China is the second biggest insurance market in the world by premium volume, having surpassed Japan in 2016. With favourable macro-economic conditions prevailing, and a massive population of 1.4 billion people, the Chinese insurance market has grown dramatically. Nonetheless, the penetration rate for insurance in China remains low compared to Western measures. This leaves plenty of headroom for growth in the China market.

InsurTech in China

The Chinese market presents tremendous opportunities for InsurTech. China is a proven leader in the world of InsurTech. Internet insurance companies in China wrote premiums of just under US$25 million.¹ Property and casualty insurance companies in China collected US$12 billion in premiums from online sales – a total of 92% of online insurance sales were from the websites of non-life insurers.²

Millennials and Generation Y customers accounted for the majority of online insurance sales: 47% were born in the 1980s while 33% were born after the 1990s – the most active online users buying insurance online are young families.³ While many other markets are embracing innovation and technology at a strong pace, China will rise to be the world leader in InsurTech.

Why Can China Become the Leader in InsurTech?

Most developing countries cannot claim to be leading players in technology, where the technology meets at the intersection of an age-old industry, such as insurance. Yet, China can rightly make this claim in InsurTech. How did China become such a fast growing, dynamic InsurTech market? This is due to the confluence of factors that have coalesced within China for InsurTech to develop so swiftly. They include: the growth in online penetration, booming e-commerce platforms, the increasing impact of social media, mobile telephony – with more than 50 million smartphone users in China – the rise of the middle class, mass urbanization, insurance industry deregulation, and a younger generation of Chinese consumers.

Early Regulatory Support

The Chinese insurance regulators played an important role in the rise of InsurTech. Before the word “sandbox” became a term to describe a regulatory establishment that supports development of InsurTech, the China Insurance Regulatory Commission (CIRC) was encouraging experimentation on a national basis.

In the year 2012, the moniker for InsurTech did not exist. Yet, CIRC designed legislation to support the development of online insurance. Most notably, CIRC enacted the so-called Internet Insurance Law in October 2015, which superseded an earlier law from 2012. With an accommodative regulatory environment, China built a solid foundation for InsurTech.

Ecosystem Power Players: BATJ

A discussion on China’s fast growing InsurTech market is not complete without an understanding of the role of China’s technology giants, commonly referred to as BATJ. It is an acronym for Baidu, Alibaba, Tencent, and Jingdong. Baidu is China’s dominant search company; Alibaba owns Alipay and the e-commerce marketplace, Tmall; Tencent owns the wildly popular WeChat brand – a smartphone service provider with a “we can do everything app”; and Jingdong, also known as JD, is a big e-commerce platform player.

So, what does this have to do with InsurTech? Everything. BATJ know they have significant advantages over the industry incumbents – especially massive amounts of data. And they have access to distribution and can accelerate social engagement, too. The major technology giants have a strong desire to participate in China’s booming financial services market – with insurance seen as an area that is ripe for disruption.

World Leader in InsurTech

ZhongAn Online Property & Casualty Insurance Company is catching significant growth waves in China. ZhongAn reported online premiums of more than US$375 million in 2016, an increase of 49% over 2015. This young and ambitious unicorn (unicorns are companies with valuations higher than US$1 billion) is setting the pace for online insurance. ZhongAn is more than the first online insurance company in China – it is an innovation powerhouse. The company is a full-stack digital insurer powered by an open, scalable cloud-based core insurance platform providing high-speed, high-volume service outputs that are in demand by China’s consumers.

ZhongAn was born in 2013, by the joining of two Chinese technology giants – Alibaba and Tencent – and Ping An Insurance. (Ping An is a market leader in insurance.) At the end of March 2017, ZhongAn had cumulatively sold more than 8 billion policies to 582 million customers since its formation. The company ecosystem extends to 300 network partners. ZhongAn has very effectively used its first-mover advantage to become the challenger insurer in China. As such, ZhongAn has the potential to own 5% market share of the property and casualty market.

The company excels at product design and quick delivery of new products – often under two months. The company is adept at developing innovative scenario-based insurances, some of which are disruptive. These products are popular among ZhongAn’s target customers – the younger generation of Chinese born in the 1980s and 90s.

