Lessons From the Front Lines of Insurance Tech Innovation in China

Co-authored by Ankur Nandwani and Christopher Kelvin Lee

“A healthy society should not be full of stock investors, but policyholders.” — Jack Ma

Hoopla around insurance technology in the U.S. is heating up as startups look to re-imagine how insurance is bought, productized, and experienced across small commercial, life, personal property coverage, and more. Still, the insurance tech space as a whole is at an early stage and a host of exciting startup innovation either remains under wraps or is just now getting off the ground. 
 
Meanwhile, activity in China to date has proven to be incredibly dynamic. Familiar macro-conditions, such as 1.4 billion citizens, 700 million+ Internet users, and massive distribution effects driven by WeChat and Alipay are at play, but China also features a few factors ultimately leading to a more exciting environment for insurance innovation. This includes:
 
A generally supportive regulatory environment (so far): The China Insurance Regulatory Commission (CIRC) has been aggressive to both acknowledge and encourage innovation around new insurance products and online distribution on a national level at least so far, while barriers to entry in the U.S. are controlled by state insurance commissioners, which are appointed by the new governor coming into office in 39 out of 50 states. 
 
A massively underserved market opportunity. While China is set to advance past Japan as the world’s second largest insurance market with a rapidly growing segment of online insurance buying, overall insurance penetration in China ranks just 49th among nations and 18 times lower than penetration in the U.S. as measured by premium vs. GDP. This is a significant mismatch as the U.S. GDP per capita is only 4 times greater than China. Ultimately, U.S. players have to deal with saturation and struggle to find an edge in the value chain; whereas in China, both domestic insurance carriers and new startup insurers encounter greenfield opportunities to find growth and profitability at scale.
 
A leading role by Internet giants. Third, the largest Internet companies in China — Baidu, Alibaba, Tencent and Jingdong (BATJ) — are all aggressively staking out their place in how the country’s digital insurance landscape will shake out — in contrast with the unsubstantial role Facebook, Google and Amazon have taken to date in the U.S. The unique distribution and data advantages of these major players could help to rapidly accelerate the growth of the overall industry in China and shift the landscape as they or their financial services affiliates launch licensed online insurers across product lines.

We organize this overview into the following parts:

  1. Insurance Regulation and Market Conditions in China
  2. Zhong An: The World’s First Dominant Online Insurer
  3. Lessons through Product Walkthroughs
  4. Key Takeaways & Open Questions

1. Insurance Regulation and Market Conditions in China

Regulators seem keen on the opportunities of insurance tech innovation in China (for now)
 
Chinese insurance regulators, namely CIRC, are aware of the rise of digital insurance in China. More importantly, a number of early developments suggest that regulators are also meaningfully supportive of how technology will influence the growth of insurance in China. Some of these developments include:
 
 More online insurance carrier licenses
 
Last July, CIRC approved licenses for three additional online insurers, Yi An Property Insurance, Anxin Property Insurance, and Taikang Online Property Insurance, with products including investment-linked insurance (Taikang), medical expense insurance (Yi An) and online payment insurance (Anxin). As one source close to CIRC said on the approvals, “The approvals given one after another by CIRC to three Internet insurance companies is line with the overall government drive to promote Internet business, which is developing very rapidly.” 
 
That’s not to say that regulators won’t change their tone toward nascent online insurers or haven’t done so already. It’s quite possible that the influx of new online-only licenses by CIRC was a one-time phenomenon or a rare instance of leniency. Many more are waiting. One Chinese insurance executive told us there are more than 200 companies including new online insurers waiting in the queue for a license as of August.

The first set of online insurance regulations enabling scale
 
In the same month, CIRC released its first set of “Internet Insurance Measures”, which took effect in October 2015 to regulate emerging online insurance businesses in China. We won’t re-iterate the full list here, but the new regulation stipulates that insurance firms may provide online insurance services in locations where they do not have physical presence, which allows new insurance products enabled for the Internet economy to launch nationwide soon after CIRC filing. Worth noting that this does not apply to mature insurance products in China including auto insurance, which requires provincial regulatory approval.
 
