China's technology scene has been making headlines since innovation became one of the government's main priorities in 2013. The latest news stories have focused on its social media "super" apps, such as WeChat, and its developments in electric vehicles. But a new sector is emerging that could reach sales of more than $60 billion by 2018: insurtech.
China is now the world’s third largest insurance market and consulting firm
One of China’s premier online insurance companies announced last month it is planning an initial public offering in the
Property and casualty insurer Zhong An – launched in 2013 – was the country’s first online-only insurance company and is backed by Chinese tech giants
Zhong An – currently valued at $8 billion – has so-far out financed the competition, raising about $930 million since its inception. In total, 20 other Chinese insurtech startups have raised about $205 million since 2010, according to data from CB Insights.
“They’ve had a lot of product innovation and are expanding well beyond their purview,” said Matthew Wong, a senior research analyst at CB Insights. “Zhong An is certainly a sort of significant breakthrough in insurance innovation in China, but we will continue to see more developments on this.”
Now more companies are looking to grab market share. Earlier this year, an offshoot of Alibaba entered into a joint venture with major insurer
But the real area of growth could be in peer-to-peer insurance. Venture capitalist Jonathan Li said his firm, NewMargin Capital, was eyeing the P2P market until startup valuations skyrocketed this year.
“These are very niche sectors, and this goes hand-in-hand with the niche community vibe of self-help that the model is based on,” Li said. "But this concept riled up the market, and all of a sudden everyone was doing it."
Tongjubao is one such company. The P2P startup insures customers against social risks like divorce or missing children. Consumers join a social group that everyone pays into. If no one in the group divorces, everyone gets a percentage of their payments back. The company currently has 33,000 users, said founder Tang Loaec.
It's not the first in China, or even globally, to try and capitalize on social groups. American P2P insurer Lemonade started a conversation about P2P companies when it landed a $13 million investment from Sequoia Capital. The company launched its first product last Wednesday and offers home insurance to customers in New York who can buy coverage with any mobile device.
London has Guevara, a P2P car insurance company, and Friendsurance started in Berlin in 2011, selling personal and casualty insurance.
“There’s definitely a lot of developments on this scene globally, and I’d say what is happening in China is only one part of that,” Wong said.
But while Western consumers are adopting the newest P2P insurance model, their Chinese counterparts are more wary.
“I think it’s too early. It will probably come into play and will be a big disrupter in the insurance market, but currently it seems that consumers haven’t adapted yet to this sort of consumption habit,” Li said.
A recent BCG report found that Chinese consumers place most of their trust in large brands, even when they're not satisfied with the products being offered.
Chinese insurtech companies are targeting younger generations in the hopes of changing these mindsets. And it’s the younger cohorts who have propelled Zhong An to its success.
“We are much more focused on the younger generations, those born in the '80s and '90s,” said Zhong An Chief Financial Officer John Bi.
