Despite China’s recent regulatory crackdown on the online insurance industry, the insurtech sector is expected to continue growing in the long run, catering for the strong need for distribution among insurers.
China’s insurance market, the world’s second largest, has a relatively low penetration rate of 4% to 5%, thus holding vast opportunities for online players to explore.
The first professional virtual insurance company in the country was established in 2013 when Ping An Insurance collaborated with Tencent and Alibaba to form ZhongAn Insurance. The online insurance sector saw a compound annual rate of growth (CARG) of 65% from 2011 to 2020. At the end of last year, there were 146 institutions with online insurance business, recording a total premium of 298 billion yuan (US$45.83 billion).
Market analysts forecast a CARG of 24% from 2021 to 2030, with the young generation, who have a stronger demand for online solutions, driving growth.
Strong numbers
Insurtech, as the fundamental driver for the growth of the online insurance sector, has recorded strong numbers as well. According to market estimation, there are more than 20 sizeable insurtech companies in China, with a total valuation of more than 100 billion yuan.
Globally, insurtech companies raised more than US$7 billion in the first half of this year. They are considered among the most promising in the healthcare sector given the rise of younger clients and the demand for digital solutions.
The whole supply chain of the insurtech sector includes tech players focusing on three major aspects, namely distribution, product innovation, and provision of middle- to back-office services.
Players on the distribution side enjoy a greater upside, according to analysis by China International Capital Corporation (CICC), noting that the cost of distribution is a pain point for most insurers.
Traditional insurers have also been actively incorporating technology into their operations since 2017. The total investment of top Chinese insurers in building up their digital capabilities is expected to hit 53.4 billion yuan in 2022, according to iResearch.
Cloud of uncertainty
However, the recent crackdown on the online insurance sector has cast a cloud of uncertainty over the market. The China Banking and Insurance Regulatory Commission has ordered insurance companies to curb improper activities, particularly those involving online platforms. Such activities may include providing misleading information, deceptive sales practices, concealing assurance information, non-compliance with rules and requirements, and abuse of personal information.
Like the rest of the financial sector, insurtech is largely influenced by the regulatory environment, and this is reflected in the recent slumps in the stock price of some online insurers and insurtech companies such as Waterdrop and Huize.
Meanwhile, most insurtech companies, including the leading players, have yet to form a clear profit model, which is one of the major risks in the sector.
In the short run, the online insurance sector may not be able to maintain the rapid growth it has enjoyed in the past few years. However, the outlook for the online insurance industry, especially insurtech, remains very promising, and analysts still view it as a blue ocean with enormous opportunities for growth.