Chinese insurers being driven closer to startups
 
Those in the U.S. and Europe involved in the insurance tech ecosystem might be familiar with three-year old Zhong An Insurance, whose four billion policies sold can prompt shock and awe. But it’s important to mention that market share in both life and P&C in China are dominated by the largest domestic players. In 2014, the top 3 life insurers accounted for nearly half of all life insurance premium income in China; in total, the top 10 life insurers accounted for nearly 82% market share. Within P&C, market concentration has increased even further. The top 5 non-life insurance companies accounted for a whopping 75% of premium income in 2014, while the top 10 made up 86% market share.

And as U.S. and Europe-based insurers have, those same domestic insurers may soon becoming more active across the startup landscape. According to a statement coming after a cabinet meeting led by Li Keqiang in September 2016, state-owned companies, which include insurers like China Taiping and China Life, will be allowed to set up venture funds and “insurance companies will be encouraged to invest in startups.”
 
Chinese insurers and other strategics have already been involved in the financing of insurance startups globally; notably, U.S. per-mile car insurance startup Metromile recently disclosed a $50M investment from China Pacific Insurance Group and Fosun, the owner of Yong’an P&C Insurance in China, recently made an investment in mobile insurance claims company Snapsheet. We can expect to see more tech or online insurance-focused investments or joint ventures by Chinese insurers both domestically and abroad.
 
Still early days
 
Of course, it would be remiss to ignore that regulation around insurance innovation in China is still incredibly nascent — and may eventually play out significantly differently than the current environment. Consider that online insurance sales platform Datebao.com became the first Internet insurance startup to receive a national broker license in only November of last year.
 
We can look to prior regulation for guidance. In 2014, for example, China’s banking and insurance regulators released stringent bancassurance guidelines and earlier this year, an overhaul of the fund management industry resulted in a culling of 10,000+ private fund managers. In China, startups and online insurers that are able to grow into massive scale will always face the possibility of regulators taking a more draconian approach.
 
China’s Internet giants have had mixed success (and strategies) on the regulatory front to date. Bai An Insurance, the joint venture of Baidu, Hillhouse Capital and Allianz, was announced with much fanfare in November 2015, but has yet to receive full approval by CIRC likely due in part to negative press regarding the role of Baidu ads in a student’s death from cancer. Meanwhile, Ant Financial decided a faster route to obtaining a license would be to acquire an existing Chinese insurer (Cathay), which it did in September 2015.
 
And in May, CIRC issued a formal warning against mutual aid platforms, a significant area of startup growth, as they may “lack actuary-based pricing systems, provision against risks and strict supervision by government bodies.”

New demand for new insurance products

Insurance in China traces its roots as far back as 1805 when the British East India Co. set up operations in Guangzhou. But China as an insurance market only really started in the 1980s and only formally opened up to the outside world and foreign insurers in 1992.

That was then and this is now. In 2016, China is reportedly set to surpass Japan as the world’s second largest insurance market, with premium income growing 37% year-over-year to hit $287.9 billion in the first six months of the year, according to the CIRC. Within China, life insurance today comprises nearly 70% of all insurance premium, while auto insurance is king when it comes to P&C making up around 3/4ths of all P&C premium
 
Unlike the U.S. where a host of venture-backed startups are looking to build new digital brands in homeowners and renters insurance (think Lemonade, Jetty, Hippo and others), homeowners insurance has largely been a non-factor in China P&C and fire insurance is no longer mandatory for mortgages after a wave of complaints around the bundled annuity and investment products insurers paired it with.

More exciting is how fast online insurance buying is progressing in China. This includes both online distribution of traditional insurance products like health as well as products enabling the rise of the Internet economy in China like Zhong An credit or shipping returns insurance. According to a June report from Ant Financial and CBNdata, around 330 million people in China have bought insurance policies over the Internet through March 2016, up 42% from a year ago. Among those buyers, a notable 33% were born since 1990s. 
 
