3 October, 2015
Recent Developments
The Government of Vietnam has recently released the preliminary draft of a decree (Draft Decree) on compulsory insurance in construction and investment activities. The overarching aim of this decree is to address practical issues and improve the effectiveness in the implementation of this type of insurance. In particular, it aims at better mobilizing the support from the insurance market to cover risks for construction facilities and recover damages quickly and sufficiently to ensure the thorough implementation of investment projects. This also helps investors, contractors and workers feel more secure when participating in construction and investment activities in Vietnam. For these purposes, the Draft Decree provides for certain regulations on investors and contractors' responsibility for purchasing compulsory construction insurance products, as well as the conditions for insurers to provide such products, and requirements for premium and minimum insured amounts.
Specific Implications for Insurers
Under the Draft Decree, to provide compulsory construction insurance products, a local insurer must meet the following conditions:
- It has been licensed to provide property insurance and damage insurance products;
- Its owner’s equity capital is at least equal to the legal capital required for such insurer;
- Its solvency margin is no less than the minimum solvency margin, as required by the law; and
- The head of the insurer's professional department on property insurance and damage insurance must have at least three (3) years of experience of directly working on property insurance and damage insurance and must have a degree or certificate of training on insurance.
For offshore insurers, the Draft Decree proposes a requirement that in order for an offshore re-insurer to receive compulsory construction insurance, ceded from local insurers in Vietnam, such offshore re-insurer must be:
- lawfully operating under the laws of the country where it is headquartered; and
- rated at least “BBB+” by Standard & Poor’s or Fitch, or “B++” by A.M. Best, or “Baa” by Moody’s or gets equivalent ratings from another experienced and accredited rating institution in the latest fiscal year of reinsurance.
In the case that a local insurer cedes insurance to an offshore re-insurer being its parent company or another company within the same group without a credit ranking, such local insurer will have to obtain a written confirmation from the foreign insurance regulator where the offshore re-insurer is headquartered, confirming that the offshore re-insurer has met solvency requirements in the latest fiscal year of reinsurance.
Specific Implications for Investors and Contractors
Under the Draft Decree, investors must purchase insurance for certain construction facilities, including:
- Nationally important facilities, large-scale facilities and complex technical facilities in the list annually decided by the Prime Minister;
- Facilities or part of facilities having an impact on public/community safety;[1]
- Facilities having a significant impact on the environment;[2] and
- Facilities with specific technical requirements and complex construction conditions under the guidance of the Ministry of Construction.
In the case that the insurance premium is included in the price of the contract (between the contractor and investor), the contractor must purchase insurance for those facilities.
In addition, consulting contractors must purchase construction consultancy professional liability insurance for construction survey or design works for construction facilities at certain levels, as classified by the Ministry of Construction. Construction contractors must also purchase insurance for its employees who work on construction sites.
Sum Insured
The Draft Decree proposes a minimum requirement for the sum insured as follows:
For construction facility insurance, the sum insured is the full value of the construction facility and must not be less than the total value of the construction contract;
- For construction consultancy professional liability insurance, the sum insured is at least equal to the value of the design consulting contract; and[3]
- For the insurance for construction contractors’ workers in construction sites:
- the specific amount indemnified for each kind of bodily injury is determined by the schedule of bodily injury levels issued by the competent State agencies (in case a worker is injured); and
- the sum insured is fixed at VND100 million (approximately USD4,500) per person per case (in case of death).
Please let us know if you have any comments on these proposed regulations of the Draft Decree, or any other provisions you would like to add to the Draft Decree. We can assist you with reviewing and sending your comments to the drafting team of the Government accordingly.
For further information, please contact:
Oanh H. K. Nguyen Partner, Baker & McKenzie
oanh.nguyen@bakermckenzie.com
