China is lightyears ahead – in insurtech and in regular insurance
It’s not a secret that we believe that there is so much we can learn from what takes place in Asia. The insurance and technology landscape in China for instance is quite unique. Just think of DIA alumnus Zhong An. This online-only insurance company caught the trend of e-commerce, went IPO in 4 years from 2013 to 2017 and became the first insurtech unicorn globally. Last year, already 37 (!) Chinese startups reached unicorn status, the highest number only second to the U.S.A., that saw 47 startups reaching this billion-dollar valuation. But China is also lightyears ahead when it comes to regular insurance. Take Ping An for example, they developed an exemplary ecosystem strategy that includes more than 500 million users in their broader digital ecosystem. We sat down with Dr. Xenia Poppe, Director Insurtech Munich & Head of Programs Insurtech Global at Plug and Play to discuss their take on the Chinese landscape.
Plug and Play is a pioneer in building a global innovation platform and investing in startups at the forefront of technological development. They supercharge the innovation of industry-leading corporations, host 50+ industry-themed accelerator programs a year in cities across the world, invest in over 260 companies a year and co-invest with the world’s best VCs.
At Plug and Play you follow markets and trends closely, what is your take on the insurance and technology landscape in China?
Xenia: “China is a very attractive market. The government is making a lot of effort to encourage innovation by providing resources and monetary incentives for startups. Chinese startups raised 83 billion USD in 2018, with a 60% increase from that of 2017.
China is also the second largest insurance market in the world, but the percentage of population covered is still below average. The Chinese insurance market is one of the biggest growth opportunities right now. We witness significant growth and disruptive trends in the past year, and we are excited to see where the insurance industry and insurance technology will go in the future.”
In a recent DIA interview, Jonathan Larsen, Chief Innovation Officer at Ping An, mentioned several areas in banking in China that were transformed by technology. The penetration of e-wallets has completely changed payments, the wealth intermediation industry is now largely dominated by digital platforms and the same is happening to the personal lending industry. What are the key trends you identify in insurance innovation?
Xenia: “Health insurance is growing the fastest in China, with an astounding growth rate of 108%. This number was 40.6% in 2017, almost doubled the insurance market average. The younger generation is more aware of the importance of health insurance, and there’s a national initiative to promote commercial health insurance to cope with the quickly aging society. The new economies in China nourishes unique product innovation here in China. E-commerce and shared economy, as well as new energy cars, are quickly accepted as a part of daily routines for the public. Zhong An, which you mentioned before, is a great example.
But it isn’t digital only. Sales agents are still the biggest force behind insurance sales in China. In 2017 there were 8 million insurance sales agents in China, which inspired lots of insurtech companies to develop agent tools and chatbots to assist this big army of agents. The reliance on agents to generate sales creates a barrier for new players in the market.”
Based on these market characteristics, what advice would you give to insurers seeking to innovate in China?
Xenia: “Insurers need to stay aware of the most recent tech trends and act fast when a new trend or a new technology with potential comes up. Plug and Play discovers these tech trends by working with our partners in the insurance ecosystem, including corporates, VCs, experts in the industry, and the government. Cross-industry communication and collaboration within the Plug and Play ecosystem is also proven to be helpful for our partners. Combining internal innovation with external technology is very important for the corporates to smoothly introduce external innovation.
In China the structure of insurers can be different from the rest of the world, and it is extremely important to find solutions that suit the current situation, rather than revolting against the trend. There are regulatory risks in China, but it is also a great opportunity. Major insurers, but legislators as well, are both experiencing trial and error.”
So, insurers should look beyond sector boundaries and take an active role in the insurance ecosystem.
What about insurtechs wanting to enter the Chinese market?
Xenia: “The large insurers in China tend to work with local insurtech companies due to lack of local proven case studies and a local supporting team. If an insurtech want to enter the market, it may be helpful to set up a local office and work with a local partner before they can start doing business. Having reliable partners in China also means that you’ll be able to avoid cultural gaps and identify the right customers endorsed by an established reputation in local market. The Chinese market is very unique and the needs of large insurers in China are very different from the rest of the world, or even from each other. Developing a concrete business model and finding practical propositions is critical.”
How do you envision the future of the insurance industry in China?
Xenia: “The use of new technology to innovate traditional industries is a universal trend across all industries. The Chinese government encourages insurtech, and the active market itself is inspiring new sparkling ideas every day. Quickly changing regulations are an obstacle and a great opportunity at the same time for insurtechs and insurers. Many tech companies in the other industries, as they’ve developed data management capabilities and awareness for risk control, will also have a great chance of succeeding in the insurance industry. We are very optimistic about the booming insurance market in China, with more rapid growth to be expected in the future.”