Broadly, insurance companies in China, both large and small, still have to deal with a user demand challenge. Not only is mass consumer awareness of insurance needs still incredibly low, those who are insurance-conscious are skeptical of its value. As one insurance executive in China at a global P&C insurer said,

“Chinese who are 40 years old and in urban cities are beginning to have assets and lifestyles to protect. These consumers would rather trust their own savings rather than insurance companies.”

Change effected by both upstarts and Internet giants could soon feel sudden, though. Consider that insurance bought online in China represented just 5.2% ($21.4 billion) of total industry premium in the first half of 2016. That’s compared to 4.7% in the same period a year ago and 4.2% in the same period in 2014, according to the Insurance Association of China.

Tech giants are incredibly eager to capitalize on insurance

Another very notable difference between insurance tech innovation in the U.S. and Europe and that of China is just how engaged the largest Chinese Internet giants are in asserting their positions through M&A, joint ventures, investments and more. Yes, China’s online insurance market has grown immensely over the past two years, but the concentrated industry efforts by China’s major Internet companies, Baidu, Alibaba/Ant, Tencent and/or Jingdong (BATJ) will likely accelerate that growth substantially and may result is a very different looking insurance tech landscape in China in the years to come.
 
It’s worth noting that the strategic moves by BATJ vary considerably in their depth and breadth. Here’s an abbreviated rundown of how BATJ’s efforts have progressed:
 
Alibaba/Ant Financial: After launching Zhong An in collaboration with Tencent and Ping An in 2013, Ant has arguably been the most active of China’s Internet giants in carving out its position in the insurance industry. These moves span from health, where Alibaba collaborated with Taiping Insurance to form an online health insurer with registered capital of $154 million, to life, where Ant backed China’s first mutual insurance association approved by CIRC to P&C, where Ant took a controlling stake in Cathay Insurance China. With more than 120 million daily transactions on Alipay and many customers using the app more than 10x a year, Ant’s ultimate goal for its insurance products could be to leverage its unique data and distribution advantages to take on existing conglomerates like Ping An in size and scope, and in a fraction of the time and resources needed.

Baidu: Baidu has made a couple major announcements regarding its insurance ambitions including Bai An, its joint venture around scenario-based insurance with Hillhouse Capital and Allianz, which it describes as “small, situational insurance protection offered for high-frequency, location-based or internet transactions, including online travel and various online-to-offline (O2O) services.” Baidu also announced a joint venture with China Pacific in June 2016 to launch a new online auto insurance carrier.
 
While Baidu has some marked advantages in the insurance space namely its trove of search data where it claims the personal profiles of 100 million Chinese users, its efforts to date have been mired by its recent ads scandal as both of its insurance products have yet to get past CIRC. If CIRC’s spurt of new online licenses last year was indeed a one-time phenomenon, this would suggest Bai An may have missed its window of opportunity.
 
Jingdong: Alibaba rival Jingdong through its affiliate JD Finance has also waded into the insurance industry. In October 2015, JD Finance reportedly signed strategic framework agreement with the Sichuan government to establish an online property insurer and as of March of this year was recruiting for dozens of insurance-related positions.
 
Tencent: Outside of its participation in Zhong An’s founding, Tencent’s most notable announcement in the insurance industry came in September 2015 when it announced Hetai Life, an online life insurance joint venture with CITIC Group and its first foray into life insurance. In August 2016, the Tencent joint venture received CIRC approval to prepare for launch, which will be interesting to monitor on the product front given its potential friction with Tencent’s enormous success with micro-transactions.
 
Ultimately, all four bring their own immense value to (possibly) forthcoming insurance products: Tencent in social, Ant in commerce and online business data, Baidu in search and Jingdong in logistics. Depending on how fast their initiatives develop, China’s insurance tech and even its overall insurance landscape could look incredibly different in a very short amount of time.

2. Zhong An: World’s First Dominant Online Insurer

Zhong An: First-mover advantage?
 
Before all of these strategic moves, of course, was the first notable foray by China’s Internet giants: Zhong An Insurance, which is a case study for insurance innovators in the U.S. and elsewhere in and of itself. 
 
