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China In-Depth: Life insurance product innovations

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China’s Life insurance market remains a bright light in the global insurance industry, with a 10% annual growth rate, a 3% penetration rate, and a premium density that provides plenty of growth for insurers. Even in Beijing, where premium density is at its highest, it is still five times lower than that of Japan and Taiwan.

However, the two main distribution channels; bancassurance and the agency force represent a challenge for the industry. The agency channel is suffering from low agent income and high turnover, whilst bancassurance is delivering volume but not value. Additionally, while many life insurers have established product-development departments, banks still have access to customers and prefer to focus on price as opposed to protection orientated products. Facing this, life insurers in China are increasingly turning to alternative distribution channels that align with new product lines. To grasp these changes, and to visualize China’s life insurance market today, it’s worth considering recent developments within new product development, distribution, and niche services.

The fact that savings based life products are easier to sell than protection products has resulted in over 90% of life insurance policies in China being single premium participating policies. The need for new product development efforts has also been highlighted by pricing inefficiencies. For example, pure term life products in China are almost twice as expensive as identical products with identical coverage in the United States.

Demographic changes are also pushing life insurers to invest in new offerings. First, China’s younger highly educated workforce increasingly view insurance as a protection tool instead of a savings tool. Second, those aged 45 and older, a segment that will soon represent over a third of China’s population, are seeking retirement products such as fixed annuity options and critical illness cover. Finally, as China is disproportionately affected by chronic diseases, preventative healthcare services with access to specialists and global coverage are becoming more relevant. Again, Ping An is pioneering this effort and has become China’s largest private health insurer by entering a 75/25 joint venture with South Africa’s Discovery Group. By doing so, Ping An has gained access to Discovery’s product-development methodologies such as utilizing Ping An’s ‘single view’ customer database to enable the bundling of tailored products to its 80m active customers.

Another catalyst for new product development is bancassurance. The default practice in China has been for banks to sign distribution agreements with several insurers and then maximise commission income by encouraging competition amongst those insurers. Recently, several bancassurance regulations have been introduced to place a higher degree of accountability for customer protection on banks, and this, combined with a recognition that working with insurers to develop products for customer segments is in the banks interest, has prompted a renewed interest in sharing customer data, and making sure cross-selling is optimised across multiple customer touch points.

Ultimately, as life insurance serves to create both financial protection and long term savings instruments for individuals whilst catalysing overall economic development by channelling otherwise idle savings into long term investments, new product development will become increasingly important for life insurers to embrace the pull factor of changing customer demands and the push factor of regulatory pressures that stem from a government desire that the private sector carries more of the public healthcare burden.

The distribution of life insurance is currently hindered by marketing practices that have not kept pace with generational shifts as the needs of young millennials are diverse and different from those historically served by agents. Specifically, the arrival of on-demand services in China such as iQiyi (Netflix), Didi (Uber) and Ele.me (food delivery) have brought the expectation that financial services will become on demand too. For life insurers, this means mobile based user journeys, short term policies and payment facilities, and even hardware/software based use cases. Furthermore, a recent report by the Chinese insurance regulator found systemic problems in the marketing of life insurance; “policy coverage and features were deliberately and misleadingly over-stated during such policy’s marketing  and sale.” Amidst this, a host of startups have emerged to educate consumers, and enable self-directed purchasing. These include:

Xiaoyusan:

Provides online consultation for high limit critical illness and long term participating life insurance products. By embedding a life insurance consultant into online education platforms, Xiaoyusan generates inbound leads from first-time parents in need of financial planning.

Baoxianshi (winbaoxian.com):

Hangzhou based Baoxianshi is developing tools that streamline lead generation for agents whilst also providing a white label platform for agents to manage their customer base.

Bihubao: (bihubao.com)

Bihubao is one of many community-based life insurance brokers currently popular on WeChat. The Digital Insurer already featured Bihubao here, and several other startups are active in this space including Zhongtuobang, Trust Life, and Crowd Health.

Innolife: (Innolife.cc)

Innolife has built a text-based chatbot for WeChat based on a decision tree of user responses that are constantly added to as users engage with the bot. Innolife then presents tailored health, life and disability insurance policies to users based on the bot interactions.

Data88: (bao.data88.cn)

Rather than engage consumers directly on WeChat, Data88 monitors the conversion rate of specific products against customer profiles, by observing and gradually optimising the conversion rate across several online channels.

Despite the wide range of conversion methods currently active in China, it is important to remember that face to face distribution remains a critical part of the sales process as many consumers are first time buyers, and digital distribution has proven more difficult than first envisaged by life/health insurers.

As life insurers continue to shift gears from underwriter and capital provider to a more active role in preventative health care and upstream services, the ability to master or at least partner with unfamiliar disciplines will be important. Although Ping An is best known for its push to develop offline services, the convergence of life and health insurance is a trend that every insurer will need to grapple with in order to compete with internet-based competitors.

The best known of these is Ping An  Good Doctor, an all-encompassing healthcare app which now boasts remote diagnostic features, outpatient support, and chronic disease management services such as in-app medical device analytics. Furthermore, Good Doctor is a closed loop service of 1,000 in-house doctors to providing medical consultations combined with a network of third-party providers that including 4,650 external doctors over 3,100 hospitals and over 12,000 pharmacies outlets that enable a range of O2O services.

Despite the success of Good Doctor, it is still in its infancy as many patients in China have little disposable income to devote to health and wellness, and public health insurance will continue to dominate due to the belief that provisioning access to healthcare is a responsibility of the government, not individuals.

Other initiatives include the development of retirement communities for Taikang Life’s policyholders and Ping An is also pursuing similar initiatives by acquiring retirement facilities in the Shanghai-Nanjing region.

Ultimately, although reduced loss ratios, better customer profiling and additional revenue streams will continue to tempt insurers to move away from their core competencies, delivering services that include chronic disease management, hospitality, and palliative care will require insurers to evolve life insurance from a purely savings orientated proposition to one that delivers preventative healthcare whilst still delivering the core protection and planning component that underpins the proposition.

Conclusion:

The changing nature of life insurance in China is being driven by a shift in consumers’ attitudes towards insurance as a protection tool instead of investment.

However, the unique strengths life insurance companies, relating to protection and provision of assets, cannot be brought to bear in the current climate of short term investment-linked products. Life insurers should be differentiated from other investment options in their ability to provide long-term guarantees and stable returns for retirees, in addition to the protection that reduces the need for large amounts of liquid assets. To do this, life insurers will need to develop products and channels that convey these strengths, and this will involve three key steps:

i)  Optimizing distribution through multi-channel interactions and O2O models.

ii) Accessing new data streams (such as location, and health) to tailor propositions and segment customers.

iii) Finally, upgrading operational processes in the front line and back office through automation (such as WeChat based policy fulfillment).

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