ELECTRONIC CONTRACTS AND LIFE INSURANCE
Nguyen Huy Hoang, Partner, BROSS & Partners
Doan Thanh Binh, Associate, BROSS & Partners
In the Digital Transformation Handbook 2020, the Ministry of Information and Communications (Vietnam) stated: “Digital transformation is the common story of all businesses, regardless of industry and profession. [...] Digital technology businesses are only a small part, being the creators of digital technology or consultants on the application of digital technology. Other businesses that use digital technology to make new digital transformations are the majority and most important part”.
In our opinion, the above statement is much valid. Applying digital technologies to innovate operations, reduce costs, increase business efficiency is an opportunity that many businesses need to seize to survive and develop, regardless of industries or professions. The digital transformation process in Vietnam is relatively slower than in more advanced countries, but the pressure to innovate on businesses in many fields is very pronounced, as can be seen through the formidable development (and replacement) of technology–based transport services, logistics, payment intermediaries (e.g., e–wallets), fintech, e–commerce, etc., in the last 10 years.
The life insurance business cannot be outside the digital transformation trend, especially after the COVID–19 pandemic has posed rigorous tests for the traditional ways that businesses operate. Moreover, with the current technological advances, insurers can also apply them to solve some existing problems effectively. In this article, we will present some opinions from a law practitioner’s perspective on the implementation of electronic contracts in life insurance business, a basic step in the digital transformation process.
1. Characteristics of the signing and implementation of life insurance contracts
A life insurance contract or policy is basically an agreement between the policyholder (customer) and the insurer, according to which the policyholder must pay premiums, and the insurer must pay the beneficiary’s sum insured when an insurance event occurs – the event that the insured lives or dies at or during a specified period of time. Therefore, the life insurance policy will be closely related to the issue of risks and calculation of risks based on the law of large numbers, containing many sample terms with relatively complex content, must be in writing, and are applied to multiple customers. The signing of a life insurance contract is, in principle, carried out only after the completion of the exchange, provision, and clarification of important information about the insured person, the insured risks, and the insurance product.
To achieve the highest business efficiency and ensure the best provision of information between the insurer and customer, the insurer will not directly implement but mainly authorize a network of insurance agents who are specialized to carry out product introduction, product offering, advisory, and arrangement of the signing of insurance contracts. In addition, an insurance agent may also collect premiums on behalf of the insurer, arrange to settle insurance claims, and other related work. From the customer’s perspective, the insurance agent is the “channel” that helps communicate the customer’s information and decisions relating to the contract to the insurer (paying premiums, requesting contract amendments, etc.).
The above characteristics raise a number of legal issues worthy of attention regarding the signing and implementation of life insurance contracts as follows:
(1) Insurers need to verify the identity of customers, the accuracy and truthfulness of the information provided by customers as the basis for the appraisal and signing of insurance contracts;
(2) Insurers need to take measures to authenticate signatures of customers to make sure they have actually agreed and signed insurance contracts;
(3) On the other hand, customers also need to be clearly explained and provided with full information about the insurance products before deciding to sign the contract, be assured that the information received from the insurance agent is complete, honest, and the premium payments as well as the customer’s decisions related to the contract will be transferred to the insurer by the agent; and
(4) As a result of the stated issues, the insurer should have a management mechanism and ensure transparency and honesty in the operation of the insurance agents related to its products and customers; as the insurance agent, in essence, is the authorized person of the insurer, and the insurer will be directly responsible to the customer if the insurance agent commits a violation.
In our opinion, the above issues are very important for the life insurance business to be stable and shielded from fraudulent and profiteering insurance practices. The next section of the article will analyze some implications of electronic contracts related to the above issues and some notes for insurers.
2. Providing and verifying pre–contractual information by electronic means
According to the traditional method of providing information in life insurance, to form the basis for appraisal and signing of insurance contracts, customers will directly communicate with insurance agents and provide a copy of identity documents certified or authenticated by local authorities and medical examination records certified by the health facility designated by the insurer (usually, the insurance agent will directly accompany the customer to support the customer during the medical examination).
With the current legal framework of Vietnam, except for the activities that require customers to be physically present such as health examinations, we believe insurers can implement the provision of pre–contractual information electronically which helps save time and expenses not only for insurers but also customers.
Under the Law on Electronic Transactions 2005, data messages – which are information generated, sent, received, and stored electronically – have been recognized legal validity according to the following principles: (i) The information a data message shall not be denied legal validity simply because it is expressed in a data message; (ii) Data messages shall not be denied evidentiary validity simply because they are data messages; (iii) The evidentiary validity of the data messages shall be determined based on the reliability of the way the data messages are initiated, stored, or transmitted; methods to ensure and maintain the integrity of the data messages; how to identify the originators and other appropriate factors.