In November 2013, Alibaba and Tencent, teamed up with Ping An Insurance to launch the country’s first online insurance carrier with registered capital of $164 million and the only license at the time from CIRC to sell insurance online.

The following month, Zhong An launched its flagship product, Zhonglebao, effectively acting as e-commerce returns insurance for China’s $1 trillion dollar online and mobile e-commerce market. It was aimed at covering merchant shipping losses on Alibaba’s Taobao marketplace when consumers are dissatisfied with product purchases. Over 1 billion policies were sold in the first year.
 
Fast forward to 2016 and Zhong An had written more than 4 billion policies to more than 400 million customers. The online insurer has since expanded its product line in auto, health, and travel, and as of its latest financing event, carries a private market valuation of $8 billion with reported plans to go public as soon as 2017. 
 
That’s not to say Zhong An is future-proof. Taobao shipping returns insurance, for example, accounted for 77% of its overall premium in 2014. While it hasn’t broken out the data since, it will need to show it can reduce its dependency on its powerful partners as it looks to test the public markets.
 
Aggressive B2B2C distribution strategy
 
The concept of a traditional retail agent with a storefront is not common in China and there was never as much of a need for these intermediaries. Chinese online broker Zhongmin has tried to open local shops to sell insurance products in addition to other financial products like loans, but such has not been a successful model. Instead, distribution in China and most of Asia has been done through outbound telemarketing (OBTM) by way of banks, telecom providers and supermarkets that obtain phone numbers. Auto insurance, for example, is mostly bought through telephone with a captive agent and many agencies are unqualified or have gotten in trouble for misleading marketing tactics. As of 2012, over 190,000 were part-time agencies. As we heard a few times, “The Chinese market is mature in digital channels, but immature in regular channels.”
 
Dynamics between startups and tech conglomerates in China, though, lend to a uniquely collaborative environment. Zhong An is able to deeply integrate with distribution partners at a level that many counterparts in the U.S. would drool about giving it the ability to hit a variety of targeted customers with its insurance offerings at critical inflection points. Today, Zhong An has 300+ partners across health, travel, auto, e-commerce, banking and more.

For a new U.S. tech company to partner with Amazon, eBay, Stripe, Facebook, Google, Priceline, Pinterest, Handy, Lending Club, and Apple…at the same time without channel conflicts…would be nearly impossible.
 
For Zhong An to do what it has done in the short amount of time is quite astonishing, and a hat tip is owed to the regulatory and entrepreneurial conditions in China today. For U.S startups, investors and others in the industry, there are more takeaways to glean.
 
Insurance MVPs attached at the hip to tech MVPs
 
Beyond partnerships, Zhong An’s product iteration cycle is massively scaled. With the support of major investors, they have the wherewithal to test and measure micro-transaction products at a magnitude expected of a Y Combinator batch. Back in 2015, they had publicly launched 100+ products, and today, they have announced over 200. Zhong An CFO John Bi noted at the recent InsureTech Connect conference that the online insurer can launch a new insurance product in the span of five to six weeks. 
 
Besides products, Zhong An has been deploying infrastructure at breakneck speed, experimenting with customizable employee insurance platforms, the equivalent of worker’s comp systems for the massive Chinese O2O economy, its own cloud data processing platform for carriers, and a Zhong An API to partner with new partners.
 
To do this, they have a supply chain of very experienced executives, product managers, developers, designers, actuaries, underwriters, risk managers, claims manager who work well together and have multiple years of experience at Google, Allianz, HSBC, Alibaba, Ping An, and CITIC Bank.
 
At a high level, the way they do this is by getting Ping An product managers in the same room with Alibaba product managers and telling them to innovate and compete. The sub units’ bottom line is the volume of policies, premiums, and customers they can achieve. Actuaries and underwriters are at play, but they are secondary to the primary goal: a consumer land grab.
 
One can postulate the strategy behind the decision: the current RMB payout on a parametric or indemnity loss are so low that they probably counterweigh potentially high customer acquisition cost (CAC) later down the road. In China, as we have seen with the Didi Chuxing-Uber roll-up, consolidation and customer acquisition is key to winning.
 
