The Chinese insurance company, ranked 94th in Fortune 500 and number 13 in Fortune China, is the biggest player in the Chinese insurance market, although its share of the market has fallen by at least half since the Chinese insurance industry was liberalized in 2007, following WTO directives.
In April 2015, China Life announced it was investing $200 million in Uber, and not in its Chinese subsidiary, but globally. It is unusual to invest in direct competitors given the requirement to share confidential information with shareholders. When a company like China Life invests in competitors from the same sector, it is expected to accept restrictions regarding information about the company’s progress, which can make it hard to monitor its positions. When these investments take place despite these expected restrictions, it is obvious that the company very much wants to participate in the sector in question.
So why would a huge insurance company invest in a taxi firm? As we said at the time, the insurance market will be hit hard in the coming five years by deep changes, more changes than it has experienced in its history, and motor insurance will be affected particularly. As the car market transforms and we see a shift from individual to collective ownership or pay-to-use models, insurance companies will be forced to negotiate with the owners of large fleets, with significant negotiating power and, undoubtedly, lower margins.
This shift will be reinforced as these companies introduce self-driving vehicles, at which moment, responsibility for accidents will fall to the manufacturer or the creator of the software used to drive it.
The changing ownership model will see the emergence of well-capitalized transport companies, vehicle makers, tech firms, some of them sitting astride the automobile and insurance sectors (Uber being the most pertinent example), able to create structures with very different margins.
Add to this lower accident rates and the changes in branches such as health (wearables, monitorization, etc), the internet of things, and other factors, and it’s clear that the perspectives for change in the insurance industry are far from exaggerated.
Regarding China Life, everything seems to indicate that its strategy will consist of having more information than its competitors and that it will be able to better predict change and its impact. Having direct information about the plans of two of the companies that are clearly going to dominate the urban passenger transport sector around the world will doubtless prepare it well for those changes.
Uber, now valued at $68 billion, has been buying up tech companies and forging alliances, while it grows from city to city. Meanwhile, Didi Chuxing seems to be pursuing a strategy of buying market share through the acquisition of local players. Time will tell which of the two strategies makes the most sense. But for a largely state-owned insurance company that dominates the local market thanks to the connections of its main shareholder, taking positions in both camps would seem to make sense rather than simply waiting to see what develops.
(En español, aquí)