As such, the Law on Electronic Transactions 2005 does not rigidly stipulate the legal validity of data messages, but such validity depends on the technologies used in relation to the data message. One or several individual data messages may not be sufficient to prove a claim, but a combination of data messages that support each other will be proof of a party’s claim. With the combination of various current technologies such as digital signatures, blockchain, artificial intelligence, big data, digitized databases, insurers will have multiple technical options to verify that the information provided by customers via electronic means is accurate and honest. Some suggestions include:
(1) Insurers can perform know–your–client (KYC) procedures via electronic means using a combination of artificial intelligence facial recognition tools, OTP (one–time password) authentication via text messages to the customer’s registered phone number and requiring customers to use the one–time or regular digital signature services of digital signature authentication service providers to confirm the information provided. In practice, such KYC protocols have been implemented in Vietnam in the banking sector and is expected to help banks reduce expenses, avoid errors in data entry process, and detect forged documents that are difficult to detect with the naked eye. In addition, as far as digital transformation has not been implemented in the field of notarization and state authentication, insurers can still ask customers to supplement certified true copies of relevant documents through technology-based delivery services, if necessary.
(2) Insurers can cooperate with medical facilities to organize medical examinations for customers and share with each other and verify the results of medical examinations by electronic means automatically, to minimize paperwork.
(3) Insurers can also cooperate with banks and payment intermediaries to approach the same customer groups. The customers of the above organizations have been conducted KYC procedures in accordance with regulations of such industries and in many cases have been evaluated for identity information using artificial intelligence technologies, so the risks of false customer identity information can be minimized.
(4) The insurer may require insurance agents to work with the customer through video calls and store such data. Customers can mark confirmation and digitally sign under relevant details on the insurance application developed by the insurer to ensure that they have been fully advised and have clearly understood the product. The above data will also be the basis for assessing the operation of the insurance agent and determining liability if there is a related violation.
3. Using digital signatures in signing and performing life insurance contracts
In the traditional way, the signatures of the customer on life insurance contracts and related documents will be collected by the insurance agent using the forms, product illustration documents, insurance contracts, etc., provided by the insurer. In this way, the handwritten signature will be the foremost important evidence to identify the person establishing and performing the transaction. In case of doubt about a signature on a document, judicial experts may determine whether two or more different signature samples are signed by the same person. In some cases, however, the expert’s conclusion cannot point out the person who actually signed the document. To obtain expertise conclusions, stakeholders will of course have to spend time and money, and it is not always possible detect suspicious signs of a signature soon enough to call for judicial expertise.
Some acts of fraud in the insurance sector typically involve forgery of signatures. For example, the insurance agent can use other people’s information and personal records and forges their signatures on the insurance files to make fictitious contracts, then only pays the premium in the first few installments and terminates the contract to profit from commissions and bonuses from the insurer. The insurance agent may also forge signatures on premium payment documents to retain premiums collected from the customer without transferring them to the insurer.
It can be seen that the issue of authenticating the persons signing the insurance contracts as well as the process of implementing life insurance contracts is very important. With the current technologies, digital signatures can be a solution that has a number of advantages over handwritten signatures, with a relatively complete legal basis and technically feasibility. The use of digital signatures will not pose the issue of forged signatures as in the case of handwritten signatures. Insurance contracts and related documents, if digitally signed, will show the timestamp of signing, can be easily stored and are valid to prove the signer within the validity period of the digital certificate issued by the digital signature certification service provider, and are considered written contracts as prescribed. If denying a digital signature on a document, the owner or manager of the digital signature will be obliged to prove that his/her digital signature was used illegally (such as cases of being misled, mistaken, and stolen), but will still be held accountable for the consequences of failure to fully comply with the safety measures for digital signature management.
In addition, the insurer may also require insurance agents to use digital signatures to be able to manage, ensure transparency and honesty in the activities of the insurance agents, increase trust, and improve customers’ experience. For example, the insurer may require insurance agents to update and confirm the process of performing the contract with the insurer and the customer using a digital signature (such as when the customer pays the premiums in cash, the agent must update and digitally sign on the insurance application to confirm with both the customer and the insurer).
The use of electronic means including electronic contracts will certainly change the way life insurance contracts are arranged, signed, and performed, but this will not diminish or replace the role of insurance agents. Insurance agents will still be the main workforce in introducing, offering products, guiding, explaining, providing information to customers, and with the implementation of electronic transactions, the quality, transparency, and honesty in the operation of insurance agents will be better guaranteed and insurance agents that do not comply with the law and business ethics will be expelled.
