The Ping An Ecosystem— how an insurance company reached the Forbes top 10 ranking
A few days ago, I came across the annual Forbes list of the world’s largest public companies. I was surprised to see a familiar name to me in the top 10– Ping An Insurance Group. But in a way, I should not be surprised. Four years ago, I wrote my MSc dissertation on how powerful Ping An’s business model is and will be in this digital age.
Seeing my academic paper prediction coming true in the real world rejuvenated me and encouraged me enough to write this article. So how on earth does an insurance company which more or less operate entirely in China be considered more valuable than Microsoft and Google? The answer — a digital ecosystem!
In this article, I will explain what a digital ecosystem is and highlight four factors driven by the ecosystem which has brought Ping An to the top of the Forbes list.
What is a digital ecosystem?
A digital ecosystem is a technology platform which brings together producers (sellers) and consumers (buyers) in high value exchanges (see figure below). Think about the biggest tech companies in the world — Amazon, Apple, Google, Microsoft, Uber, Alibaba and so on. And the one thing common among these companies? They all employ the ecosystem model.
And all ecosystems rely on two things to be successful –
a. a large user base and
b. frequent customer interactions.
Once customers are invested in the ecosystem this way, the ecosystem owner can develop its chief asset — information on customers, making it possible to sell highly personalised products and services. A simple e.g. is when Amazon suggests you to buy an IPAD case right after you buy an IPAD. But these can get more sophisticated as we will see in the case of Ping An.
The Ping An Ecosystem
Building a successful ecosystem is no easy task, but this can be incredibly challenging if your primary business is insurance. While many insurers have a large customer base, they maintain little to no contact with their customers. This is because most insurance policies are annual renewals and customer touch point is usually once a year. Also insurance is no fun! It is probably fair to say that spending more time with your insurance company is the last thing in most people’s minds. So, insurers have always struggled to get those frequent consumer interactions which are so vital for an ecosystem model to thrive.
Ping An seems to have come up with a novel approach to solve this insurance conundrum — by not talking about insurance to their consumers. Well, at least not initially.
It positions itself as a financial services supermarket where consumers find all their financial needs through one account. Consumers are attracted by new business lines (for example peer to peer lending through Lufax) that drive interaction and convenience, they are then cross-sold more traditional products” (Morgan Stanley and BCG, 2014, p.34). In 2015, Ping An described this business model as ‘Initiating engagement with one service, extending the scope to multiple services, then to multiple products’ (Ping An, 2015). A graphical view of the main channels and services in the Ping An ecosystem is shown below.
The ecosystem model has enabled Ping An to build a staggering online audience. As at the end of 2018, the Group had 538 million internet users and on average, each internet user used 2.37 online services from Ping An.
The Ecosystem differentiators
Michael Porter (1985) in his landmark book ‘Competitive Advantage’ stresses on the importance of differentiating from competitors in as many ways as possible to attain competitive advantage. In the case of Ping An, four factors derived directly from the ecosystem provide the maximum differentiation for Ping An, driving competitive advantage. These four factors are; customer centricity, branding, cross-selling ability and value chain optimization. These are considered the key differentiators as they are the very areas in which traditional insurers have a weak standing.
Of these, customer centricity is at the core of the ecosystem and the driving force for all remaining factors. Customer centricity is a frequently used term in business and has a very wide meaning. But I always like to use the Uber e.g. for defining customer centricity- Uber’s disruption of the taxi business was built on fulfilling a simple customer need — get me that taxi home after a long day or a big night out. Hence the foundation of customer centricity is to build something engaging and beneficial to the customer. By providing access to a wide range of financial products through a single online account, launching digital applications which appeal to customers and simplifying processes such as receiving auto insurance claims compensation, customer convenience and needs drive the Ping An ecosystem. The latter allows me to give another striking e.g. of how different an insurer Ping An is — with the help of AI, Ping An processed 96.4% of the urban onsite auto claim investigations within 5–10 minutes in 2018.
Insurance companies have historically held weak brands. So much so that in the U.K for e.g. most insurers resort to promoting their products under the brands of banks or supermarkets. But unlike most insurers, the ecosystem allows Ping An to have frequent interactions with customers in a positive manner. This creates avenues for customers to talk more about the brand. The ecosystem also allows Ping An to provide highly personalized and differentiated products and services to customers. This in turn showcases personalized customer service and results in high product satisfaction, both driving brand value.
Cross-selling is perhaps where an ecosystem model starts monetising its competitive advantage. Again, most insurance companies have weak cross-selling ability. While some insurers promote combined home and auto insurance policies, they are not directly correlated enough for cross-selling purposes. Having a home does not automatically imply auto insurance needs or the other way around. And this is where Ping An’s internet businesses really start adding value. For e.g. a customer interacting or buying a house through the real estate app has a direct need of a home insurance policy. The same is true for the auto trading platform and auto insurance. In 2018, about 20% or roughly $7 billion of Ping An’s P&C insurance business came through cross-selling.
Finally, contrary to most insurers, Ping An has shown clear intent on owning the entire insurance value chain. While such a strategy generally results in a lack of focus and suboptimal performance of an insurer, the digital ecosystem allows Ping An to overcome these shortcomings. If done well, moving up the insurance value chain is advantageous, especially to those areas close to the customer. This creates more opportunities for Ping An to differentiate and add value in the buyer value chain, a keyway to derive competitive advantage (Porter, 1985)
Final thoughts
For all the extraordinary success story that is Ping An, it is worth noting that almost of its business is concentrated in mainland China. This exposes it to special risks such as what happened to Ping An’s ecosystem star and Softbank funded unicorn Lufax in 2019. Once valued at $38 billion, the Chinese governments crack down on P2P lending may leave it without a business model.
Nevertheless, Ping An seems to be way ahead of its peers in insurance and its focus and level of investment in technology should maintain sustainable competitive advantage for the near future. Ping An’s CEO Jessica Tan summarizes this technology strength well –
We now have 32,000 researchers, a combined 101,000 tech staff at the 11 tech units, more than 20,000 patents — 96% are invention patents — and eight research institutes. In terms of input, our technology strength is unparalleled among financial institutions.
