THE NEW LAW ON INSURANCE BUSINESS OFFICIALLY ENTITLES LIFE INSURANCE AND HEALTH INSURANCE BUYERS TO BE ELIGIBLE FOR AN “INSURANCE TRIAL” PERIOD OF 21 DAYS

On June 16, 2022, The National Assembly has just ratified the Law on Insurance Business (“LOIB”) No. 08/2022/QH15, replacing the LOIB 2000, amended and supplemented in 2010. The LOIB 2022 acquires new regulations promoting and facilitating insurance business activities in Vietnam, including many amended contents related to insurance contracts (“ICs”), typically as follows:

1. The change in the classification of insurance forms leads to the change in the classification of corresponding ICs

Change in classification of insurance types: Previously, the law only classified insurance into 02 types as life insurance and non-life insurance, in which health insurance was put in the group of non-life insurance, along with other types of insurance such as property insurance, civil liability insurance. However, this classification is not suitable because the application of health insurance has more similarities with life insurance than other types of non-life insurance because they have the same subject of insurance which is human. Therefore, due to the different nature of health insurance compared to life insurance and non-life insurance, the LOIB 2022 has changed this classification by putting property insurance into a separate category. According to which, at present, there are 03 types of insurance: (1) Life insurance; (2) health insurance; and (3) non-life insurance.

Change in classification of ICs: Pursuant to Article 12 of the LOIB 2010, amended, supplemented in 2019, there are 3 types of ICs classified, including: (1) Personal ICs; (2) Property ICs; và (3) Civil liability ICs. However, Article 15 LOIB 2022 has been more specific about the insured subjects and divided ICs in 5 following types: (1) Life ICs; (2) Health ICs; (3) Property ICs; (4) Damage ICs; and (5) Liability ICs, in which:

1. Life ICs và health ICs: separated from the personal life insurance on the basis that the subjects of life ICs are the life expectancy of a person, human life and the subject of health ICs is human health.
2. Property ICs: There are changes in subjects. According to which, the old regulations specifically listed the subjects of the property ICs, including “tangible objects, currency, valuable paper and property rights”[1]. The LOIB 2022 has amended this regulation and generalized as “The subjects of the property ICs are properties according to the provisions of the Civil Code”[2].
3. Liability ICs: There are changes in the name (formerly “Civil liability ICs”) but not the subject of insurance – “civil liability of the insured person towards a third party in accordance with the law”[3].
4. Damage ICs: supplemented a subject of insurance: “any economic benefit or contractual obligation or legal obligation incurred by the insured person in the case of any damage”[4].

There are also significant changes in each type of ICs, specifically:

1. Life ICs and healthy ICs:

1. The new regulation clarifies that the subject of the insured as “another person, if the insurance buyer has insurable interests”[5], including: (1) Person who has financial interests or labor relationship with the insurance buyer; and (2) The insured person agrees in writing that the insurance buyer shall purchase health insurance for him[6].
2. The new regulation emphasizes the principle of freedom of agreement of the parties when giving the parties in the IC the right to agree on cases where no indemnification and insurance payment is required [7] (previously, it was only possible to comply with the circumstances specified in the law).
3. The LOIB 2022 supplements regulations on group ICs – ICs for a group of people established not for the purpose of participating in insurance. Compared with individual ICs, insurance costs for group ICs are lower, although the insured person shall still enjoy the same insurance benefits as individual insurance. This type of insurance is in fact often used by companies for their employees as a benefit program although there has been no specific legal basis before the LOIB 2022.

    b. Property ICs và damage ICs:

1. Supplementing regulations on insurable interests of the property ICs and the damage ICs[9].
2. Amendment on regulations of the insurance amount: Not only is the amount determined on the basis of the insurance buyer's request as in the old regulations, but that amount must also be specifically agreed upon by the parties in the IC[10].

    c. Liability ICs: Amending regulations on limitation of insurance liability, according to which, insurance liability is not only limited to the amount of insurance in accordance with the law as prescribed in the old regulations, but at present, it is also limited to the scope of insurance amounts agreed by the parties in the contract ^[11]. In other words, the law respects the agreement of the parties in this case, but at the same time the agreement of the parties also needs to comply with the provisions of the law.