4. Some other issues
(1) Personal data protection
If implementing electronic contracts, insurers will need to take note of the provisions on the protection of customers’ personal data, which are currently stipulated by the Law on Cyber Information Security 2015, the Law on Cybersecurity 2018, the Law on Information Technology 2006, the Law on Electronic Transactions 2005, the Law on Consumer Rights Protection 2010, etc. In addition, the Vietnamese Government is also preparing a Decree on the protection of personal data, which sets out the principles of personal data protection, which are generally built on international practices and insurers will need to refer to and comply with in the future as follows:
a. Principle of legality: Personal data is collected only in cases of necessity in accordance with the law.
b. Principle of purpose: Personal data is processed only for the registered or declared purpose of the processing of personal information.
c. The principle of minimalism: Personal data is collected only to the extent necessary to achieve the specified purpose.
d. Principle of limited use: Personal data may only be used with the consent of the data subject or with the permission of the competent authority in accordance with the law.
e. Principle of data quality: Personal data must be updated and complete to ensure the purpose of data processing.
f. Principle of security: Personal data is subject to security measures during the processing of personal data.
g. Principle of individuality: The data subject is entitled to know of and receive notices about activities related to the processing of his/her personal data.
h. Principle of privacy: Personal data must be kept confidential during data processing.
(2) Dispute resolution and litigation
Along with the implementation of electronic contracts, insurers can build data review tools (especially using artificial intelligence and big data technologies) and security measures for equipment provided to insurance agents for inspection and detection of unusual signs (deception, profiteering) in order to take timely measures, including refusal to sign a contract, termination/cancellation of a contract, bringing lawsuits, criminal denunciations, etc.
The results of these technological measures will exist in the form of data messages, and as stated, data messages are not denied the validity as evidence and will be valid in legal proceedings if there is reliability based on the methods of originating, storing, or transmitting data messages, how to ensure and maintain the integrity of the data messages, how to identify the originators, and other appropriate factors. Also, the Civil Procedure Code 2015 and Criminal Procedure Code 2015 both provide that electronic data can be a source of evidence. Therefore, the said data, if generated based on highly reliable technologies, can be submitted to state agencies and can be inspected by judicial experts (if further clarification is required) to use as evidence in legal proceedings.
The above are some of our comments regarding the implementation of electronic contracts in life insurance business in accordance with Vietnamese law. Please note that this article does not constitute any comprehensive legal opinion for any particular case. Please take expert advice should you encounter related legal issues.
BROSS & Partners is a Vietnamese law firm proposed by Legal 500 Asia Pacific, Chamber Asia Pacific, AsiaLaw, IFLR1000, Benchmark Litigation, with experience and capacity to advise and resolve disputes related to Investment, Enterprise and Commerce, Mergers & Acquisitions, Labor & Employment, Real Estate & Construction, Finance – Banking, Securities, Capital Markets, and Intellectual Property.
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 Ministry of Information and Communications (2020), Digital Transformation Handbook, p. 26, accessed at: https://dx.mic.gov.vn/.
 See Article 12, Article 7.1, Articles 3.12 to 3.17, Article 3.19 of the Law on Insurance Business 2000 (amended and supplemented in 2010 and 2019) (“Law on Insurance Business”).
 Article 14 of the Law on Insurance Business.
 See Tran Vu Hai (2006), Life Insurance Policies – Theoretical and Practical Issues, Judicial Publishing House, pp. 52–77.
 Article 17.2(a) and Article 19 of the Law on Insurance Business.
 Article 85 of the Law on Insurance Business; see Tran Vu Hai (2006), Op. cit., footnote 4, p. 65, pp. 83–108.
 Article 88 of the Law on Insurance Business.
 Article 4.12 of the Law on Electronic Transactions 2005.
 Article 11 of the Law on Electronic Transactions 2005.
 Article 14.1 of the Law on Electronic Transactions 2005.
 Article 14.2 of the Law on Electronic Transactions 2005.
 According to Article 11.2 of the Law on Anti–Money Laundering 2012, financial institutions may collect information through other organizations and individuals that have had or are in relationship with customers, or through a management agency or other competent state agency and compare such information with the information provided by customers.
 Article 14 of the Law on Insurance Business, Article 13 of the Law on Electronic Transactions 2005.
 Articles 25.2 and 25.3 of the Law on Electronic Transactions 2005.
 The reader can refer to, for example, Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC, accessed at: https://eur–lex.europa.eu/legal–content/en/TXT/?uri=CELEX%3A32016R0679.
 See Articles 92, 93, 94, 95 et seq. of the Civil Procedure Code 2015; Articles 86, 87, 88, et seq. and 99 et seq. of the Criminal Procedure Code 2015.
 Digital judicial expertise, in our opinion, though not yet popularly known of in Vietnam, as with the trend and demand for digital transformation, will be a field that needs to be developed in the future.