Article Synopsis :
Insuretechs are driving an insurance industry revolution in China with double-digit growth fueled primarily by the fast adoption and heavy use of online ecosystems by Chinese consumers and a regulatory environment supportive of innovation.
In “China Insuretech – Industry Report”, Oliver Wyman and ZhongAn analyse China’s Insuretech market with an eye to answering the following questions:
- How big are the opportunities?
- How are business models evolving to seize the opportunities?
- What are the key factors required for success?
The report is divided into four sections:
(I) Size, Growth and Drivers of the Insuretech market in China:
By 2020, Insuretech premiums in China will surpass CNY1.1tn (USD174bn). The market will be divided into three segments:
a. Online distribution (CNY747bn): Selling traditional products and services through online or mobile channels.
b. Technology enabled upgrades (CNY197bn): Technology (wearables, telematics) leveraged to make existing products more targeted, customized and dynamic.
c. Ecosystem oriented innovation (CNY202bn): Leveraging data analytics to cover under-penetrated needs in embedded ecosystems. Key themes of this ecosystem improvement process are:
- Insurance alleviates worry by providing additional levels of guarantee during the purchasing process
- Insurance encourages purchases and consumption through the hassle-free return of goods, easing the worry of purchasing goods that might turn out to be unwanted
- Insurance improves the user experience by lowering the frequency of disputes caused by unsatisfactory products and providing better service
Insuretechs in China are being driven by CIRC (Regulatory body) which facilitates growth by fostering innovation. However, there are some differences in the regulatory constraints between new and existing products being addressed by CIRC.
(II) Possible Insuretech business models and potential changes that technology can bring about in their business economics:
Three phases of evolution in Insuretech business models in China are as follows:
- First wave begins with the use of technology to optimize existing value chains and digital distribution of products
- Second wave uses disruptive technology, largely driven by new startups with the Internet in their DNA. The value created includes increased penetration of products using technology transformation such as health insurance.
- Third wave will likely go beyond insurance with Insuretechs playing a key role as infrastructure service providers. For instance, storing health data in a block chain, or providing a full suite of customized financial services products, such as consumer finance and wealth management.
As insurance companies move from traditional business models to disruptive, tech-oriented business models (Second wave) business economies are bound to change:
- From top-line perspective, Insuretechs will grow more significantly than traditional players because of access to high quality data and consumption-driven ecosystems
- From bottom-line perspective, Insuretechs will benefit from risk and cost model changes because of the use of analytics and automation resulting in increased speed of product launch and upgrades coupled with reduced labour costs
(III) Key success factors and capabilities required to support Insuretech business models:
Insuretech business models can be supported by:
- Building technical capabilities such as universal connectivity, customer behaviour analytics, dynamic pricing, risk management, and automated processing
- Internet-start-up-like operating models with lean and flat organizational structures, transparency, need-based products, and short product development cycles
- Access to technology ecosystems capable of providing quality customer data for the development of need-based products
- Talent and incentive management schemes geared to attract and retain talented staff
(IV) Major risks and concerns including macroeconomics, regulation, technology, and competition:
- Macroeconomic impacts such as slowing growth can result in declining GDP which would adversely impact disposable incomes which could impact GWP
- Regulations have been favourable to date, but there could be situations wherein new constraints arise
- Technology failures can inhibit growth, especially for a rapidly growing company trying to ramp-up its systems
- Competition is on the rise. Insurers and disruptors may opt to setup joint-ventures. New forms of risk transfer (e.g. P2P) could emerge taking market from traditional insurers
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Digital Insurer's CommentsIn mature markets like the US disruptive technologies such as big data, IoT, blockchain, and the cloud are helping insurers lower costs and increase efficiency.
But in China, an underdeveloped insurance market enjoying double-digit growth, these technologies in the hands of Insuretechs are driving an insurance industry revolution.
There’s a reason China now tops the global rankings for fintech ventures (of which Insuretechs are a growing subset), from only one company ranked in the top 50 in 2014 to this year China featuring four of the top five companies and eight of the top 50.
As the Chinese government encourages an outward focus to help shift the country from manufacturing to a more innovation-driven economy expect Chinese corporate and state-owned enterprises to acquire or invest in startups in other jurisdictions to leverage those technologies within their own operations or within the Chinese market.
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