With the backing of founding partners Ping An, Tencent, and Alibaba, Zhong An Online launched as China’s first online-only insurer in 2013. Last week, Zhong An filed to raise $1.5B on the Hong Kong Stock Exchange on the back of some big numbers: 7.2B insurance policies sold, 492M customers served, and close to $500M in gross written premium in 2016.
There is a lot to learn from Zhong An’s IPO application, which offers a meaningful case study into insurance innovation in China today. While Zhong An has built both an incredibly efficient operation productizing innovative insurance offerings (80% of Zhong An’s employees operate in technology or product management functions) as well as a broad ecosystem to distribute its products built on China’s thriving Internet economy, it also faces challenges. This analysis digs into a few of them, including:
- Finding products that will drive consistent growth. Since its inception, Zhong An’s flagship product has been shipping return insurance. But as gross written premium (GWP) from its shipping return products decline, finding consistent growth in Zhong An’s other products such as health will become more significant.
- Relying less on its most powerful partners. In most cases, Zhong An embeds its products directly into the platforms of its 180+ partners. But close to 70% of its GWP is generated from sales on the platforms of its top five partners.
- Navigating China’s regulatory landscape. Zhong An’s Internet insurance license was granted on a special approval basis. As China’s insurance tech landscape evolves, Zhong An’s ability to navigate around evolving regulation will be key.
Product
In November 2013, Zhong An rolled out its first product, a shipping return policy focused on reimbursing merchants for the shipping costs on returned products purchased on Alibaba’s Taobao marketplace and Tmall (it also offers a shipping return policy for consumers).
This is an incredibly powerful product because it alleviates buyer concerns and facilitates transaction volume on the marketplaces it’s offered on. Look no further than Singles’ Day, the Chinese e-commerce phenomenon, when Zhong An sold more than 100M shipping return policies in 2015. But while shipping return GWP more than doubled between 2014 and 2015, GWP from shipping return products fell on a year-over-year basis in 2016.
Today, Zhong An offers more than 240 product terms (policy terms filed and registered with CIRC) primarily across key product ecosystems including: health, accident, liability, bond, credit, auto and lifestyle consumption (including shipping return). Despite its diverse product portfolio, Zhong An’s top five products contributed 64.45% of total GWP in 2016 (down from 82.2% in 2014).
One area to watch will be Zhong An’s health insurance products. For example, its personal clinic policy launched in 2016, which covers individuals for clinical visits and medical treatments, was the top non-auto seller on Ant Financial’s insurance platform in 2016 and is also sold through Zhong An’s own channels. Zhong An also saw strong growth in travel-related accident insurance, where it integrates directly on the platforms of major online travel agencies like Ctrip.
Partnerships & Brand
One of the most impressive facets of Zhong An’s business is its deep integration into China’s Internet economy. For example, individuals who purchase flight tickets on Ctrip are directed to purchase various insurance options including Zhong An’s flight accident policy, which can be purchased in a matter of seconds.
Alex Rampell of Andreessen Horowitz has previously written about inflection points, trigger events in a person’s life that fintech firms can use to identify and target customers with relevant offerings. Zhong An, and other insurance startups in China, calls these “scenario-based settings” in which “customers are able to purchase insurance specifically for risks related to their consumption behaviors in a very simple manner.” Zhong An counted 183 partners at the end of 2016 including leading Chinese tech companies including Alibaba, Ctrip, Mogujie, Didi Chuxing, Xiaomi, and Ant Financial.
But Zhong An also relies heavily upon a select few of its ecosystem partners – 68.6% of GWP in 2016 were generated from sales on its top five partner platforms. Moreover, its brand is not readily displayed on most partnership platforms and the customer data it uses also originates from the payment channels and customer acquisition of its partners.
Ant Financial, in particular, plays a powerful role. As the company writes, “platforms owned or operated by Alibaba work with Ant Financial to select companies to provide insurance solutions that can best serve customer needs arising from their platforms.” China’s insurance tech landscape is evolving fast and all of China’s leading Internet giants (including Ant and JD Finance) are developing different insurance services and offerings. As this happens, it wouldn’t be surprising to see them more closely compete with Zhong An.
Regulation
At CB Insights’ Future of Fintech Conference, DST Global’s Tom Stafford had this to say on fintech regulation in China:
The regulator in China tends to be somewhat backward-looking. They allow a sub-sector to develop, they watch it, they learn, they see how it’s developing, and then they regulate. You can create a new sub-sector and then a regulator will make it legal or illegal after the fact.
This is pertinent in Zhong An’s case. China has not yet adopted a clear regulatory framework and Zhong An was granted an Internet insurance license on a special approval basis. Moreover, as Zhong An expands its product line, it will run into different regulatory standards. Take auto insurance, where Zhong An must receive a license in each province it wants to sell in versus its lifestyle consumption products like shipping return which it can sell across all of China.
Why does this all matter?
Zhong An’s IPO prospectus offers a rich look into insurance and, more broadly, financial services innovation in China. But it also could inform how we might see insurance innovation develop in other growth markets. In Singapore, a small startup called Axinan is reportedly partnered with Indonesian e-commerce marketplace Tokopedia and has processed free shipping return insurance for more than 180,000 orders a month.
In India, where only 3% of insurance is currently bought online, Acko General Insurance raised $30M in seed funding to launch an online-only insurer looking to new forms of distribution in India’s Internet economy such as wallets, e-commerce companies, and digital lenders. In May, Acko’s CEO Varun Dua was quoted as saying:
Disruption will happen through product innovation and delivery mechanisms. The big players have well-entrenched traditional distribution of a wide variety of retail and commercial products…We will be more nimble in areas where technology can create newer models of insurance.
These are just two examples, but as insurance continues to evolve in emerging markets, Zhong An provides a vivid look at the degree to which technology innovation can play a leading role.
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