Insurance penetration in Asia-Pacific may be as little as a third of the global average but it could lead the world when it comes to the development of the insurtech market.
This is the finding from a report issued by global broker Willis Towers Watson (WTW), its Third Quarter Insurtech Briefing.
Much has been made of the disruptive potential of so-called fintech and insurtech and the likelihood that well-established incumbents could be unseated by digital startups, but the disruption could go much deeper than merely individual insurers.
According to Rafal Walkiewicz, chief executive officer, Willis Towers Watson Securities, new technology has the potential to not only disrupt national Insurance markets but to also alter the global balance of power between (re)insurers in developed markets
“While the developed markets are getting most of the attention, consider this: without the hindrance of legacy systems, emerging economies can often create innovative solutions much faster,” says Mr Walkiewicz. “Emerging markets can also attract intellectual and financial capital from partnerships more easily than highly regulated countries with high penetrations of insurance products.”
The WTW report focuses on China, currently the third largest domestic insurance market and the best prospect for developing insurtech, according to WTW. “The Chinese insurance revolution has led to both new mainstream products and new distribution models,” says Mr Walkiewicz. “Tech giants are making further waves with new digital distribution platforms like TaoBao Insurance.
“There’s also plenty of enthusiasm in the e-commerce space, and tech-driven joint ventures with global incumbents are also forming. The democratisation and portability of new technology is making insurtech a truly global revolution that has the potential to alter the balance of power between insurers in the developed markets and those in emerging economies.”
The report highlights some of the alliances that have formed between Chinese e-commerce giants like Alibaba and Tencent and insurance players, and how these collaborations have developed. For example, in 2013 Alibaba and Tencent partnered with Ping An to form ZhongAn Online Property & casualty Insurance, China’s first online-only insurer.
In the three years since launching, ZhongAn has sold 5.8 billion policies to 460 million customers and it raised more than $1.5bn from its IPO at the end of September, an offering that valued the company at more than $10bn.
ZhongAn uses artificial intelligence and big data to analyse and price risk more accurately and distribute cheaply to the mass market via the internet. Its main business lines are travel and health insurance.
Distribution is the key to its success and is largely based on an impressive group of founders – Alibaba Group chairman Jack Ma Yun, Tencent Holdings chairman Pony Ma Huateng and Ping An Insurance chairman Peter Ma Mingzhe. These are the heads of some of the most successful businesses in China and ZhongAn has strong links with many of the leading internet-based firms, giving it an enviable distribution network.
The big snag up to now, however, is that the company does not make an underwriting profit. ZhongAn recorded underwriting losses for three consecutive years: CNY61.5m in 2014, CNY511.6m in 2015, and CNY153.1m last year.
UK newspaper the Financial Times this week reported that the company expects to post a loss in 2017. In the first three months of the year, it posted a net loss of Rmb202m. The online insurer reportedly said in its prospectus that the losses were based on its plan to “expand operations at scale”.
The simple fact is that ZhongAn’s enviable distribution network comes at a relatively high price, estimated by analysts to be up to double the expense ratio of traditional insurers. Presumably, once the company feels that it has reached the right scale it will begin to renegotiate the deals with partners from a stronger bargaining position.
Japan’s SoftBank Group is a core investor in ZhongAn and has reportedly agreed to subscribe for 71.9 million shares at the offer price, 36.08% of its shares on offer and 4.99% of its total issued share capital, according to the South China Morning Post.
The WTW report also highlights other alliances between tech giants and insurers, such as the partnership between Tencent, Hillhouse Capital and Aviva to form a Hong Kong-based joint venture on digital insurance.
And in 2016, Chubb teamed up with Suning Comemrce, the third largest e-commerce provider in China, as part of a revamping of its distribution strategy.
The report also details the growth of insurtech investment in Asia in recent years. Although the $312m of insurtech funding in the latest quarter was considerably lower (68%) than the record $985m reported in Q2 2017, the interest in the sector remains strong, states WTW, adding that the 48 property and casualty and life and health transactions completed in the period are the most in any quarter to date.