risks (if any).

Short-term (less than 01 year) or long-term (more than 01 year) net premiums are determined on the basis of net premiums for a 01-year insurance period and must include an explanation of the risk allocation assumptions corresponding to the insurance period.

Non-life insurance enterprises and branches of foreign non-life insurance enterprises must ensure that assumptions on costs and profits included in insurance premiums do not exceed 50% of insurance premiums.

Document explaining the method and basis for calculating insurance premiums according to the form specified in Appendix IV issued with Circular 67/2023/TT-BTC.

Forms of providing insurance services and products on the network environment

According to Article 5 of Circular 67/2023/TT-BTC, the forms of providing insurance services and products on the network environment include:

Portal/Website with a domain name registered in accordance with current laws, e-commerce sales website or applications installed on electronic devices connected to the network allowing service users or insurance buyers to access the Portal/Website, e-commerce sales website;

Or applications installed on the Portal/Website, e-commerce sales website or e-commerce application established by insurance companies, branches of foreign non-life insurance companies, mutual organizations providing micro-insurance to serve the provision of insurance services and products in the network environment.

Portal/Website with a domain name registered in accordance with current laws, e-commerce sales website, e-commerce service providing website or applications installed on electronic devices connected to the network allowing service users or insurance buyers to access the Portal/Website, e-commerce sales website, e-commerce service providing website established by insurance brokerage enterprises and insurance agents to serve the provision of services and insurance products in the network environment.

Websites providing e-commerce services include the following types: E-commerce trading floors; Other types of websites as prescribed by the Ministry of Industry and Trade .

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