InsurTechs in China are changing the way insurers work and offer products with the pandemic accelerating the adoption of machine learning and automation, while the strengthening of regulatory policies will further prompt the digital transformation of the insurance industry.
China’s InsurTech scene has become one of the most innovative and closely watched segments in the insurance world. Last year, APAC-based InsurTechs attracted approximately $1.4bn in funding, with those in China accounting for more than half of the capital raised at $800m.
The country is home to one-third of the world’s unicorns, and start-ups have found a conducive environment with technology and innovation a central part of China’s economic growth. InsurTech is also becoming more influential in China’s insurance industry, at a time when the pandemic has placed further emphasis on the digitalisation of the country’s insurance sector.
“InsurTech is playing an increasingly important role in the industry, with traditional insurance players investing heavily into InsurTech. Thus, InsurTech companies have evolved from being service providers to having the ability to reshape insurers’ traditional thinking on product development, business operations, client acquisition and how risk is viewed,” said Smart Thinking Consulting managing director Li Zi Jia.
The Beijing-based consultancy, also known as SiTao Consulting, is an arm of Munich Re that is focused on innovation in insurance. Mr Li believes the disruption triggered by InsurTech is causing an ‘insurance industry revolution’ in China.
“We’ve seen the trend in China where InsurTech companies are not only paying attention to digitising the insurance selling or claiming process, but also leveraging China’s rapidly developing technologies, such as 5G, AI, smart driving and satellite, to manage or mitigate risks themselves. We call these ‘disruptive InsurTech’, which have emerged with a variety of business models to challenge insurance industry incumbents.”
Stepping up digitalisation
The digital transformation of the insurance sector in China is gathering pace across the value chain as insurers look to improve their products and processes. One example is the increased adoption of automated claims processing which has helped to lower cost while improving operational efficiency. However, traditional carriers still have a long way to go in their digital transformation, Mr Li pointed out.
“At first glance, some of the apps and services now being offered in the Chinese market appear extremely sophisticated. But behind the scenes, numerous processes are still carried out manually, and in many instances are even paper-based.
“Insurance operations are no exception and continue to be a long way from achieving a significant increase in efficiency with seamless digital processing. Many companies still face challenges such as complex legacy system landscapes with unlinked datasets in sales, the management of insurance applications and claims processing, major anti-selection risks from overly generalised automated solutions and serious regulatory obstacles,” he said.
Doubao Technologies, an InsurTech that assists in the digital transformation of insurers, believes the Chinese market has made progress in terms of digitalising its underwriting, marketing and distribution and believes other areas of the value chain would eventually follow suit.
“This trend will intensify in the next few years and greatly affect product design, underwriting, and claims and services of the insurance industry chain, for instance the deployment of big data fraud detection and robot customer service. The next step would be connecting the various parties in the ecosystem to make automatic claims decisions based on data models,” said Doubao Technologies founder and CEO Qike Zhang.
In May 2020, the China Banking and Insurance Regulatory Commission issued a three-year plan to digitise 80% of the country’s P&C business by 2022.
Mr Zhang sees many opportunities to transform the core processes of insurers in China that would lead to improved operational efficiency and better products for customers.
One area that he believes is ripe for transformation is in motor insurance. With a revenue of approximately CNY900bn ($139bn), motor insurance accounts for more than 70% of total non-life premiums in China.
“I think the transaction process in auto insurance will transform first. The traditional model of auto insurance transaction relies heavily on the ‘headquarters – branch office – local office – agent team’ pyramid structure, a legacy issue from the ‘human wave’ tactic of the past.
“In the present world of digitalisation, mobile terminals and rapid changes in consumer demand, the high operating cost and poor flexibility of traditional models are unsuited to meet current needs and is gradually being replaced by contemporary digital auto insurance platforms.”
Meanwhile, Mr Li predicts a transformation in insurance underwriting to occur quite quickly in the wake of recent market trends which have been accelerated by the pandemic.
“Consumer behaviour has changed and they will no longer need to fill out long questionnaires, but instead simply answer a handful of straightforward questions and agreeing to an online footprint check. Any gaps in the risk profile will be filled using stochastic models – with amazing accuracy,” he said.
Distribution and partnership
Although agency and bancassurance distribution continues to dominate in China, digital distribution channels are growing as insurers look to maintain a competitive edge.
“Digital distribution of insurance products has seen rapid growth, with a customer experience that is tailor-made to fit into the micro moments in a customer’s daily life and digital touchpoints, which in turn drives the growth of insurance penetration,” said Mr Li.
Mr Zheng said, “For standardised insurance products, such as ordinary accident insurance, auto insurance and life insurance, online sales will be welcomed by mass users. We expect the overall market share of traditional agencies and bancassurance channels to diminish over time.”
The popularity of smartphones and e-commerce has altered the buying habits of consumers in China, and several internet giants have entered the insurance space by leveraging on their ecosystem.
“They have natural advantages - abundant capital and data accumulated from a generation of tech-savvy consumers. These internet giants are actively engaging in the insurance market and continuing to play a special role in the Chinese market,” said Mr Li.
Alibaba, Tencent and Didi Chuxing are just some of the internet titans that have flexed their way into the insurance market. Although regulators in China recently have started discussions with some of these players to de-link their financial products and services from their core payment platforms, it is clear that these tech giants are here to stay.
Hence, insurers are expected to remain proactive in building partnerships with various third-party entities, including social media, e-commerce and InsurTech platforms, in order to expand their market coverage.
“To achieve a win-win situation, one must break down the data barrier to share data. Through this lens, partnerships are more important than competitive and hostile relationships, said Mr Zhang.
He said, “With the arrival of the next round of digitalisation, the oligarchs of the traditional insurance industry will be facing more pressure, while the specialised and innovative small and medium-sized insurance technology enterprises in the industrial chain will encounter new opportunities for development.” A