2017 proved that the convergence of digital forces with the insurance industry is still in its nascency, and despite a global slowdown in InsurTech investments, dozens of Chinese startups emerged this year to take on everything from telematics to preventative healthcare and AI based distribution intiatives.
Additionally, and reflective of the role that InsurTechs will play in China’s societal shifts, several leading universities have launched government backed research labs, including Tsinghua University’s Insurance Research Center and Fudan University’s FinTech Research Dept, both tasked with developing blockchain based electronic health records and unearth new models that could benefit China’s aging population.
In light of this activity, and with InsurTech fever now giving way to committed players, this month we take stock of the biggest developments of 2017, and consider the road ahead for China’s digital insurers.
The Zhong An IPO was a watershed moment for digital insurance in China. Not only did Zhong An’s opening market cap put the ecosystem business model beyond dispute, it also heralded the arrival of another juncture for the industry, specifically, as Alibaba, Tencent and Ping An all chose to dilute their stake during Zhong An’s public offering , they simultaneously removed any conflict of interest that may have impeded the fulfillment of their own digital insurance ambitions.
For example, Alibaba’s dilution of its stake during the Alibaba IPO signaled the beginning of an intensification of its efforts to build its own digital financial services arm, Ant Financial, by aggressively pursuing genetic profiling to unlock prevention based health insurance, and AI accelerated loss adjusting services for property insurers, which we already examined here.
Elsewhere, China’s largest travel platform, Ctrip, divested it’s 5% stake in Zhong An during the IPO and is now using its broker’s license to deal with a range of travel insurers. Even more importantly, Tencent, now also free of its commitment to Zhong An, recently filed to establish its own digital insurer, completing its arsenal of insurance investments and this, in addition to the ubiquitous WeChat messaging app, will allow Tencent to compete directly with China’s biggest insurers.
Ultimately, the Zhong An IPO signaled Tencent and Alibaba’s intention to go their own way with regard to digital insurance, and this relatively unreported action will have far reaching consequences for China’s insurance industry. Although Alibaba, Tencent and Ctrip continue to dominate their respective industries, the challenge now will be whether they can build profitable underwriting capabilities, something that has eluded both insurtechs and experienced Chinese insurers.
One often overlooked force within digital insurance is the impact of regulatory actions. In September, the Chinese Insurance Regulatory Commission significantly reformed life insurance by ruling out most short-term, investment-orientated products. The move is significant because participating products not only represent the most profitable products but also the most popular online life insurance products in China. In total, 147 life insurance products will face the sales ban including two of China Life’s top three best-sellers and others from Taikang Life, Ping An and New China Life.
Ultimately, although this move will force life insurers to distribute more protection orientated products as opposed to single premium participating products, the more significant consequence will be a hastening of the convergence between life and health insurance, a trend we have already looked at here and one that will being sweeping preventative healthcare services to life insurance policies in China.
Significant progress made on the functionality of chatbots during 2017. Although several insurers have already integrated keyword recognition based bots in their native apps and WeChat accounts, the current use cases are still largely confined to customer service queries and simplae quote generation. However, several acquisitions and recent advances have accelerated the timeframe in which chatbots will make their final ascent into everyday life, and some of these include:
Kitt.ai: Kitt.ai develops a conversational language plug in called ChatFlow. Chatflow allows developers to add voice initiated functionality into apps through the use of ‘trigger words’. Recently acquired by Baidu, Kitt.ai built its reputation by perfecting a white label feature that can identify ‘trigger words’ in order to execute pre-determined actions within apps. For insurers, Kitt.ai can be leveraged to provide policy management services, policy features such as breakdown assistance and risk prevention services such as fire outbreak, gas or water leak alert to policy holders.
iFlyTech: iFlytech is China’s most advanced speech recognition provider. Based in Anhui province, iFlytech’s voice assistant boasts a 97% accuracy rate for Mandarin, significantly out performing that of Siri and other offerings. Although iFlyTech has been reticent about which insurers it is working with, it has already been imbued into insurers online platforms to provide basic customer service functionality such as policy information, quote generation and policy renewal.
Innolife is a life insurance startup that has built a text based chatbot for WeChat. It is essentially a decision tree of user responses that is constantly added to as users engage with the bot. Innolife then presents tailored health, life and disability insurance policies to users based on the bot interactions.
Ultimately, as home assistants continue to transition from their current ‘plug and play’ state towards ‘integrated connectivity’ which is the notion that smart home technology comes as standard with new houses, insurers will need to consider the impact that natural language processing enabled home assistants will play in a preventative and usage based insurance capacity going forward.
The ubiquity of mobile payment platforms in China has gifted its mobile payment pioneers with an industry defining opportunity. Specifically, mobile payment portals have unparalleled access to transaction data, user behavior data, and location data that enables the cross-selling of tailored insurance propositions to the combined 600m active users of payment platforms in China.
The fact that 11% of AliPay users have already purchased financial services through Alipay only bolsters the case for insurance on Alipay and this year Alipay took its first steps with a promotion called Dabing Wuyoubao. The program offers premium contributions accumulated through the use of Alipay (a loyalty scheme of sorts) which could then be redeemed for critical illness cover in partnership with Taikang Life.
Through these promotions such as Dabing Wuyoubao, and buoyed by other pilots to cross sell financial services, Alibaba and Tencent will soon be able to cherry pick the most profitable customers active on their payment platforms, an enviable position for any company to be in.
Early signs that Chinese InsurTechs are beginning to cast an eye on overseas markets also emerged this year. Despite the scale and low penetration rate of the home market, the intensity of competition in China is spurring several InsurTechs with internationally applicable technologies to look for growth abroad.
For example, several Chinese InsurTechs have developed data mining APIs for third party apps that analyse the user behavior and profiles on such apps in order to develop tailored insurance propositions. Although Beijing based Wukongbao pioneered this model, Hangzhou based iBox has recently partnered with the government of Indonesia to bring usage based coverage to digital platforms there. Elsewhere, Tianjin based Panbao will soon offer it’s white label telematics platform to Filipino insurers.
2017 has been a year of continued abundance for China’s digital insurers. Although the Zhong An IPO belied the fact that technology’s encroachment into the industry is still early stage, the ability of Chinese insurers and startups to navigate regulatory actions and incursions from western insurtechs will ultimately determine who will follow Zhong An to insurtech stardom.
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