Can there be a Zhong An of the U.S.?
 
For U.S. startups who want to sell auto, home, life insurance through partnerships or an insurance API, the reality is a bit more difficult. Though Facebook Messenger has been working to implement WeChat functionality, the transactions around mobile in the U.S. is not as rich as it is in China.
 
Partnerships between Berkshire Hathaway Travel Insurance and Visa or between Wells Fargo Online and Assurant renters insurance are one-off, and not as effective. Established startups such as NerdWallet, SoFi, or Credit Karma are also trying to figure out insurance distribution out themselves. They need to figure out broker licenses, win carrier appointments, or find paper, while the carriers in the U.S. are utilizing their trove of proprietary data and new third party tech and data vendors. 
 
Depending on who you talk to within the insurance space, more or less everybody knows that UI/UX, rating, and claims processes have to be improved, intermediaries are needed regardless if they are traditional or a new startup, and data will be utilized. It is very likely that elements of Zhong An and other Chinese insurance tech upstarts will take a different form in the U.S., but there is still much to be gleaned for U.S. startups, investors and others in the insurance industry on the product innovation front.
 
Market enablers lead to product innovation
 
The major enabling factors we described at the beginning of this paper have already led to a substantial amount of experimentation in both insurance and quasi-insurance products. Here are a few from just Zhong An:

  • Merchant Performance Insurance (MPI) — Partnership with Alibaba to protect merchant performance and guarantee deposits on TaoBao via Zhonglebao.
  • Weather Insurance — Via T-mall and WeChat, insurance pays out to cover extra living costs for record high temperatures.
  • Mobile Phone Repair Insurance — Offers repairs to physical damages made to Xiaomi smartphones.
  • Mobile App Security Insurance — Partnership with Baidu to cover fraudulent transaction processed on Baidu Mobile Guardian app.
  • P2P Loan Guarantee Insurance — Protects P2P lenders from defaulting payments on leading platforms like Tongxin.
  • Credit Insurance — Credit insurance policy underwritten by Zhong An for users obtaining credit lines when shopping on the Chinese eCommerce platform Mogujie.
  • Flight Delay Insurance — Partners with leading OTAs (Ctrip, Qunar) to provide insurance products covering flight cancellation, delays, and accidental injury priced based on historical flight delay ratio and paid through WeChat wallet.

To an insurance insider in the U.S., many of Zhong An’s flagship ‘insurance’ products don’t fit the traditional, Western definition of insurance since there is no clear indemnity. MPI and the end product Zhonglebao function more as a merchant clearinghouse. Weather insurance can be construed as a Groupon-like lead into local vendors. Mobile repair insurance is similar to Asurion / AppleCare warranties to promote customer retention. Mobile app security insurance has no real analog in the U.S. besides PayPal / Lookout; and P2P loan insurance is basically unheard of in the U.S.
 
More constructive for those in the U.S. looking to learn from China’s insurance tech landscape is to dig into what these products look like themselves. We highlight a few below:

3. Lessons through Product Walkthroughs

To better understand the true inertia of change in China, it is best to understand the user experience of what Chinese consumers see after they discover a new insurance product through WeChat or other online distribution channel. We highlight a few select examples below, but it’s worth noting that these make up a tiny portion of companies in China’s insurance innovation landscape today.
 
Zhong An
 
Zhong An has taken the approach of looking at every source of data under the sun, finding unmet needs among Chinese consumers and then inserting themselves into the process. Today, Zhong An has three main business lines: 1/ traditional insurance products 2/ creative insurance products enabled by technology (i.e. critical illness insurance utilizing wearable device data) and 3/ insurance products for the Internet economy (i.e. shipping returns insurance). 
 
One example of this is Zhong An’s vaccine insurance product in which product managers identified a host of bad vaccination outcomes in the news, studied vaccination data released by the Chinese government, and offered a corresponding risk product. Moreover, Zhong An also integrated with WeChat and other distribution channels to offer its vaccination insurance product right at the point of booking an appointment, an optimal market entry.

