In-depth: What does the next decade hold for Asia’s life & health insurers?

It’s been 10 years since Life Insurance in Asia: Sustaining Growth in the Next Decade was published. In it, the authors set down a series of shifts which were set to shape the industry over the coming decade. Now with the benefit of hindsight, it is worth considering the degree to which those predictions have materialised. By doing so, we will gain a better understanding of what the next decade may hold for Asia’s life & health insurers, and how the continuation of the same macro trends can be either mitigated or harnessed by insurers, brokers, and startups.

1. The proliferation of mobile devices and big data will open up new distribution channels

Although the importance of the smartphone as both a distribution channel and a customer engagement tool has never been misunderstood, the degree to which consumers have embraced apps, as opposed to the search engine, was unexpected. The rise of WeChat and TikTok have demonstrated not only the ability to forge a super app from a single feature, but also the creative ways to introduce life and health insurance to the masses. This has had a disproportionate impact on digital distribution for Asia’s insurers, who expected internet channels to evolve in much the same way as the West – with the search engine remaining front and centre of e-commerce.

Besides the well documented cases of WeSure and AliPay’s Xianghubao, some examples of this include Xiaohongshu or ‘little red book’, a popular short form video app which has brought specific health insurance for young mothers in tier one cities. Targeting a specific segment within a specific environment has proven an increasingly successful approach as the Chinese market matures.

In addition to the emergence of scenario-based insurance propositions, the authors of Life Insurance in Asia foresaw that “new technologies will allow delivery of frontline information in a much more effective way than the traditional approach of going though the sales hierarchy of five to seven layers before reaching an agency”.

Again this has been delivered but not in the form expected. Instead of consumers readily buying life and health insurance online, the internet has acted as an initial gateway for consumers to understand the fundamental principle of life and health insurance. The use of agents and offline capabilities remains heavily in use despite the adoption of internet channels.

2. Mass market growth will be replaced by product development for market segments

The second shift predicted by the authors of Life Insurance in Asia was the move away from mass market products distributed by millions of part-time agents. This too has come to pass, but in a wildly unexpected way. Instead of the shift away from mass market growth driven by consumer demand, the shift has been driven by regulators. And this dynamic has fundamentally altered the state of China’s life and health insurance market today.

A decade ago, regulators hoped that the private sector would provide enough coverage to protect people beyond the social insurance limits. Yet, today, China’s private insurance products have reached just 6% of China’s population, leaving a major protection gap for the government to grapple with.

To address this, Chinese regulators have taken a two-pronged approach. First, many of the internet orientated InsurTechs have been reminded that only protection-orientated products will be allowed in future, with thresholds introduced to measure the percentage of protection products that insurers are selling.

Second, additional regulations have been targeted at practices deemed self-serving instead of market serving. For example, the mass recruitment of agents via WeChat links has been forbidden. Additionally, one of the most popular products within health insurance, which includes an artificially low entry price, which is then recouped upon renewal, has also been forbidden. In fact, the renewals of life and health insurance online (until recently embedded seamlessly in the user journey with little or no customer authentication) are now required to explicitly seek approval for renewal and payment.

One company that has been navigating the changeable regulatory landscape is Nanyan Tech, a Shanghai based MGA that has adopted a hybrid digital lead generation model for its team of agents. It has embraced a new and flatter approach towards agent team management, whereby teams of more than 100 qualified agents are managed by a single Nanyan Tech team member instead of the traditional pyramid structure of agents. Furthermore, leads are generated online and passed to agents, which has minimised agent churn and demonstrates that quality is superseding quantity in the next decade of life and health insurance distribution in Asia.

3. Chinese consumers will increasingly view life insurance as a protection tool as opposed to a savings tool

As already noted, the major shifts underway in China’s life and health insurance industries are a result of the push factor of government regulation instead of the pull factor of consumer behaviour. In fact, the maturity of its InsurTech landscape is now characterised by fewer individual startups, but those that do remain are ‘higher quality’ actors. These include Mintbao, InsHealth, and Centaurus – all of which are working on product development needs as opposed to optimising distribution.

It is also worth noting that much of the life insurance innovations in the US have revolved around term life products. Ladder, Quilt, Bestow and others have all reimagined term life insurance by recognising that many participating life insurance products are disadvantaging consumers by masquerading as investment products instead of protection solutions. In China, this recognition has been lost on the mass market, unaccustomed to scrutinising financial services, especially those marketed within the confines of a smartphone screen.

Conclusion – Looking backward for insight to plan forward

China’s life and health insurance market is currently in a transitional phase due to the twin forces of increased regulatory scrutiny and the isolation wrought by Covid restrictions.

Going forward we see two key trends:

1. New product development will become increasingly important for life insurers to embrace the pull factor of changing customer demands, and the push factor of regulatory pressures that stem from a government desire for the private sector to carry more of the public healthcare burden.
2. Digital distribution and servicing holds out good promise to address protection gaps, but it would be naive to think that ‘digital only’ will meet all needs. New Digital first models that bring in the human touch , albeit virtually, are starting to emerge.