What fuels the growth of the InsurTech sector in China?
Major Chinese insurtech players such as ZhongAn, WeSure, WaterDrop, OneConnect, The CareVoice and Cheche Technology have been making quite a splash in China’s booming insurance sector over the last few years. China is projected to drive well over a quarter of global insurance growth by 2030, according to new research from Bain & Company.
However, due to tight competition and laws that favour domestic enterprises, few global insurers can operate in China's insurance markets.This gives room for local insurers and particularly insurtechs to make a mark in the country’s insurance sector. Concurrently, rapid technology innovations, high internet penetration and rising insurance demand has been driving the growth of insurtech firms operating in the country.
Why is it so attractive to be in China now?
China is bursting with potential for insurtechs to grow and innovate. The country has the largest population globally and boasts nearly 1 billion Internet users. This translates to a massive insurance customer base for both local and global insurtechs to target.
China’s high internet penetration rate has led to technology firms creating large-scale ecosystems serving a community with significant online consumption habits and mobile usage, says Max Ang, Insurance Technology Research Lead APAC at Celent in an interview with ITC Asia.
He points out that this evolution of online ecosystems and a younger, tech-savvy population have created opportunities for Chinese fintech players who have set up businesses in lifestyle, investing, financing, payments, and infrastructure.
The internet and e-commerce penetration rate in China is actually higher than that in the United States according to Ting Lin, Chief Strategy Officer at CheChe Group. He also noted that Chinese consumers have a very open and accepting attitude towards digital products. Mr Lin was speaking at a virtual panel discussion hosted by ITC Asia and INSLAB.
Fellow panellist Dennis Kang, CTO of ZhongAn Insurance & CEO of ZhongAn Info Tech Service highlighted that there has been a significant increase in the amount of time Chinese internet users spend online and this brings several opportunities to the traditional insurance industry.
ZhongAn has leveraged such opportunities to offer a convenient user experience for those looking to purchase insurance. Many young customers have in fact made their first insurance purchases from its online platform, said Mr Kang
Similarly, another insurtech player Tencent, a major Internet service portal, offers insurance services along with instant messaging, online shopping and mobile banking. This has enabled it to easily reach out to customers and be an inclusive insurance platform.
Judging by the success of local insurtech players in China, there appears to be room for global insurtechs to explore the market and tap on China’s uninsured population for growing their customer base. A report from Oliver Wyman estimated that China’s life insurance market will reach an 11-13% penetration rate by about 2040 - indicating a significant population who will be purchasing insurance products most probably online from insurtechs.
Technologies enabling Chinese insurtechs
The Chinese insurtech sector is also benefiting from breakthrough technologies like big data, cloud computing, AI and blockchain. Many of these technologies are contributing to the growth and evolution of China's insurance sector, shared Mr Lin in an interview with ITC Asia.
“There are many applications of big data and cloud computing in large insurers as well as insurtech startups as the industry is looking for ways to build up better customer acquisition, distribution and management processes,” he said.
Mr Lin also shared that AI has been experimented and used in many cross industry contexts such as autonomous vehicle manufacturers and health providers looking to develop or collaborate with insurance partners on relevant products.
However, he would prefer saying that breakthrough technologies are enabling the insurance sector" instead of "disrupting” it. According to him, the insurance industry is a mature one but there are several aspects that can be improved and reimagined with technology.
Meanwhile, Zhang Lin, China General Manager at The Carevoice, shares that breakthrough technologies represent a technology-driven trend. It is leading the future of the insurance industry as well as changing the perceptions of practitioners and consumers everyday according to him.
“We are glad to see that these technology applications are bringing positive impacts in almost all Chinese insurance companies' business operation chains to improve efficiency, reduce costs, and better control risks,” he said.
A recent Swiss Re report highlighted that big data and AI are being widely used to increase insurance policy sales and automate claims underwriting in the Chinese insurtech sector. It pointed out that big data particularly will play an important role in product development and risk pricing.
Mr Ang commented that there are already use cases of the Chinese insurance sector using credit risk and scoring analytics, embedded insurance, automated underwriting and fraud detection with big data, personalised and dynamic pricing, as well as integrated auto finance platforms.