Indeed, health insurance has been a major area where Zhong An has focused more of its attention on the product front. As the product flow below shows, Zhong An not only prompts users with free or discounted insurance offerings but much more, including the ability to record 60 to 80-second office exercise videos and track exercise status, thus keeping its customers engaged with multiple touch points a year that can create significant value through cross-sell opportunities for its other products.

Another way that Zhong An and other insurance companies are innovating within the health insurance industry is by offering what we call “tailor-made” health insurance policies. The main idea here is to offer an insurance policy that caters to a specific age group and a predetermined list of diseases and extending their interaction and touch points with the insured into the policy period by providing video apps to consult with doctors.

This is significantly different than in the U.S. where ACA standardizes health plans and caps profit margins, and federal regulators are penalizing non-standard health plans.

Zhong An’s account page highlights another aspect of how it aims to be a widespread enabler of the Internet economy by promoting multiple touch points with its product(s). For example, Zhong An has formed a point structure in which users who sign in daily earn bonus points. Zhong An’s aim of becoming a more comprehensive financial services provider is also apparent from its account page: its wallet currently features a product named YuanBao, in which employees can borrow money from a third-party lender with a borrowing guarantee from Zhong An.

OkChexian: Rethinking auto “insurance”
 
OkChexian is an auto insurance start-up based out of Shanghai, which bills itself as one stop shop for all car-related needs. In addition to offering traditional auto insurance, OkChexian offers quasi-insurance products like “car wash subsidy” and “traffic jam subsidy”, and products like “oil price guessing” that cater to the speculative behavior of Chinese customers. Rather than labeling these products as insurance, it has labeled them as a subsidy or discounts, which help it stay clear from the purview of insurance regulators.
 
Taken separately, it would have been hard to build a business around any of these product categories, but when taken together, OkChexian has been able to create a hook for auto insurance policies, which have a higher margin.

As the screenshot below highlights, OkChexian is able to obtain the real-time location of its users by tapping into smartphone sensors when enabling its trip management function. This dongle-free approach is in contrast to how Metromile has used its Pulse OBD-II dongle to power its per-mile insurance though is closer to other startups opting for a sensor-based approach to UBI like Zendrive or TrueMotion. 
 
Within the trip management function (shown below), OkChexian also promotes its “traffic jam subsidy” service, which offers users gas coupons if the app detects that users are indeed caught in traffic jams.
 
Users can also participate in a daily “oil price guessing” by betting on the oil price movement the following day, with coupons of differing size as prizes for participants who guess correctly. These products may seem incredibly far-fetched to tech entrepreneurs and investors in the auto insurance space in the U.S., but in China, OkChexian has already touched more than 2 million users with these products.

Datebao
 
Xishan Information Technology dba Datebao started off by providing an online brokerage for premium health insurance products at affordable prices, but has quickly evolved into one of the largest distributors of health insurance products in China with nearly 5 million users today.

A big part of Datebao’s growth can be attributed to its novel distribution strategies. From offering flash sales to Groupon-like deals on insurance, Datebao has leveraged various e-commerce marketing strategies to expand the reach of its insurance products, as shown below. The challenges for Datebao are two-fold: 1/ Though they have been successful in acquiring customers for one-time products, can they turn these users into higher-value customers and 2/ China’s healthcare infrastructure is still immature and might have difficulty supporting Datebao’s business model if it continues to scale.

Shuidihuzhu and the rise of mutual aid platforms
 
Today, there are at least four different ‘mutual aid’ platforms with over 1 million users in China. These quasi-insurance products aggregate members who pay small fees, which contribute to a larger pool that promises certain payouts if a member is subject to a given event (e.g. critical illness, car accident) and primarily draw new members via WeChat. 
 
As we previously highlighted, mutual aid platforms have been a target of CIRC already and were the subject of a press conference in April warning against such plans that “have no stable financing or sound insurance solvency because there is no risk assessment or policy rates determination that should be based on actuarial calculation and liability reserve funds.”
 
