In 1986 during the Sixth Congress of the Communist Party, Vietnam launched a fundamental economic reform program, called doi moi (Renovation), a turning point that marked the country's transition from a centrally-planned economy to a market-driven economy with a socialist orientation. Key elements of this reform include (i) state-owned enterprise reform and private sector development, (ii) external trade and foreign investment, and (iii) liberalization of financial market. Along with the domestic economic reform, at the bilateral level, Vietnam has established and fostered economic relationships with other countries with a view to facilitating foreign trade relations and integration into the world economy. By 2003, Vietnam had entered into seventy-two bilateral trade agreements and set up trade relations with 165 countries.1 At the regional level, an important landmark in Vietnam's integration was joining the Association of Southeast Asian Nations in 1995 and the Asia-Pacific Economic Co-operation Forum in 1998. The road toward membership in the World Trade Organization (WTO) has been marked by observatory status in the General Agreement on Tariffs and Trade since June 1994. Vietnam became the 150th member of the WTO in 2007.
Concerning Vietnam's insurance services sector, commitments to liberalization of the domestic market under the market access and national treatment principles of the General Agreement on Trade in Services (GATS) require Vietnam to treat foreign insurance services and suppliers no less favorably than domestic counterparts.2 Consequently, equal treatment between domestic and foreign insurers in the provision of services will put domestic insurers under pressure to restructure and innovate corporate governance in order to enhance their efficiency. On the other hand, the national treatment probably makes it difficult for regulators to protect domestic insurance companies. This regulatory equity also restrains administrative intervention in the domestic insurance sector. In other words, it would eliminate regulatory discretion and arbitrariness.
Literature review shows that liberalization of services in general and insurance services in particular require regulation, including increasing the strength and quality of certain regulations, as well as introducing new rules that facilitate transition to a more open system.3 A more liberal insurance sector, therefore, will require a more complex and effective regulatory and supervisory framework. Under GATS, Vietnam, nevertheless, is not limited in introducing prudential measures for consumer protection and systemic concerns.4
Accordingly, this paper presents the necessity of enhancing prudential regulation and supervision on insurance business operations in Vietnam in order to protect the interests of consumers in the domestic insurance market. Comparative analysis provides an appropriate methodology. Experiences of the European Union (EU), the United States (US), and Japan are employed to analyze current solvency regulations in Vietnam because the US is the world largest insurance market.5 The EU and Japan are the second largest insurance markets in the world, just behind the US.6 In the case of the US, because the insurance industry is regulated at the state level but not at the federal level, model laws, which are developed by the National Association of Insurance Commissioners (NAIC)7 and can be adopted by states, shall be examined. Part II will provide a brief history of Vietnam's insurance services market and its regulations. Part III will present Vietnam's obligations and commitments in the field of insurance services under the multilateral framework. The review of compliance with commitments will be analyzed in Part IV. The necessity of future reforms of prudential regulations in the insurance sector is discussed in detail in Part V. Finally, with Part VI, this paper will conclude.
II. VIETNAM'S INSURANCE SECTORAND REGULATORY DEVELOPMENT