For instance, breakthrough technologies has helped ZhongAn to innovate its insurance products with the platform offering specific policies such as freight refund insurance and insurance for drivers of DiDi, one of the world's largest ride-hailing companies according to Mr Kang.
The Covid-19 effect
Following the Covid-19 pandemic, it is very likely that Chinese consumers have become more ‘insurance conscious’ which would drive the sales of insurance products and in turn boost the growth of the sector.
“Covid-19 in general has made consumers more aware of the importance of insurance, especially for life and health coverage, and this has also led to insurers understanding the need for optimising their business models to serve customers,” said Mr Ang. He remarked that Chinese insurers will now have to look at digitisation models, and have an agile response centre for emergency scenarios.
Mr Zhang also suggested that the uncertainties presented by COVID-19 have changed people's perception of risk in general, especially in the area of health insurance. “We can clearly see the growth of short-term health insurance especially on the internet,” he said.
Meanwhile, Mr Lin noted that when Covid-19 broke out, several carriers took initiatives to create Covid related products. “Some might have done it for marketing, brand or revenue but I think they all had good intentions for the customers,”he added.
According to him, the pandemic has led to the insurance industry including regulators, carriers and distributors understanding how further tech enablement and digitisation efforts can only do good things to propel the sector forward.
Mr Ang also sees the pandemic bringing about opportunities for new products that cater to the needs resulting from the pandemic, such as expansion of policies through complimentary pandemic insurance, claims services, and remote diagnosis and treatment.
Obstacles to overcome
Despite factors driving the growth of the Insurtech sector in China, it will need to overcome certain obstacles to ensure its further progress amidst internal business development challenges, global socio-economic tensions and stricter local regulations.
Mr Ang observes that there are both local and overseas players entering the Chinese market. However, for overseas players or “western” companies, there is a greater need to consider the flow and exchange of data, and adherence to China’s regulations and guidelines with regards to data sharing and transfer.
For instance, insurtechs have to consider data and cyber security laws, personal information protection law, and internet regulation law.
Mr Lin brought to light another set of challenges faced by insuretechs in China. He notes that insurtechs are tech businesses with only a few years of existence and usually focus or are asked to focus on top line growth by investors .
While more growth can certainly result in good things with better technology penetration and raising digital awareness, a sound and profitable business model sustains and is what will eventually make a difference according to him.
Therefore, Mr Lin suggests that startups need to learn to balance their growth and profit strategies in different market environments. Additionally, insurtechs that have had good growth and are deeply integrated into the ecosystem can start to think about innovations in the core value chain such as underwriting and pricing.
“These endeavours are more challenging and will take more time but can definitely make a much larger difference for the betterment of the industry and ultimately the customers,” said Mr Lin.
The Carevoice can be seen in taking a lead in such endeavours. Mr Zhang shares that his firm is “actively trying to implement the health ecosystem within the scenario of an insurance company, providing solutions for product innovation and service innovation of insurance companies”.
At the same time, the Carevoice hopes it will enable a closer interaction between the insurer and the insured through a set of effective tools and operational methods. This will allow risk management and services involved in insurance to truly become customer-centric, said Mr Zhang.
There is also a call for Chinese insurtechs to go global. Yang Liu, the founder and CEO of INSLAB, who was speaking during the ITC Asia panel on “China Insurance and Innovation” expects more InsurTechs in China to take their first step overseas and find their own niche in the global market – ultimately building the global insurance innovation ecosystem.
At the same time, he hopes the Chinese insurance market can welcome more outstanding global insurance technology enterprises and entrepreneurs.
There are also other areas of improvement for Chinese insurtechs. While they have been doing well innovating across customer acquisition and user experience, Mr Lin said that in terms of underwriting and pricing, he would like to see a few good global cases that he can learn from.
It appears that the future holds a lot of promise for China’s growing insurtech sector but its progress ultimately depends on how well players optimise new opportunities and address obstacles.
To further explore how the Chinese insurtech sector can advance and navigate its way, the ITC Asia team is organising a virtual ITC China event coming up on 10 November where major insurtechs will share their insights. Click here to register for the event and find out more.