China's insurance tech pace of execution. This week in insurance tech. The best of July.
Need for speed
Last Friday, AXA entered into a global partnership to develop new insurance products for users and businesses of Alibaba’s wholesale and retail marketplaces as well as its $60B affiliate Ant Financial.
It’s not the first partnership by a foreign insurer in China’s early but fast-growing online insurance market. In April, Chubb announced a partnership with Suning and its reported 230 million registered e-commerce customers. Last November, Allianz announced a joint venture with Baidu and Hillhouse Capital to create a online insurance carrier Bai’an Insurance, which awaits full approval and has yet to publicly launch.
Having spent time in China this week, the most striking observation, though, is just how quickly native insurance tech companies are executing. As Min Xu, head of Alibaba Cloud, earlier remarked,
“In the past, it took three to six months for insurance companies to launch new products. After deploying the cloud platform, insurers can shorten the launch cycle to one to two weeks.”
Zhong An, which runs its core IT systems on Alibaba Cloud, has launched over 200 insurance products, writing over 3.6 billion policies in 2015. That’s part of the reason China’s online sales of insurance premiums tripled in the first half of 2015.
That’s not to say China’s insurance tech landscape and its major players will avoid a possible shakeup in the future.
For example, while Zhong An raised capital at an $8B valuation last year, we’ve previously covered the host of speedy moves one of Zhong An’s main backers Alibaba has itself made in insurance, including taking a controlling stake in licensed Chinese insurer Cathay Insurance.
Steven Mendel, CEO, Bought By Many:
“I believe that there are other, more efficient, routes to market for insurance startups that don’t involve MGAs – delegated authorities being a very good example, plus these have tax-advantaged status in the UK (that MGAs don’t have). Note also that the regulatory environment is also important – regulators are known to be concerned about the lack of clarity for consumers on who does what with MGAs.”
Jay Farber, Associate, F-Prime Capital:
“MGAs have traditionally been the territory of the ‘shadow’ entrepreneurs building insurance businesses for years in niche segments that larger carriers can’t serve effectively. They’ve also helped carriers access commercial markets where they don’t have broker relationships and would risk negatively selected business if they went in alone. The model comes with all the advantages you’d hope for a startup—capital efficiency and the ability to outsource risk management and operational functions in favor of focusing on distribution and customer experience. There’s also no better time than today to build an MGA, with a long-lasting soft market and tons of excess risk capital to go around.
The risks are just as important, though. An MGA whose carrier / reinsurer partner is not 100% aligned with their strategy, growth targets, and distribution approach is a recipe for at least 6-9 months’ of heartache down the road, and often much more. In addition, because the MGA model separates all risk capital from distribution, it’s easy to lose focus on the importance of building a profitable book. Even at scale, Esurance has never underwritten below a ~108 combined ratio ($1.08 in losses and admin costs for every premium dollar), and Climate Corp found it easier to sell off their insurance book and focus on more profitable business lines as a result. Insurance is always hard, but for teams that understand how to drive differentiation, growth, and book profitability an MGA is a useful tool in the toolbox.”
Luke Cohler, Co-founder, Jetty Insurance:
“Thanks to the Internet, it’s become much easier for organizations to interact with and market directly to customers; as such, the most innovative companies of this millennium are finding ways to connect end users with ‘deep,’ legacy infrastructure like manufacturing capabilities (e.g., direct-to-consumer commerce), vehicle fleets (e.g., ride-sharing) and financial institutions’ balance sheets (e.g., fin tech companies), cutting out the intermediary layers in between.
Seen through this lens, it makes sense that an asset-light, ‘cloud-based’ and technology-driven MGA connected to massive pools of capital at the end of the (re)insurance value chain will eventually be able to market to and service end customers more effectively than can human-driven, (primary) carriers.”