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China In-Depth: Healthcare funding ecosystems

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The last five years have seen something of a cultural revolution in China. Technology has transformed society and extended protection to those who could never have afforded it in a traditional insurance system.

Access to micro-insurance has both educated and encouraged millions of consumers to protect their assets, even if only a smartphone, through to their health and their lives.

But it is within health in particular that there has been the greatest change for Chinese citizens.

Healthcare black hole

The desire to sell insurance to the masses is not easy when many are living at or just above the subsistence level.

However, there is enormous demand, as the vast majority of the population have very limited medical cover through the state system. Out of pocket expenses can be challenging enough for the individual when medication is required. But for those who face a chronic life-altering illness, it can literally be a death sentence.

In those five years, a great many mutual assistance programmes (eg Xiang Hu Bao, Shui Di Hu Zhu) have launched into – and subsequently withdrawn from – the Chinese market.

Alongside these developed major illness fundraising platforms, such as Shui Di Chou and Qingsongchou.

While both are designed to assist the less wealthy Chinese citizen to gain access to the means to cover major medical expenses, the business models for each are very different (see December 2019 China in Focus for more on mutual assistance schemes).

Both Shui Di Chou and Qingsongchou have similar business models.

Shui Di Company consists of Shui Di Chou (水滴筹 – Shui Di Fund Raising), Shui Di Hu Zhu (水滴互助 – Shui Di Mutual Assistance) and Shui Di Bao (水滴保 – Shui Di Insurance).

Unholy trinity

The fundraising component offers the means and connectivity to social media for individuals or charities to raise funds for their cause or individual medical expenses through crowdfunding.

The mutual assistance offers low threshold/low premium access to a form of pooled risk product to meet certain medical expenses.

Meanwhile, alongside these other two arms is the platform that sells insurance products and which is the primary source of revenue for the whole group.

The three offer different points of entry to mitigating certain costs and risks associated with medical care. But its function is to familiarise and educate the public firstly on risk-sharing concepts. It also prepares them to become willing consumers of regulated insurance products once their concerns about the shortfall in their medical cover exceed any inhibitions about buying insurance.

Shui Di Chou has around 180 million users, of which 60 million are in the Shui Di Hu Zhu scheme, and 8 million users have further enhanced their coverage on Shui Di Bao through Shui Di Insurance Mall, an online insurance broker. These products include personal insurance, covering major illness insurance for both adults and children, million dollar medical insurance, travel insurance, adult accident insurance, old age accident insurance, children accident insurance, group insurance.

Qingsongchou operates a similar model and runs Qing Song Hu Zu (mutual assistance) and Qing Song e-insurance that offers a complete health protection system. Here, as in the car of Shui Di, the fundraising business is used as a lead generator for their commercial ventures.

Safety in numbers?

Mutual assistance has become popular because it is cheap and even the restricted cover it offers is many times greater than most users could have anticipated.

For instance, Shui Di Mutual Assistance charges members 9 yuan to join. If they should need to apply for mutual assistance, a member may receive up to 300,000 RMB.

It works like this. Once ill, a member applies for mutual assistance. There is then a series of reviews and a public announcement. Once done, a deduction is made to all members’ accounts and those deductions are evenly distributed.

For instance, if a member needs the maximum 300,000 RMB and there are 300,000 members in the plan, one yuan is deducted from each member’s account. The risks shared largely cover cancer and accidents.

Membership at 9RMB is an attractive proposition, but mutual assistance schemes are not insurance products and therefore are not under the power of an industry regulator. That does not mean there is no governance oversight.

The funds are independently monitored by a dedicated third party that adheres to the principles of safety, transparency, fairness and impartiality throughout the process. The use of funds is regularly publicised and the third party allows supervision by the community and all parties in the society.

There are five levels of risk control: observation period; platform professional team audits; third party public assessment; agency field surveys; and full staff disclosure and on-site visits are carried out as rigorously as elsewhere in the industry.

Scale makes the costs of running such schemes – which are paid to those running them – more efficient. Economies offer cross-subsidy that many low and middle-income groups would not be able to afford on their own or in small cohorts.

The network mutual assistance model is inclusive and can cover a wide range of groups. This way, it can meet the diverse needs of different groups.

Technology you can trust?

The benefits to consumers of these blockchain-based platforms that facilitate secure micropayments from a smartphone is something of a game-changer and would seem to outweigh any pitfalls.

Xiang Hu Bao, the online mutual aid platform owned by Ant Financial, attracted more than 100 million users in the year following its launch.

Its success reinforced the carriers using Alipay’s platform and drove up their health policy revenues by 60%.

But the fact is, these are insurance products. They are collectives that pool risk and share out premiums on a mutual basis. For all the checks and balances, there is no regulatory oversight, nor any benchmarks for best practice.

Businesses that live by social media are in danger of dying by them, too. Reputational risk is greatly amplified, because even false or inaccurate claims spread like wildfire and cause collateral damage to the brand.

In December 2019 Shui Di Fundraising sent its staff to hospitals in more than 40 cities in China. Here they made videos to raise funds on a ward by ward basis.

However, they claim to be ‘volunteers’, completed fundraising forms and failed to review the applicants’ financial status. There was also said to be a lack of supervision for any donations.

The project came across as a crass marketing exercise and was badly received by the public. Commentators pointed out, that if the trust is broken, the platforms will cease to exist.

Warning signs

This is not the first time credibility has been strained. On 16 October 2018, Trust Life Mutual launched its critical illness insurance on the Alipay platform. It protected against major illnesses and mutual assistance programs as “Xiang Hu Bao”. In a month, it had attracted more than 20 million of what it called “insured persons”.

However, on 27 November 2018, an on-site investigation by the supervisory authorities found a number of inconsistencies, determined the sales process to be misleading and that publicity and information disclosure was inadequate. The product could no longer be sold as an insurance product but had to be marketed clearly as a mutual assistance scheme.

Ant Financial also announced on the same day that to protect the rights and interests of existing customers Xiang Hu Bao – 相互保 would be upgraded and marketed as an online mutual assistance scheme, not an insurance product. It would therefore no longer be protected by insurance regulation.

These examples show the dangers that can present themselves through combining different ‘products’ under different regulatory or supervisory codes. Any suspicion of fraud or slight of hand will do much to damage the goodwill built up among hundreds of millions of users.

Their popularity is their strength and their weakness. They nurture a growing market of insurance savvy consumers who will if they can afford it, protect themselves and their families against health risks.

And whether regulated or not, the providers of these products must ensure they do more to demonstrate that they pay greater attention to governance in the future.

 

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