As published in Vietnam Investment Review on 19 Jan 2021

With a large percentage of the poor population in coastal localities often living in run-down houses, many families are in need of insurance packages for their homes. However, a lack of related insurance programmes among banks may leave their dreams out of reach.

Directly facing the sea with a coastline of 12km, Binh Thuan commune in Binh Son district, in the south-central province of Quang Ngai, has more than 2,000 households and is home to over 10,000 people. Nearly one-tenth are classified as poor, with an average monthly income of VND500,000-600,000 ($22-26).

Ferocious storms last October caused serious damage both in the commune and beyond. Here in Binh Thuan, a total of 1,155 households were seriously damaged, with many having their roofs blown away or their walls cracked. One was even completely destroyed.

“The locals are trying to stay afloat. Many of them have no money to repair their houses and are waiting for state support,” Ngo Van Vuong, chairman of Binh Thuan commune, told VIR. “If they were offered insurance packages, their lives would be less difficult. We used to work with some insurance firms on this, but none of them were ready to cooperate because they were afraid of the risks that may come from this type of insurance.”

In the commune’s Song Cau hamlet, 45-year-old rice farmer Huynh Anh Tho also told VIR he wishes that he could engage in an insurance package from a bank. His home was the only one in the commune to be fully destroyed by the storm, and he remains homeless.

“If the house had had an insurance package, I might have been able to repair it. Now we don’t know what to do, and many others are also suffering from such a plight. They can’t offer me much help,” Tho said.

In fact, throughout Quang Ngai, Tho is not alone in his plight. According to Quang Ngai People’s Committee, the storm has caused losses of about VND4.48 trillion (nearly $195 million), or 8.1 per cent of the province’s regional GDP in 2019. The storm injured 13 people, razed 325 houses to the ground, and unroofed another 140,000. What is more, it also sabotaged 450 educational establishments, 70 healthcare facilities, and over 100 communal homes, in addition to seriously damaging many roads and irrigation systems.

Along with Quang Ngai province, the whole central region has yet to overcome the consequences of the lethal storms. Quang Binh province, for example, saw 12 coastal communes seriously hit, with thousands of poor households becoming homeless, like Nguyen Thi Linh’s in Hien Ninh commune.

Linh, a 65-year-old disabled farmer, lives in Bac Co Hien hamlet and depends on support from relatives and neighbours. Her husband passed away many years ago. Her house’s walls were cracked, and she now feels very cold during the winter weather, as she has no money to repair them.

“I have never thought about an insurance package for my house. If it were a reality, I would have a better home,” Linh said.

Le Hoai Vu, Deputy Chairman of Hien Ninh People’s Committee, explained that many households like Linh’s have been facing the same plight. “We looked into insurance packages for poor households, but there has been no specific programme or policy from the state in this regard, so no insurance firm can cooperate with such poor people.”

The commune has a population of over 8,000 people living on 270 hectares of agricultural land, with an average per-capita income of VND20 million ($870) per year.

No programme available

In Vietnam, almost all 30 non-life insurance companies – including top ones such as PetroVietnam Insurance, Bao Viet, Petrolimex Joint Stock Insurance Company (PJICO), Post and Telecommunication Joint Stock Insurance Corporation (PTI), Bao Minh, and BIDV Insurance Corporation (BIC) – said that in the domestic market, only common insurance products protecting private homes in general are available, and so there is no such product specifically for houses in flood-prone areas.

Nguyen Viet Son, vice head of PJICO’s Technical Asset Division, told VIR that there are almost no insurance firms in Vietnam providing insurance packages for houses in flooding areas, and the few available services are deemed unpopular.

“PJICO has no such service. It offers insurance services for private houses, with a focus on certain types of houses, including apartments, townhouses, and villas, under specific conditions,” Son said.

Similarly, BIC is not an exception. Nguyen Manh Hai, vice director of BIC’s customer care and marketing division, said, “The most common packages are for houses in general. Normally, customers can purchase packages for flooding after they engage in packages protecting from fire and explosions.”

With its strong investment into the insurance segment for private homes in recent years, PTI also said there are insurance packages only for private houses in general.

“Because the areas are prone to natural disasters and floods, especially those which are about 1km from the sea, there are very high levels of risk, and so insurance products for private houses in these areas are limited. We currently have no such product,” confirmed a representative from PTI’s marketing division.

In need of insurance

With increasingly complicated developments and risks, insurance experts said that, without policies from the government on supporting flood-hit houses, many poor people will continue to be bogged down in difficulties.

According to the United Nations Development Programme (UNDP), insurance plays an important role in disaster risk financing by providing the government and other stakeholders with the financial means to cope with disaster response and recovery. Insurance products are often referred to as ‘market-based risk transfer solutions’ by providing more cost-efficient financing measures for medium- to high-level risks that generate higher levels of loss at lower levels of frequency. Although insurance is one of the critical components of risk financing, in Vietnam it remains under-represented in the financial toolbox currently being used by the government.

In fact, over the past few years, a number of organisations have been implementing programmes and projects to grant anti-flood houses for poor people in coastal areas up and down the country.

In an attempt to help many in the face of increasing disasters, the Ministry of Agriculture and Rural Development and the Ministry of Construction have been implementing an initiative to build more than 4,000 storm- and flood-resilient houses since 2017 in the five central coastal provinces of Thanh Hoa, Quang Binh, Thua Thien-Hue, Quang Ngai, and Quang Nam.

The initiative is part of a nearly $42 million project to improve the resilience of coastal communities to climate change in Vietnam, funded jointly by the Green Climate Fund (GCF), the Vietnamese government, and the UNDP. The capital includes over $29.5 million in grants from the GCF and $1.6 million from the UNDP, while the remainder comes from the Vietnamese government. So far, over 3,300 houses of this type have been built in the five provinces. Under this project, the 4,000 new houses will benefit 20,000 poor and highly disaster-exposed people across 100 communes in these coastal provinces.

These new homes are based on simple designs to create a stronger structure. Features include a mezzanine level for flooding protection, reinforced roofing, and the use of strong cement. The mezzanine level allows residents to comfortably stay in their houses during a disaster, safe from high flood levels. This level can also be used as an area to store valuables during disasters and prevent it from being washed away or spoiled by flooding waters.

“We have just completed some research on disaster and climate risk financing and insurance options in Vietnam’s coastal areas. Based on that, we will work with the Vietnam Disaster Management Authority to explore further opportunities for supporting local poor and near-poor households to have better resilience to the impacts of disaster and climate risks,” Vu Thai Truong, UNDP programme management specialist, told VIR.

As long as there are no policies on insurance for flood-hit houses, hundreds of thousands of poor farmers like Huynh Anh Tho in Quang Ngai or Nguyen Thi Linh in Quang Binh will continue living in misery.

“We expect that one day their homes will enjoy preferential insurance from the state,” Binh Thuan commune’s chairman Vuong said. “Insurance can help them to be less anxious about having money to repair their houses.”