Interview – Shi Wei, Answern Insurance
This month we speak to Shi Wei of Answern Insurance. Shi has fifteen years experience in the Chinese insuance industry and recently turned his attention to digital distribution models of which there is no shortage in China.
Q1. What is your view of the insurance market in China – as it currently is and into the next 3 – 5 years?
Despite the success of Zhong An and the popularity of InsurTechs, China’s insurance industry is still very early stage – with a combined penetration rate of just 4%. That said, China is already the third largest insurance market globally and is projected to grow at twice the speed of the domestic economy until 2025.
Ultimately, I think there are two major developments that will change the face of insurance here.
The first is China’s ageing demographic.
By 2030, almost half of Shanghai’s population will be over 60 years of age. The fact that Shanghai, a city dotted with futuristic sky scrapers, will soon be inhabited largely by old people is an irony with huge implications for insurers. Additionally, several insurance companies are investing in retirement communities and developing products for the retiree segment. However, insurers will need to go beyond this and think of new and differentiated offerings to capitalise on this demographic shift.
The second game changer for insurance in China is that the millenial generation are exhibiting dramatically different consumer behavior than their parents. In less than 20 years, the internet has gone from being a useful resource, to an indispensible part of daily life. Young people today are turning to their smartphones to provide everything from transportation, to healthcare, home security and payments.
Finally, China’s workforce and young people are increasingly indifferent to car ownership, and are as happy to rent as opposed to own a home. For insurers, this represents an upheaval of previously accepted norms, and is ushering in a new age of insurance products that are usage based and focused on prevention rather than pure reimbursement.
Q.2 How will distribution models will evolve as a result?
When considering distribution channels, it’s important to differentiate between auto, health and life insurance as each of these will be subject to unique disruptions in the coming years.
Today, auto insurance is primarily distributed through dealerships. One important difference between China and western markets is that for every one used car sold in China, five new cars are sold. This affects distribution as car dealerships and online marketplaces can capture significant distribution share.
However, the notion of connected mobility, fueled by the rise of car sharing and autonomous vehicles, will dramatically lower the rate of car ownership and require insurers to offer supplementary coverage for situations where autonomous vehicles cannot operate (in heavy rain for example). On the bright side, new risks such as cyber security for transportation networks and coverage for scenarios outside the operating capacity of autonomous vehicles will augment the lost premium income arising from autonomous vehicles.
One to watch: FutureMove is a Chinese telematics startup with a white label offering that can be integrated across both public and private transportation networks. Currently it is already working with Audi and several local governments across China.
On the life/health side agents and bancassurance still account for the majority of the distribution in this segment and, contrary to the prevailing digital opinion, I expect this channel to remain surprisingly resilient in the face of online models. The key point with regard to health insurance distribution is that consumers will increasingly opt for preventative healthcare policies as opposed to reimbursement cover. Advances in gene profiling and the sensors in wearables will also accelerate this transition.
One to watch: Dnurse is a Beijing based diabetes startup which has combined hardware (glucose meter) with software (app) to help diabetes sufferers to manage the condition. Currently being integrated into Ping An Good Doctor.
Q.3 What advantages do platform and internet insurance companies have over traditional insurers?
The advantages include:
1) Data (user behaviour data, location data, transaction data) used to tailor policies to users in a usage based and personalised fashion.
2) Access to distribution channels (travel portals, e-commerce) – to cross sell insurance.
3) Brand recognition and user engagement – A widely recognisable brand that users engage with on a daily basis.
Q.4 What can traditional insurers do to compete with InsurTechs?
Traditional insurers are asking themselves this question every day. So far, traditional insurers have established corporate venture arms and incubation labs but I believe they will need to go far beyond this if they hope to maintain their current market share in the face of pure internet competition.
For example, as mentioned above, China’s aging population also represents a huge opportunity for traditional insurers as internet giants and technology companies have no experience with old age care and lack underwriting experience within complicated life and health lines.
The scale that exists in China allows traditional insurers to focus on specific segments such as chronic disease management (diabetes, hepatitis-b, obesity). These segments will be more difficult for internet companies to compete in as chronic disease cover requires sophisticated underwriting capabilities and additional services that internet companies will struggle to master.
Q.5 What will be the key drivers for success?
Fundamentally, I believe that the success of any company is just the output of the people involved. The ability to sense and align to a changing environment, deploy new business models, build a brand, maximise profits and contribute to society are all things that originate with people not technology. Ultimately, this war for talent is most important success driver.