Visitors at the 2008 Banking-Finance-Insurance Exhibition in Hanoi early this month. 
The high inflation and banking interest rates mean Nguyen Thi Ha has put off buying life insurance for her three-year-old son. 

“We cannot think of buying insurance now,” the 30-year-old said. “Last year we could save around US$100 per month, and intended to buy insurance for my son. But now, higher food costs gobble up all of our salaries, and we have no savings.”

Ha is among a growing number of people jettisoning plans to buy life insurance because of financial difficulties caused by the country’s economic slowdown. Others have just stopped paying their premiums.

The economy is expected to grow at 6.7 percent this year, compared to 8.5 percent last year.

“The life insurance industry is in a difficult situation,” general secretary of the Association of Vietnamese Insurers, Phung Dac Loc, Said. “The main reason is high inflation.”

The consumer price index rose 23.15 percent in the first 10 months of this year, according to the General Statistics Office.

Then there is the question of returns, a reason why even people who can afford to do not want to invest in life insurance. It yields a lesser return than gold or even bank deposits, they feel.

“I do not think buying life insurance is a good investment now,” said 35-year-old Nguyen Thu Huong, a garment trader in Hanoi’s Dong Xuan market. “At the current interest rate, I can earn more by depositing money in a bank.”

Commercial banks increased the rate on dong deposits to 15-17 percent in August from 8.4-9 percent in 2007, before reducing it to 10-14.7 percent this month.

Insurance premiums fetch a mere 2 percent.

“Some people who do not understand the benefit of insurance withdrew their money to deposit in banks to get higher interest,” Loc said.

In the second quarter this year, the number of lapsed policies was 14.4 percent higher than in the same period last year at 543,177, according to the association.

The falling interest in life insurance means the 10 life insurers in Vietnam, nine of them foreign, signed 600,765 new contracts in the first half of this year, just 6.6 percent up year on year, the association said.

In 2007, the number of new policies had jumped 29.7 percent to over 1.3 million, of which Prudential alone accounted for 532,606.

Loc said, to overcome the challenge, life insurers should develop new products, increase insured amounts, and improve the quality of agents. The life insurance market had been forecast to grow 14-16 percent this year.