Article Synopsis :
In just the last six years China’s insurance market has doubled in size, making it the world’s third largest market behind the US and Japan. This brief from Oliver Wyman evaluates the fundamentals of the China insurance market with an eye toward commercial opportunities for existing players as well as outsiders.
Propelled by the strong tailwinds of economic growth, reform of the broader financial services sector and a stable government, an array of new financial products and services is gathering pace in China. Discerning Chinese customers, enjoying the ease and convenience of the “Alibaba and Tencent effect” within the retail sector, expect the same type of seamless and intuitive experience when evaluating insurance products. So in addition to an aggressive build-out of insurance capacity, there is a hearty appetite for real digital innovation.
Chinese entrepreneurial networks are looking to capitalize on transformation patterns experienced in more mature markets, such as the USA and Germany. This global foresight can offer some valuable lessons in navigating a course of survival and success in the Chinese market.
Innovation plays a critical role. Chinese boardrooms tend to embrace digital transformation more enthusiastically than their western counterparts. Part of the reason is Chinese firms aren’t burdened by, or dependent on, legacy books of business or the old technology stacks that run them.
One player in particular worth watching is Zhong An, which recently IPO’d with a market cap of just over $10 billion, making it one of the most valuable InsurTechs worldwide. Zhong An is applying fresh thinking to create new business models that capitalize on embedding risk cover into non-insurance ecosystems such as Taobao.com, Tmall.com, Ctrip and China Telecom.
In such a rapidly evolving insurance market, the report suggests three areas of focus for players and aspirants:
Proposition: This speaks to the development of innovative insurance-based products and services. To date, China players have been very active in the low cost, situational, community based and ‘insured to protected’ (i.e., reactive) areas of the market. Growth and share can be obtained by extending boundaries beyond traditional insurance models to more proactive, positive promises.
Distribution: China insurance sales are currently dominated by the B2C model. Zhong An, however, has successfully pioneered an affiliate integration model, shaping its go-to-market strategy around a partner ecosystem. There could be further growth potential in corporate platforms, exploiting insurance products provided by employers into broader offerings, allowing employees to access to a much broader set of solutions to cover their personal risks using their own personal money. New InsurTech models in this space are often based on the delivery of HR & Benefit solutions, such as Limelight Health in the US and Hibob in the UK. B2B offerings targeting SMEs, such as Zensurance in the US and Simply Business in the UK, could offer interesting insights and applications for the Chinese market.
Operations: Chinese insurance players, unburdened by rigid legacy systems and processes, are free to cherry-pick the best ideas for driving operational efficiencies. For example, Zhong An Technology has been offering various digital solutions to third parties – a trend that has gathered traction with FinTech providers such as AntFinance, Tencent’s mobile payment technology, and Dianring’s blockchain. The digitization of the claims supply chain is an area to watch, especially motor claims, fuelled by skyrocketing car ownership in China. German InsurTech Control€xpert is optimizing the digital claims supply chain, with the ultimate vision of embedding itself into the wider ecosystem of the large automotive OEMs. Denmark’s Scalepoint aims to reinvigorate the claims customer experience to the benefit of consumers and insurers alike. Underwriting is also an area that bears watching, with several global InsurTechs looking to rewrite the rating rule book. Examples include Cape Analytics in the US (risk assessment), and Earnix in Israel (pricing models).
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Digital Insurer's CommentsChina leads the insurance world in certain areas of innovation – such as ecosystem embedding and microinsurance. Zhong An, for example, offers coverage on ‘everyday pain points’ ranging from train and airport delays to mobile phone screen cracks to events cancelled due to bad weather to shipping returns of online purchases.
Digital technology enables Zhong An to offer these coverages for essentially pennies. But the pennies add up to big dollars as Zhong An’s premium revenues, thanks to digital scale, have grown 10x in four years, to over $1.2 billion. Insurers aspiring to play more of a role in the everyday life of their insureds can look to China for winning ideas.
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