International - Asia: China's internet explosion

china-internet

Insurers are looking for new ways into China’s underserved market, yet a successful digital strategy will not only require investment but the right type of partnership

When internet insurer Zhong An filed for its initial public offering in February, it was a watershed moment for China’s online insurance industry. The three-year-old company, which will list later this year, hopes to raise as much as $2bn (£1.46bn).

The company, set up by Chinese internet giants Alibaba Group, Tencent, and insurer Ping An, did so with plans to digitalise the entire insurance value chain. The strategy appears to have paid off.

The China Securities Regulatory Commission claims that Zhong An’s income from insurance premiums hit 2.2bn yuan (£230m) in 2015, a year-on-year increase of 200%, representing 3.6 billion policies sold across 200 products. The firm serves as a high-profile example of insurers in China turning to the internet as means of reaching deeper into an under-penetrated market.

Size matters
General insurance was already worth £90.5bn in 2015, according to Swiss Re, but insurance premiums are still only around 3.2% of gross domestic product. The market has increased 12 times since 2000 but there is still a lot of room for growth.

Many insurers are looking online for this growth; executing a successful digital strategy involves investment and finding the right people to work with.

It is easy to underestimate the sheer scale of China’s internet ecosystem. The most recent official count placed China’s internet population at about 700 million, just under half the population. Many of its largest social networks, such as micro-blogging site Sina Weibo, attract more than 600 million users – that’s approaching half the size of Facebook’s more than 1.5 billion-strong global user base.

“China’s internet ecosystem is quite different from the rest of world. It is not as fragmented as the West in terms of the proliferation of platforms in the country,” explains Rob Leonardi, regional chief digital and marketing officer for Axa Asia, which owns 50% of Chinese motor insurer Axa Tianping. “It’s very concentrated, you really only have a few large players that dominate the Chinese internet ecosystem.”

Much focus has been on the BATs (Baidu, Alibaba, and Tencent), the so-called kingmakers of the Chinese internet. All three have been leveraging their huge networks and forming partnerships with industry incumbents to make in-roads into the industry. Just as Alibaba and Tencent have teamed up with Ping An, Baidu is also teaming up with Germany’s Allianz and Asian investor Hillhouse Capital Group to form their own joint digital insurance venture.

For Allianz, the benefits of joining forces with Baidu are clear. Baidu claims to have over 660 million monthly active mobile search users and over 100 million daily active users over its 14 related apps. Baidu gives Allianz access to the users and draws on the intelligence it gathers.

Tracy Hu, a spokeswoman for Baidu, explains that its platform connects people with services that cover a wide range of insurable scenarios including tourism, dining, takeout delivery, travel, healthcare and more. Hu adds there are benefits for Baidu too.

“Baidu has always believed that the financial services industry is a high-risk industry, which requires expertise in risk management and operation,” he says. “We are cautious about it. Therefore, instead of developing insurance products on its own, Baidu chose to establish a joint venture with a traditional insurance company and apply for the internet insurance license together.”

Baidu also announced in June a partnership with China Pacific Property Insurance for a Chinese internet motor insurer using big data.

Starting up
However the tech giants do not have the monopoly on digital insurance platforms in China.

Insurers are also looking beyond the BATs and reaching out to early stage start-ups. This is the aim of Axa Labs which established shops in Silicon Valley and Shanghai in 2013 and 2015 respectively. Through these platforms the French insurer hopes to partner with start-ups developing technology that Axa can use in its products. Often the Labs work in tandem with Axa Strategic Ventures, which also makes investments in financial technology start-ups.

“We look to Axa Labs to set up disruptive models that access internet users and accelerate our digitalisation,” explains Axa’s Leonardi. “This helps us to resolve pain points our customers have with their customer experience.”

social-networks-in-numbers

Another example of large insurers working with start-ups is the tie-up between Ping An and UK social media insurer Bought By Many. The two companies revealed last year that they would launch seven Ping An-branded travel insurance products. In Europe, Bought By Many uses platforms like Twitter and Facebook to help users combine their purchasing power to be given discounts on premiums. The idea was to leverage Chinese networks like Tencent, We Chat and Weibo in the same way.

“People want to deal with insurance in the same way that they deal with so many other things in their lives through social media,” explains Steve Mendel, co-founder and CEO of Bought by Many. “So we thought, why wouldn’t we want this to happen in Asia as well?”

In this case, the partnership did not work out. Mendel says a big part of that challenge was reaching Chinese consumers unfamiliar with insurance products beyond mandatory motor insurance.

“This was a challenge I would argue Ping An underestimated,” says Mendel.

“Because of Ping An’s success in the motor insurance space, and the fact everyone had heard of Ping An, I don’t think it fully appreciated how big of a change it would require and it caught both of us by surprise.”

Regardless, Mendel still stresses the value for both start-ups and industry incumbents in working together. He explains that few start-ups are interested in becoming end-to-end insurers, and regulators are unlikely to be comfortable with start-ups operating as full stack entities. Meanwhile, many start-ups need the resources that large partners can offer.

“A lot of the incumbents need to innovate and this is an interesting way to make this happen,” adds Mendel. “I am not going to argue that incumbents shouldn’t be doing new stuff on their own – they should – but for the vast majority of them it just isn’t going to happen that way.”

Blurred lines
Partnerships may be necessary for the short term but some in the industry envision a future where the line between tech company and insurer is less clear.

Axa Labs is trying to find inspiration for internal innovation in addition to forming partnerships. Programmes like Kamet, a €100m (£80m) Insurtech incubator, offer to back projects by Axa employees. For Leonardi, the change taking place in the industry amounts to nothing less than a reinvention of the insurance business model in Asia and globally.

“There will be a dramatic shift in the way we service our customers going forward if we want them to remain with us,” he says. “But the future is not just about only dealing with people through digital channels. It’s more about being an omnichannel provider. That means we have to do business with people who want to use intermediaries and those who want to go direct and interact through social media.”

China’s digital and social media landscape offers an attractive path for insurers as buying patterns evolve towards a digital first world. However, the pace of technology means insurers investing heavily today need to be aware of the impact of autonomous cars and telematics on the industry – disruption is here to stay.

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