Mandatory Insurance in Vietnam

March 6th, 2023
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Insurance

Mandatory insurance aims to protect the public interest.  Under the new Insurance Law[1], there are four sectors where mandatory insurance applied: (i) the construction industry; (ii) civil liability of vehicle owners; (iii) fire and explosion insurance; and (iv) various classes of mandatory insurance prescribed in other laws.  This Article discusses types of mandatory insurance and the minimum coverage required.

Construction industry. Construction insurance is required before a construction project may be commenced, and it must be maintained throughout construction. Decree 119[2], Decree 15[3] and Circular 329[4], all apply:

  • Workers’ compensation covers risk of death or injury of workers. The minimum coverage is VND100,000,000[5] per occurrence.
  • All risk insurance (with few exclusions) covers the owner’s risk of loss or damages in connection with building/construction work throughout the construction period. Minimum insurance is equal to the project’s value (after completion), but it must not be less than the construction price set out in the construction contract.
  • Professional liability insurance covers risks of claims involving professional negligence or omissions against entities that provide professional services (eg, design, consultation, project management, etc.). The minimum insurance is the professional fees set out in the contract.
  • Third party insurance covers the contractor’s risks in relation to claims arising from property damages, and the death or injury of third persons. Minimum coverage varies from project to project: (i) minimum insurance for property damages to cover compensation and legal costs of the third party is 10% of the project’s value per occurrence (if the project’s value is less than VND1,000,000,000,000); other minimum amounts of insurance apply if the project value is above that amount (ii) the minimum insurance for death or injury is VND100,000,000 per occurrence.

Transportation industry.  The number of serious traffic accidents in Vietnam has diminished, but they remain high.  There is mandatory vehicle liability insurance to cover “civil liabilities of vehicle owners” (motorbikes, cars, trucks, buses).  Vehicle liability insurance is required before it can be registered, and this insurance must be renewed annually, as long as the vehicle remains in operation.  Failure to purchase and maintain automobile liability insurance is subject to administrative fines (ranging from VND100,000 to VND600,000)[6], which fines are extremely low.

Under Decree 03[7] and Circular 04[8], mandated compensation for death or injury is VND150,000,000 per occurrence (in case of all vehicles).  Compensation for property damage is VND50,000,000 per occurrence (in case of motorbikes) and VND100,000,000 per occurrence (in case of cars, trucks, buses).  Compensation, of course, is paid to the injured or damaged third party. Coverage for injury or damage to the owner of the vehicle or the driver that caused the injury or damage is optional for drivers and owners.

In addition to automobile liability insurance, passenger compensation insurance is mandatory for transportation companies involved in public transportation, such as ships, trains, taxis, buses, and airlines.  This mandatory insurance provides compensation to passengers in the event of death or injury or other type of loss.  Mandatory insurance varies depending on the type of transportation.  For example, under the Civil Aviation Law the maximum passenger compensation (in case of an aviation accident) is the equipment of 128,821 “units of account”[9] per passenger.[10]  The public carrier is obligated to carry this insurance.

Fire and explosion insurance.  Under Decree 97[11],  owners of airports, seaports, power plants, oil storage facilities, apartments/hotels with seven floors or more, schools, hospitals, restaurants, stores, supermarkets, commercial centers, etc. must have fire and explosion insurance.  A full list of particular buildings/facilities can be found in Decree 136[12].

The minimum liability coverage for each building/facility is specified in Decree 97 (ranging from VND50 billion to VND500 billion).

Banking sector.  The law obligates banks and credit organizations to buy deposit insurance in order to secure their repayment obligation to individual VND-depositors[13].  The maximum insured compensation is VND125,000,000[14], an amount that is quite low.  This mandatory insurance does not cover the risks of: (i) VND-deposits of certain bank shareholders (those holding 5% or more interest in the bank that with deposit insurance); (ii) deposits of individuals who are board members, general or deputy general directors of the bank; (iii) money used to buy unspecified valuable papers issued by the bank.

Oil and gas industry. Under the new Petroleum Law, effective from July 1, 2023, entities and individuals who engage in petroleum operations must have: (i) liability insurance against risks that may arise from work, equipment and vehicles which are used for petroleum operations, (ii) environmental liability insurance, (iii) third party liability insurance, personal insurance and other either legally mandated insurance or insurance commonly obtained as part of international petroleum industry practices. The Petroleum Law is new, and the minimum liability coverage is not specified. It will probably be elaborated upon in implementing regulations.

Professional liability insurance.  The requirement for professional liability insurance is stipulated in several laws (eg, the Law on Lawyers, the Law on Medical Practice, the Law on Independent Auditors, the Securities Law, etc.). These laws, however, do not specify minimum liability coverage. In practice, firms buy insurance packages with maximum compensation, and the maximum may be equivalent to their average annual revenue. Professional liability insurance covers risks arising from negligence or omissions or errors of practitioners.

Mandatory Insurance for employees and employers. The Vietnamese social security system has three types of insurance: social insurance (“SI”), health insurance (“HI”) and unemployment insurance (“UI”). Generally, both employees and employers must contribute. Compulsory SI and HI apply to: (i) Vietnamese employees who work under indefinite term contracts or under an employment contract with a term of one to three months and (ii) foreign employees who are licensed to work in Vietnam and who enter into an indefinite-term labor contract or a definite-term labor contract with a term of at least one year with a Vietnam-based employer. It is mandatory for employers and Vietnamese employees to buy UI. However, this requirement does not apply to foreign employees. Below are applicable rates for each of SI, HI and UI:

  SI HI UI
Foreign employees 8% 1.5% Not applicable
Vietnamese employees 8% 1.5% 1%
Employers 17.5% 3% 1%

Conclusion.  Many accidents or incidents are unforeseeable and unrelated third parties are at risk. Although mandatory insurance may cause additional costs for employers, contractors, transporters, professional practitioners, etc., mandatory insurance can mitigate the risks and claims for damages, losses, injury or death. In-house counsels and risk managers, must, of course, review their employers’ operating practices to be certain that appropriate insurance (including mandatory insurance) is in place.

[1] The Insurance Law became effective on January 1, 2023

[2] Decree 119/2015/ND-CP of the Government dated November 13, 2015 (“Decree 119”)

[3] Decree 20/2022/ND-CP of the Government dated March 10, 2022 (“Decree 20”)

[4] Circular 329/2016/TT-BTC of the Ministry of Finance dated December 26, 2016 (“Circular 329”)

[5] US$1=VND23,500

[6] Decree 123/2021/ND-CP of the Government dated December 28, 2021 (“Decree 123”)

[7] Decree 03/2021/ND-CP of the Government dated January 15, 2021 (“Decree 03”)

[8] Circular 04/2021/TT-BTC of the Ministry of Finance dated January 15, 2021 (“Circular 04”)

[9] The concept “unit of account” is a “currency” determined by the International Monetary Fund and established as Special Drawing Rights (“SDRs”) to those value is based on a basket of five currencies (US dollar, Euro, the Chinese renminbi, Japanese yen, and the British pound sterling).

[10] Articles 163 and 166 of the Civil Aviation Law, and Article 3 of Decree 07/2020/ND-CP of the Government dated August 26, 2020 (“Decree 97/2020”)

[11] Decree 97/2021/ND-CP of the Government dated November 8, 2021 (“Decree 97”)

[12] Decree 136/2020/ND-CP of the Government dated November 24, 2020 (“Decree 136”)

[13] Articles 4 and 19 of the Law on Deposit Insurance (2014)

[14] Article 3 of Decision 32/2021/QD-TTg of the Prime Minister dated October 20, 2021 (“Decision 32”)

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