2018 China digital insurance and InsurTech in review

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2018 was a year of continued pragmatism within China’s insurance industry. Although a 3% penetration rate and tax incentives promoting the provision of employee benefits spurred growth, many startups are struggling with the fact that traditional insurers such as Ping An and Taikang Life have combined their offline channels with digital capabilities. Additionally, new regulations have restricted product designs and the remit of distribution based InsurTechs.

2018 also brought a realization that unlike the changes brought to banking by P2P lenders, legacy insurers will not be sidelined as easily. However, despite the challenges, several new models with truly differentiated approaches did emerge, and multi-channel distribution models (enabling mobile access to traditional channels) have also made headway, including:

1. Emergence of community-based InsurTechs: 

Various forms of community or P2P insurance models have already been considered at length by TDI’s Rick Huckstep here. This year, several new entrants turned to the communities at the heart of WeChat to reimagine the notion of P2P insurance in China.

2. WeChat as a platform for insurers:

Tencent is facilitating digital insurance initiatives on WeChat through several unique features such as location-based cross-selling and ‘mini-apps’ – designed especially for low-frequency use cases such as insurance.

3. Tencent launches WeSure

Finally, although insurers are embracing WeChat, Tencent itself plans to leverage WeChat with its own broker that is designing products tailored to segments of WeChat’s user base to engage with insurance.

In light of these trends, it is worth considering each of the above and its impact on digital insurance for the year ahead.

1) Emergence of the Community Model (Shuidibao, Crowd Health, Shimei)

China’s health system is characterized by an interesting paradox: nearly universal coverage by public health insurance yet those covered must pay significantly if they require operations, use patented drugs or specialist medical devices.

This issue is especially prevalent in smaller, often inland Chinese cities where the ability to purchase individual health insurance is lower. It is amidst this protection gap that community-based InsurTechs have arrived with WeChat based offerings through which users can contribute to friend’s medical expenses.

Although this contribution feature is provided to WeChat users for free, those contributing register with the broker in the process and herein lies the user acquisition method for this model.

Startups currently pursuing this model include Beijing based Shuidibao, Shandong based Crowd Health, and Zhongtuobang – all of which are using WeChat to not only acquire users but also leverage the same communities to re-invent the concept of mutual insurance.

Of these, Shuidibao (meaning “Water Drop Insurance”) is the most successful with 110 million registered users in its medical contribution feature, 32 million of these converted to its community-based reimbursement program, and 6 million of these that have purchased traditional life/health products. This implies a 5% conversion rate from registered user to the policyholder, a considerable achievement considering the conversion rates typically associated with life/health insurance online.

Recently, a new entrant, Trust Mutual, has further refined this model and amassed 15 million users by removing the payment barrier completely and instead allowing users to contribute their premium from an Alipay account on a monthly basis. The role that Alibaba and Tencent are playing in these models should not be overlooked, both have backed leaders in this vertical and their ability to direct traffic to both Shuidibao and Trust Mutual is a significant factor in their success.

Ultimately, the emergence of these community insurance offerings not only demonstrates the power of WeChat as a distribution channel but also the willingness of Chinese consumers to engage with new offerings from new brands such as Shuidibao and Datebao.

2) WeChat as a Platform

Although the launch of WeChat redefined life in China, the question of how insurers can best leverage WeChat is ongoing. Taikang Life first demonstrated the potential of WeChat as a marketing platform in 2013 with a viral campaign that attracted 3m participants. Since then, dozens of insurers have opened WeChat official accounts to provide customer service and lead generation. Tencent itself has developed a range of tools for insurers such as location-based offerings, chatbot APIs to assist with policy management, and POS cross-selling through WeChat Pay.

One of the most interesting WeChat use cases is agency management. Although Taikang Life was the first to manage agents through WeChat to monitor agent activity and performance, Ping An has perfected the practice by allowing WeChat users to provide lead generation for Ping An, effectively acting as un-tied agents that use WeChat IDs and location data to track the source of each lead.

Due in part to it embracing WeChat and other online tools, Ping An’s agents are twice as productive as the industry average, are more tightly managed, and exhibit less churn and higher renewal rates than their closest competitors China Life and Taikang Life.

Another noteworthy development this year was the popularisation of Tencent’s newest feature: WeChat mini-programs. Launched in 2017 complete with its own development language, mini-programs are especially suited to low-frequency use cases such as insurance that now number half the total number of apps on Apple’s app store. WeChat also recognized that infrequent usage requires extreme usability and an emphasis on quick learning, as users only accumulate knowledge about the design with extended use.

Finally, several Chinese InsurTechs anticipated that the growth of WeChat overseas will pave the way for their own expansion, with South East Asia being the first destination. One of these is Shuidibao, which is offering takaful (Sharia-compliant) cover to Malaysia’s 19 million Muslims, whilst retaining its reliance on WeChat for distribution.

Clearly, although WeChat started as a customer service channel for insurers, its use cases have now evolved from generic display to personalized offerings with an emphasis on speed of issuance and location. Tencent has recently entered with a distribution initiative of its own; WeSure.

3) WeSure

Founded on the premise that user data from Tencent’s consumer-facing platforms, location data from, and transaction data from WeChat Pay can be used to tailor policies, WeSure is attracting younger users across China’s tier one cities.

WeSure has succeeded by designing products for specific segments such as combining term insurance with an annuity component in addition to leveraging the social circles within WeChat to allow users to send child medical insurance policies as a gift, a practice which has increased WeSure’s conversion rate by 50%. Yet despite only operating for less than a year, WeSure has already amassed 10 million policyholders, 70% of whom are the first time buyers of insurance and 20% returned to buy more than one product.

Although WeSure, like many of China’s internet insurers, excels at cross-selling simple low premium products, it still lacks the agency and bancassurance network required to sell the higher margin complicated lines. To get there, Tencent is integrating online services with public hospitals and investing in preventative healthcare initiatives such as private hospitals with O2O capabilities and diagnostics.

Conclusion:

2018 saw many InsurTechs retreats as they struggled with traditional online distribution techniques. However, new entrants have found success by tackling systemic inefficiencies within China’s healthcare system whilst leveraging unique features of WeChat such as location data and mini-apps. WeChat aside, broader patterns of change are coming into focus too, such as Allianz being awarded the first WOFE license in China along with the deregulation of foreign broker restrictions, so they are now able to distribute individual lines online. Ultimately, 2018 compounded the need to persevere in the face of stiff competition and regulatory scrutiny. As McKinsey’s Hong Kong Managing Partner Joseph Ngai, who has written two books on insurance in Asia, has noted “while more radical models are still in an early stage of development, optimizing multi-channel interactions, accessing big data to develop more tailored propositions, and transforming processes on the front line and back office through automation will remain the immediate priorities”.