Media Reports

Oddball Policies Give Boost to China’s Insurers

time:2019-09-22 source:WSJ

For about $70 a year, one of China’s largest internet-only insurers will make a lump-sum payout to parents if their child goes missing.

The plan is one of dozens of unconventional insurance policies sold by ZhongAn Online Property & Casualty Insurance Co., a nearly six-year-old company whose backers include Chinese tech giants Ant Financial Services Group, Tencent Holdings Ltd. and Ping An Insurance Group Co.

Under the policy, parents can send swabs from their child’s mouth to a lab for a free DNA test after purchasing the plan. Policyholders stand to receive as much as 200,000 yuan (about $28,000) if their child aged 14 and under genuinely goes missing and a police report has been made.

China’s online insurance industry is booming, thanks to a proliferation of oddball policies that capitalize on people’s worries about unlikely events like ineffective vaccinations, and common mishaps like e-commerce shipping delays and broken smartphone screens. The country’s high level of internet penetration—more than 800 million people in China use mobile devices to access the internet—has allowed insurers to market their products to a large population via mobile apps and keep premiums low. People buying ZhongAn policies can pay for them instantly using Alipay and WeChat Pay, popular mobile-payment systems operated by Ant and Tencent.

Last year, online insurers collected 189 billion yuan ($26.6 billion) in premiums, representing about 5% of the overall insurance market, according to Wind Information Co., a data provider. There are more than 100 companies in China—including life and nonlife insurers—licensed to distribute or sell insurance policies online, according to data from the Insurance Association of China.

Brisk growth

The industry is growing fast. At ZhongAn, for instance, premiums have jumped every year since its founding in 2013. In addition to pulling in revenue, online insurers are collecting data from their customers to help them gauge risks and the likelihood of future payouts, which will be key to their profitability.

ZhongAn last year sold insurance policies to more than 400 million customers in China and collected an average premium of 28 yuan (about $4) per individual. Much of its business comes from inexpensive policies costing 1 yuan or less, such as one to cover return-shipping costs. And while traditional insurers rely on tens of thousands of agents to acquire and retain policyholders, ZhongAn uses tools such as robo advisers and sells its policies via mobile platforms operated by Alibaba, travel website Ctrip, and other companies.

The company raised about HK$13.68 billion (US$1.75 billion) in a Hong Kong initial public offering in 2017 to help fund its expansion, and premium volumes have soared annually.

China's Online Customer Base

Increasing internet access and mobile-device usage make China an attractive market for online-only sellers of insurance.China's Online Customer Base

Increasing internet access and mobile-device usage make China an attractive market for online-only sellers of insurance.

China's Online Customer Base

Increasing internet access and mobile-device usage make China an attractive market for online-only sellers of insurance.

China's Online Customer Base

Increasing internet access and mobile-device usage make China an attractive market for online-only sellers of insurance.

China's Online Customer Base

Increasing internet access and mobile-device usage make China an attractive market for online-only sellers of insurance.






In August, the company reported an underwriting loss of about 492 million yuan for the first half of 2019, but a net profit of 94.5 million yuan, thanks in part to investment returns. For 2018, the company reported an underwriting loss of 1.8 billion yuan, which it attributed to factors such as market expansion and underwriting costs. The company’s shares currently trade at about a third of their IPO price. 

Industry analysts say ZhongAn and other online insurers in China have prioritized volume growth over profitability.  

“In the China market, there is still that emphasis on market share,” says Sam Radwan, managing partner at Enhance International, an insurance consulting firm that advises Chinese insurers. Mr. Radwan says that strategy may not pay off in the long run. While online insurers can attract consumers by offering products with low premium rates in the short term, they may have difficulty retaining the consumers once they try to make profits by raising premiums, he says. 





One ZhongAn product requires no premiums. Customers sign up, log their daily steps with the insurer’s mobile app and can earn medical-protection coverage of up to 50,000 yuan a year depending on how much they move. The plan promises lump-sum payouts if policyholders are diagnosed with any of 70 critical diseases or illnesses, including cancer. More than 26 million people have signed up since the plan was introduced in late 2015. After signing up these customers, the company tries to sell them additional products.

Offering free coverage is a potentially costly endeavor, says Michael Powers, a professor of risk mathematics at Tsinghua University in Beijing. Still, there could be some benefits for the company, he adds.

“It’s sort of a traditional marketing effort to get the attention of customers,” he says. Products like this could help ZhongAn build a database of individuals that the insurer can market more policies to in the future, Prof. Powers says. It could also yield data and other information—such as how exercise correlates with medical costs—that could be useful for future underwriting.

Covering gaps

Another low-cost product, one of ZhongAn’s most popular health-insurance policies, offers payouts of up to 6 million yuan for medical expenses on top of what is covered by public health insurance, for a minimum annual premium of 136 yuan. Because public-hospital costs in China are relatively low and public health insurance is nearly universal, most people are unlikely to incur extremely high costs of treatment in China.


But some treatments and medicines aren’t covered by public insurance, and major illnesses such as cancer will often involve costlier treatments that aren’t covered or fully covered by public insurance. To satisfy consumers’ growing desire for high-quality cancer treatments in other countries, meanwhile, the company says policyholders can buy a premium service that covers medical costs up to 1 million yuan in Japan for an additional 45 yuan.

“Large-sum medical insurance is popular mainly because the Chinese market still has a big gap in health protection,” says Steven Chen, a Singapore-based principal at consulting firm Oliver Wyman who covers insurance in Asia. Many Chinese consumers want to access costlier treatments through private medical insurance, Mr. Chen says.

Other insurance products ZhongAn sells are more in line with traditional policies sold in other countries but still capitalize on the company’s internet-only marketing strengths. Ma Weiran, for example, a 43-year-old agricultural worker in Kaifeng, says he bought a comprehensive accident policy from ZhongAn last year for 30 yuan that protects against a broad range of mishaps. He purchased it via Alipay, one of China’s highly popular mobile-payments networks. Earlier this year, Mr. Ma says, he was bitten by a dog and had to pay roughly 1,800 yuan for a rabies vaccine. He filed a claim online and says ZhongAn reimbursed him for around 90% of his costs within weeks.

“It’s even more convenient than getting in touch with an agent,” says Mr. Ma, referring to the online claim-filing process. He has since purchased the same policy for his wife and parents.

Acquisition costs

Chen Dongmei, an associate professor of insurance at Fudan University in Shanghai, says ZhongAn could incur high consumer-acquisition costs, as distribution channels that help it reach consumers can charge hefty fees or commissions when they sell its policies.


Analysts say it remains to be seen whether ZhongAn and other online Chinese insurers can make money in the long run, especially with newfangled and unconventional types of policies.

They are making “a big bet that the underwriting results are going to come in line with what you think, given that they haven’t been tested and there hasn’t been a lot of data in the market,” says Mr. Radwan, the insurance consultant.

ZhongAn also uses games and other unusual tactics to draw potential customers. One feature on its mobile app allows users to guess the direction of China’s stock market and enter a lottery to win an iPhone.

In response to a question from a reporter, a ZhongAn spokeswoman says her company wants to increase its interactions with consumers by using “simple and fun activities” to “gradually change consumers’ stereotypes of insurance.”


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