Medical insurance often becomes invalid if the customer is drunk. But during the football World Cup in 2014, Shanghai-based Zhongan Insurance turned that rule upside down by offering Chinese football fans a policy specifically for self-inflicted liver damage.
It cost less than $1 and covered sports enthusiasts against alcohol poisoning for 30 days — paying out up to Rmb2,000 ($290) for hospital fees. It soon came to be known as “watching-football-drinking-too-much” insurance.
This has not been Zhongan’s only foray into more specialist areas of China’s insurance market. Another of its policies, called “high heat”, reimburses customers when the temperature hits 37°C. Another insures against flight delays — and, in many cases, pays out while the customer is still waiting in the departure lounge.
But while such products might seem niche, the company behind them is anything but. From a standing start three years ago, it has sold 5.8bn policies to 460m customers. This has quickly translated into profit. Zhongan went from making a loss in 2013 to posting Rmb168m in net profit two years later. Total assets jumped more than 500 per cent between 2014 and 2015, to Rmb8bn.
Now backed by Chinese ecommerce company Alibaba, internet group Tencent and financial conglomerate Ping An, Zhongan is often cited as a candidate for an initial public offering.
Wayne Xu, chief operating officer, does not dispute the often light-hearted nature of some of its products — admitting that some are simply designed to “make people feel better”.
The flight-delay insurance product gives customers digital coupons on their smartphones that they can redeem while still in the airport. “It gives them a reason to walk around while they wait for their flight,” Mr Xu explains. He sees this as a radical approach in an industry that has long struggled to attract young people.
policies sold to 460m customers, has quickly translated into profit
But his big three backers see serious scope for valuable data gathering.
All three investors have already collected user data across vast swaths of China’s internet, through online merchants, messaging applications and bank accounts. Now, when Zhongan underwrites its retail credit insurance products, it can tap into the personal credit scoring databases of the three Chinese internet groups — giving it one of the broadest views of credit data of any company in the country.
To continue the push, Zhongan has prioritised recruiting staff with tech, rather than insurance, backgrounds. “None of us have been working at an insurance company before this,” notes Mr Xu, formerly a product manager at Google.
Henri Arslanian, an adjunct associate professor at the University of Hong Kong who teaches financial technology, says he regards Zhongan as “a technology company that happens to focus on insurance, rather than an insurance firm that is looking at digital as simply another distribution channel”.
Alibaba has acted as the channel through which the majority of Zhongan’s products have been sold, and the insurer’s flagship policy is return shipping insurance for goods sold on Taobao — Alibaba’s online shopping platform. Zhongan’s policies reimburse the cost of shipping when a shopper returns a product.
Last year, on the Chinese shopping holiday known as Singles Day, which falls on November 11, the group sold more than 100m return shipping policies in a single day.
Zhongan is finding it has competition in the market for offbeat insurance policies. TongJuBao already sells specialist policies to cover for the cost of divorce lawyers and for search teams to look for missing children. It also sells insurance that offers income protection for people who leave their jobs to move to a different city.
Launching offbeat policies does not always go smoothly. Zhongan discontinued its product for heavy drinking football fans for an undisclosed reason, and China’s insurance regulator has since issued warnings about companies selling “exotic” insurance.
Some analysts also question the long-term viability of Zhongan’s other policies. It has several hundred low-cost niche products, from drone insurance to policies that cover cracked mobile phone screens and cost only a few renminbi. On these, customer uptake is likely to be slow, the analysts claim.
“We hear that they have many teams developing many different kinds of products but the volume on individual products is still very low,” says Li Jian, a Hong Kong-based insurance analyst at Autonomous Research. “If you don’t have scale the costs will go up.”
A pure online insurance operation also has its limits. Motor insurance is one of the fastest growing categories of property and casualty insurance in China today. But the business requires insurers to have big claims teams that can visit accident sites.
Lacking those capabilities, Zhongan has instead focused almost entirely on niche motoring policies, covering tyres and other individual parts — missing out on covering bigger ticket items, says Stella Ng, a Hong Kong-based analyst at Moody’s.
“Given an operating history of three years, with limited track record of good underwriting profitability, we still believe it remains to be tested over time,” Ms Ng warns.
Additional reporting by Ma Nan
China’s ‘insurtech’ boom
Zhongan is the clearest example of China’s advance into the “insurtech” world, but it is not the only one, writes Oliver Ralph in London. About 330m people in the country bought an insurance policy via the internet in the year to March 2016 according to figures from Ant Financial and CBNdata, cited by Asia Insurance Review. And that number is growing rapidly, according to the Insurance Association of China.
One of the reasons, says Cliff Sheng of Oliver Wyman, is that online insurance is sold in a different way, cutting out traditional sales agents.
“The new model is very different,” he says. “It is not product centric. It is reliant on customer demand and experience, and it is integrated in online ecosystems.” These ecosystems, he says, include e-commerce websites where customers buy insurance to cover the cost of returning items they do not want.
That, he says, introduces more people to the concept of insurance. “The products allow people who have never bought insurance to begin to buy it. The government wants the whole industry to be more inclusive.”
According to a recent report from independent analysts Ankur Nandwani, Christopher Lee and Matthew Wong, regulators have also played their part. “The China Insurance Regulatory Commission has been aggressive to both acknowledge and encourage innovation around new insurance products and online distribution on a national level,” they said.
They add that new regulations introduced last year make it easier for insurers to provide online services in regions where they do not have a physical presence, allowing new products to be launched more quickly.
What also sets China apart, they say, is the desire of large internet companies to get into insurance. Alibaba and Tencent, for example, are both big backers of Zhongan. That contrasts with the situation in the US where the likes of Google and Facebook have yet to make big strides into the insurance world.