One of the fastest-growing mutual aid platforms in China is Shuidihuzhu, launched by a former executive of Chinese group-buying giant Meituan-Dianping. Shuidihuzhu features two products on its app, AD&D mutual aid and cancer mutual aid, the latter of which has scaled past 1 million users in less than half a year. For Shuidihuzhu, a critical insight was that many low or middle-income Chinese cannot afford critical disease insurance premiums that need to be paid each year. As the screenshots below highlight, the app encourages signup growth by transparently promoting both its membership base and fee structure breakdown (as low as 3 RMB).
 
Whether or not these mutual aid platforms can outlast regulators in achieving breakout scale is to be determined (and perhaps unlikely), but for now they offer an interesting look at how certain quasi-insurance products can fit in China’s ecosystem and scale at a rapid pace especially as various ‘peer-to-peer’ branded insurance models become a point of debate in the U.S. and Europe.

4. Key Takeaways & Open Questions

Every week, a quick scan of 36kr (China’s TechCrunch equivalent) highlights another headline-grabbing development in China’s exciting insurance innovation landscape. As Zhong An looks to potentially test the public markets, China’s dynamic insurance tech market will likely become more visible to U.S. operators, investors and insurance executives. 
 
With that in mind, here are a few key takeaways and open questions on how insurance innovation in China might evolve over time:
 
Will regulators clamp down? While tech companies innovating in the insurance industry have benefitted from China having just one centralized regulatory body, whether the spate of approvals for online-only licenses will continue or whether ancillary activity such as the rise of mutual aid platforms will persist in its current growth is still an open question. This is a key difference. Whereas startups in the U.S. are allowed to grow without fear that regulators will clamp down as long as they follow the rules, those in China face the possibility of getting routed by regulators if deemed to be growing too fast for comfort.
 
Can a true startup succeed in insurance? While Zhong An has grown rapidly since its founding, it benefits immensely from the joint resources of its founding partners Alibaba, Tencent, and Ping An. Meanwhile, BATJ is playing a winner-take-all game as they look to expand into every part of the daily lives of Chinese consumers as well as how they protect it. As one investment executive said to us, “That’s why you don’t see a big tech giant in China born after 2000. Almost all were born before 2000. This is quite different from the U.S. market.”
 
 While China is an exciting breeding ground for insurance innovation, it remains an open question whether the majority of value will continue accrue to China’s Internet giants vs. startups hoping to break through.
 
Enough trust? On Alibaba’s last earnings call, the health of the Chinese vs. American consumer was a major talking point as executives touted the Chinese consumer’s healthy balance sheet and ability to spend:

First, take a look at the Chinese consumer. Chinese households today have aggregate net cash reserves of over US$4.6 trillion. This accumulated wealth and liquidity is the result of real double-digit wage growth over the past decade. In contrast, in early 2008 on the eve of the global financial crisis, household debt in the United States was 98% of GDP, and the average American family was in heavy debt.

However, insurers and insurance innovators alike still need to develop a lot of trust among the average Chinese consumer. In a recent survey, half or more Chinese consumers who criticized an insurance brand within the past 12 months did so “because of a frustrating claims process that is too slow, is not transparent enough, falls short of the customer’s payout expectations, or requires too much effort from the customer.” The new breed like Zhong An is trying to solve this problem by streamlining the claims process through WeChat and Alipay and offering low value products with the hope that users will gradually migrate to traditional high value products.
 
These are just a few of the questions still open on how insurance innovation will develop in China moving forward. We have the full expectation that the pace of market dynamics can (and will) cause some companies or ideas discussed in this paper to accelerate incredibly quickly or bear out in entirely different directions as existing players deviate strategies, new ones enter the market, and/or regulators clamp down.
 
Of course, we’re eager to hear from you. If you have any questions, critiques or ideas about China’s digital insurance market that we’ve failed to ask or introduce, we welcome your feedback!
 
Thanks to Monica Xie, TanTan Wang, Charlie Wang, Nancy Xu and Aya He for their help with this research and Douglas Jiang and Farron Blanc for their feedback.