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.