The company markets over 300 products. A magical product designed by ZhongAn covers visitors to Shanghai Disneyland should they encounter excessive rain or heat. The company uses real-time government weather reports to trigger a payment to compensate visitors for a rained-out day at the park. Another product is flight delay – it pays compensation to passengers that don’t depart on time. On many of its scenario-based products, claim payments are made directly to the insured’s bank account – so-called parametric payments. ZhongAn is also pioneering innovative women’s cancer products, too, by prescreening potential risk factors through voluntary DNA testing.

The firm will continue to blaze new trails in innovation with the help of ZhongAn Technology – a sister company focused on innovation. “ABCD” is ZhongAn’s acronym for artificial intelligence, blockchain, cloud computing, and data, which it will enlist to keep ahead of the intensifying competition. It’s all part of its master plan to commercialize new technologies to drive new growth. ZhongAn is likely to have its sights on the big prize – China’s colossal auto insurance market.

Other Chinese InsurTechs

This market is fast becoming the hot bet for innovation in InsurTech, helping to shed China’s “follow fast” image. While ZhongAn may be the new darling of InsurTech in China, the next batch of industry startups is already emerging.

Is there a Zendrive or Metromile near-equivalent in China? Yes, there’s OKChexian. (Chexian means auto insurance in Chinese pinyin.) With its patented, smartphone-based telematics technology app name OKDrive, it offers not only customized pricing, but predictive modelling capabilities, too. And through OKScore – China’s first auto insurance scoring methodology – driver behaviour can be assessed across five key dimensions. They also market a few clever and popular products to relieve pain points for Chinese drivers, including parking ticket and traffic jam protection plans.

You can’t talk about InsurTech in China without mentioning TongJuBao (P2P Protect). They created a marketplace community that shares social risk among its buying group members. In this way, the community bridges the trust gap that’s usually found in the traditional market relationships between the insurer and the customer. They bring interesting products to the Chinese market, including a novel child protection plan — missing children are a concern in China – as one of their more popular offerings. The company also offers protection against divorce, by providing a fixed monthly indemnity to help a member to reorganize their life. Looking ahead, P2P Protect plans to expand internationally, starting in Europe and the US.

Other InsurTech firms in the market worth mentioning include Huize Insurance, an online insurance marketplace, and Xiaoyusan, an online life platform, which claims three million users. There are also newcomers such as An Xin Insurance and Yi An Insurance – two domestic online insurers that will be worth watching. The market will no doubt closely follow the progress of the new Allianz-Baidu joint venture upon the launch of Bai An Insurance.

China’s Biggest Opportunity?

Digital health in China is yet another big prize in the insurance market. The healthcare market is projected to grow to US$1 trillion by 2020. Expanded opportunities for private health insurance have arrived as the government deregulated the market. Not surprisingly, private investment has brought new business models and technology-led innovation to the Chinese digital health market.

Ping An is a hugely successful diversified financial services firm. It is one of three large private health insurers in China. It is very focused on the digital health market. Interestingly, its most notable investment outside of China is in digital health – Oscar Health Insurance. Ping An Haoyisheng (Ping An Good Doctor) is the leading digital health platform in China. The company states it has more than 120 million registered users. Many of these healthcare platforms offer online health insurance products alongside other services such as medical appointments, medical advice, and consulting. Good Doctor is the mightiest of the unicorns in digital health so far, but other Chinese technology giants have their sights on this big prize, too. Recently, Tencent added to its growing collection of online healthcare companies with an investment in Haodaifu Online. It also owns a stake in two others: We Doctor Group and Miaoshou Doctor.

Looking Forward…

The future for InsurTech in China is very bright. By 2022, China’s middle-class population is projected to exceed 600 million – nearly twice the size of the population of the US. Chinese consumers are on the rise and embracing the Internet of Everything. China is a rapid-growth market and remains underpenetrated for insurance. Groundbreaking innovation is thriving in China as insurance startups and incumbents embrace new technologies – think ZhongAn Technology as an innovation engine for its sister insurance company, new business models sprouting up from P2P Protect to OKChexian to Ping An Good Doctor, and newly created products abound – some wrapped with parametric solutions – the list goes on.

Most notably, one of China’s market leaders, Ping An Insurance, is the leading light in InsurTech, too. The exceptional performance and determined leadership demonstrated by Ping An bodes well both as a source of inspiration and a challenge for other Chinese insurance incumbents. In the coming years, the Chinese insurance industry will see many more growth waves from InsurTech firms. Some will remain ahead of incumbents and startup companies alike.