2. Amending, supplementing regulations on compulsory insurance

1. Regulations on a number of types of specialized compulsory insurance are omitted, such as: insurance of air carriers’ civil liability toward passengers; professional liability insurance for legal consultancy activities; and professional liability insurance of insurance broker enterprises. Instead, specialized laws to govern are entitled by an open regulation: “compulsory insurance regulated in other laws" that serves the purposes of protection of public interest, environment and social safety[12].
2. Supplementing provisions to protect the interests of compulsory insurance buyers. According to which, organizations and individuals that subject to compulsory insurance are obliged to buy compulsory insurance and be selected to participate in compulsory insurance at insurance enterprises and branches of foreign non-life insurance enterprises permitted to operate, and these insurance enterprises and branches of foreign non-life insurance enterprises must not refuse to sell when organizations or individuals meet the requirements to buy compulsory insurance as prescribed by law[13].

3. Supplementing regulations on the time to consider participating in insurance and temporary insurance in life insurance

Pursuant to Article 35 of the LOIB 2022, as for ICs with a term of more than 1 year, within 21 days from the date of receipt of the ICs, insurance buyers have the right to refuse to continue participating in insurance and receive a refund of the paid amount. Understandably, this 21-day period is the “insurance trial” period. During this period, the insurance buyers are granted “temporary insurance” (temporary insurance only applies to life insurance).

In practice, insurance enterprises have also been applying this "trial" period to ICs of great value, usually life ICs, with a term of 21 or 14 days. However, there has not been any legal basis for this issue before the LOIB 2022. At the same time, the new regulations also grant the insurance buyers this consideration period not only for life ICs but also health ICs of great value (with a term of more than 1 year).

4. Supplementing compulsory contents in ICs:

1. The new regulations require that the scope or benefits of insurance; rules, conditions, terms of insurance must also be specified, not just exclusions of insurance liability as old regulations.
2. It is not required to specify the time limit for insurance payment and/or indemnification, but only the content of the method of indemnification and insurance payment.
3. The date of entering into contract is no longer a compulsory content. Correspondingly, the law requires that the effective date of the IC is a compulsory content.

Other contents of the IC remain the same.

5. Supplementing cases of invalid ICs

Previously, in addition to the cases specified in the law, Article 22.1 of the LOIB 2010, amended, supplemented in 2019 also has an open provision: “Other cases as prescribed by law”. Article 25.1 of the LOIB 2022 has specified this provision by supplementing cases of invalid ICs due to reasons such as violation of basic principles when entering into contracts (e.g.: contrary to law and/or social morals; the insurance buyer has not been/are not capable of entering into a contract; the IC is entered into due to deception, misunderstanding, intimidation, the IC violates the regulations on the form of the contract).

In addition, in the case of invalidation due to the absence of the subject of insurance, the new regulations also clarify specifically that the time to determine this basis must be “at the time of entering into IC”.

6. Supplementing cases in which life ICs and health ICs cannot be entered into for the death of other persons

Pursuant to Article 39.2 of LOIB 2022, these cases are amended, supplemented, including:

1. Minors, unless the person's father, mother or guardian agrees in writing.
2. Persons with lack of legal capacity
3. Persons with limited cognition or behavior control.
4. Persons with limited legal capacity.

The LOIB 2022 shall take effect as of January 01, 2023.

[1] Article 40 of the LOIB 2010, amended, supplemented in 2019.

[2] Article 43.1 of the LOIB 2022.

[3] Article 57 of the LOIB 2022.

[4] Article 43.2 of the LOIB 2022.

[5] Article 31.2(d) of the LOIB 2010, amended, supplemented in 2019.

[6] Article 34.1 of the LOIB 2022.

[7] Article 40.1(đ) of the LOIB 2022.

[8] Article 41 of the LOIB 2022.

[9] Article 44 of the LOIB 2022.

[10] Article 45 of the LOIB 2022.

[11] Article 59.1 of the LOIB 2022.

[12] Article 8.2(d) of the LOIB 2022.

[13] Clause 3 and 4, Article 8 of the LOIB 2022.