ZhongAn, a Chinese insurer that sells online insurance products, is representative of a new wave of 'insurtech' companies (ie, insurers engaging with online distribution models and tech companies foraying into the insurance industry) which recognise the gains to be made by entering into this emerging market. The China Insurance Regulatory Commission has been forthright in recognising and encouraging innovation that is centered on new types of insurance product, as well as online distribution at the national level. On the back of this favourable regulatory environment, companies and investors are following suit.
Compared with traditional insurance models, the online model for selling insurance has encouraged some companies to partner with, or accept investment from, larger tech companies (in Zhong An's case, Alibaba and Tencent) in order to tap into and reach a wider consumer base without being limited by regional operating restrictions. While the products on offer do not constitute the typical suite of insurance products that require on-site underwriting teams, they reach an audience that may be less familiar with the need for insurance – for instance, by offering niche products that provide coverage for e-commerce returns, flight delays and other more consumer-driven risks. By cutting out the insurance salesperson and going directly to an integrated network of online users through a variety of digital outlets, these companies can reach a wider and in many cases younger demographic. Zhong An is a particular example of how a relatively new market entrant can harness this new business model in conjunction with its partners; its 2015 profits reached Rmb168 million and it has accumulated sales of over 5.8 billion policies to date. In addition, the integrated networks of its investors, which span the banking, messaging and online retail sectors, allow it to harness a trove of useful big data for the purpose of assessing and providing credit risk cover.(1)
Rather than be left behind by these developments, the larger, more traditional Chinese insurers are adapting their longer-term business development strategies in response. For example, China Life Insurance and Ping An Insurance, two of China's largest insurers, have both recently revealed plans to invest substantially in this area.(2) Ping An Insurance has confirmed that it will continue to invest around $1 billion a year in internet development. Meanwhile, China Life has announced a tie up with Baidu to establish a $1 billion technology fund to invest in the Internet and related technologies.(3) Such technologies promise to disrupt the insurance industry by harnessing developments in artificial intelligence, blockchain and data mining – among other technologies – giving rise to new industry start-ups, such as Wukongbao, a Beijing-based insurance broker that is trying to disrupt the property insurance market.(4) By partnering with third-party platforms in the travel, health, auto and real estate fields, among others, insurers can use advanced data mining analytics to analyse user data from those platforms and develop new, customised insurance products. This is yet another example of how a digital insurance business model can be used to add diversity and innovation to the insurance market.
These developments by no means spell the end of traditional insurance models or large insurers whose resources, scale and functions cannot be replaced by an online model. These insurers will continue to perform vital functions in managing risk and protecting Chinese citizens in various sectors. However, the new avenues that these disruptive technologies will bring to the Chinese insurance sector remain to be seen.
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