August 12, 2020
Total
premiums in China’s internet insurance industry have increased rapidly since
2010, as the industry has benefitted from the use of technologies.
According
to the Insurance Association of China (IAC), total premiums of the internet
insurance industry reached Rmb269.6bn in 2019 and increased at a CAGR of 83%
over 2011–2019, with the penetration rate of
internet insurance standing at 6.3% in 2019.
In 2019,
total premiums in the internet insurance industry were equal to around
one-third of the total premiums at Ping An Insurance, the second largest
insurance group in China.
As the
industry grows rapidly, a large number of companies with different business
models have started to operate internet insurance businesses.
Figure 1: The internet insurance industry in China has seen
total premiums increase rapidly, although it has declined in recent years due
to regulatory headwinds
Source: IAC,
CBIRC, CICC Research
Bright spot #1: Sales innovation
Companies
that sell insurance policies over the internet are replacing traditional
insurance agents and other intermediaries.
Part of
this is the role played by sales innovation, as it has helped reduce sales
costs of traditional distribution channels.
Within the
insurance-technology value chain, companies engaged in sales innovation can
broadly be categorized into three groups: To C, To B and To A companies. Note
that while they help insurers reduce selling costs, they do not directly
operate insurance businesses.
“To C”
companies are those that sell insurance policies to individual customers via
their platforms and charge commission fees. These companies either obtain
internet traffic via advertising or through crowd funding and mutual assistance
programs.
On the
other hand, “To B” companies are those that drive traffic to their platforms
via institutions and key opinion leaders (KOLs), and customers can purchase
insurance policies on these platforms. These companies do not acquire customers
by themselves, but provide services and charge fees.
Lastly, “To
A” companies provide apps for insurance agencies, and agents split the commissions
from insurers with these companies.
Figure 2: To C, To B and To C companies
Source: Company
websites, CICC Research
Bright spot #2: Product innovation
Companies
have made improvements to traditional insurance products (such as healthcare
and auto insurance) and sell them over the internet.
For example
in 2015, ZhongAn rolled out the “one million healthcare” insurance policy that
charges low premiums but provides high compensation thanks to deductibles, thus
supplementing critical illness insurance and mid-level short-term healthcare
insurance.
In
addition, companies have launched new insurance products for internet users,
such as insuring against flight delays, cancellation expenses for hotel
reservations, and expenses for returning products bought over the internet, as
these were not covered by traditional insurance products.
Bright spot #3: Middle office and back office innovation
Middle
office and back office innovation companies provide technology services or
undertake tasks outsourced by insurers, and charge service fees. Their business
models vary and they provide a range of services.
For
example, some companies provide pricing services for insurers by using data and
their experience in specific areas, and charge service fees.
Others
provide risk control and claim services on the back of their data and
experience. They can help analyze the risk of potential customers and help
prevent fraudulent claims.
Internet
and blockchain technologies are also helping some companies provide
health-related services. For example, when policyholders make an insurance
claim, these companies can help the insurance companies contact healthcare
institutions, authorize them to provide healthcare services for policyholders,
and settle resulting bills.
Figure 3: Revenue models used by representative middle office
and back office innovation companies
Source: Company
websites, CICC Research
Bright spot #4: Mutual assistance platforms
Mutual
assistance platforms allow users to share the cost of the benefits that are
paid out. For example, when a user makes a claim for an illness that is
covered, other users share in the cost of paying out that benefit to the
claimant.
The cost of
obtaining protection on mutual assistance platforms tends to be lower than the
premiums on an equivalent commercial insurance. As such, it appears that such
platforms are well-positioned to meet the protection needs of those that are
less able to pay for traditional commercial payment, while obtaining
considerable user traffic
For more details, please see
our report Insurance technology: Upbeat on investment value of sales
innovation published in August 2020.