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CHINAINSURETECHINDUSTRYREPORTAUTHORSOliverWymanCliffSheng,PartnerMatthewLeonard,PartnerPrashanthGangu,PartnerKangLiu,ManagerZhongAnJohnBI,ChiefFinancialOfficerWayneXU,ChiefOperationOfficerKarenJI,DirectorofInvestorRelationshipPREFACETheglobalsurgeinFintechhasspreadtotheinsuranceindustry,whereInsuretechisleveragingcutting-edgetechnologiestoimproveexistinginsuranceproducts,developinnovativenewones,andreshapetheindustry.
Thetechnologiesincludebigdata,theInternetofthings(IoT),blockchain,andcloudcomputing.
InmaturemarketssuchastheU.
S.
,thesetoolshavehelpedinsurerslowercostsandincreaseefficiency.
Theyhavealsoimprovedthecustomerexperienceandoptimizedproductofferings.
Atthesametime,new,disruptiveInsuretechcompanieshaveemergedwithavarietyofbusinessmodelstochallengeinsuranceindustryincumbents.
InChina,anunderdevelopedinsurancemarketenjoyingdouble-digitgrowth,thedisruptionstriggeredbyInsuretecharecausinganinsuranceindustryrevolution.
OnereasonfortheimpactisthefastadoptionandheavyuseofonlineecosystemsbytheChinese.
Inaddition,Insuretechisunderpinnedbyaregulatoryenvironmentsupportiveofinnovation.
TheresulthasbeenasurgeinnewInsuretechplayerscreatingdisruptiveproducts,services,andbusinessmodels.
Someoftheseareintegratinginsuranceproductsintoonlineecosystemsandfosteringgroundbreakinginnovations.
OliverWymanandZhongAn,China'sfirstonline-onlyinsurer,arejointlypublishingthisreporttoanalyzetheChineseInsuretechmarketandanswerthefollowingquestions:1.
Howbigaretheopportunities2.
Howarebusinessmodelsevolvingtoseizetheopportunities3.
Whatarethekeyfactorsrequiredforsuccess3CONTENTSPREFACE3EXECUTIVESUMMARY61.
CHINAINSURETECHMARKETOVERVIEW81.
1.
ChinaFintechoverview81.
2.
Chinainsurancemarketoverview91.
3.
ChinaInsuretechmarket101.
3.
1.
Definitionofsegments101.
3.
2.
Marketforecast121.
3.
3.
Regulatoryenvironment131.
3.
4.
Competitivelandscape142.
INSURETECHBUSINESSMODELSFORCHINA162.
1.
Evolutionofbusinessmodels162.
1.
1.
Wave1:Technologyenablement162.
1.
2.
Wave2:Ecosystemintegration172.
1.
3.
Wave3:Futurederivativesofexpansion192.
2.
Economicevolution223.
KEYSUCCESSFACTORSFORINSURETECHBUSINESSMODEL244.
RISKSANDUNCERTAINTIES29Copyright2016OliverWymanAPPENDIXA:EXAMPLESOFTECHNOLOGYADOPTIONANDECOSYSTEMS31APPENDIXB:KEYMETHODOLOGYANDASSUMPTIONSOFOURFORECAST33APPENDIXC:SCREENSHOTSOFTAOBAO'SSTATISTICSONSHIPPINGRETURNINSURANCE355EXECUTIVESUMMARYChinahasbeenattheforefrontofFintechinnovation,leveraginglarge,unique,onlineecosystemsanddevelopingstate-of-the-artproducts.
Insurers,especiallythosethathavebeengrowingwiththeonlineecosystem,areutilizingthelatesttechnologytobetterserveapopulationthatisstartingtorealizethebenefitsofinsurance.
Theyarealsodeliveringproductstocovertherisksgeneratedbynewtechnologyecosystems.
Thefirstsectionofthisreportaimstoillustratethesize,growth,andunderlyingdriversoftheInsuretechmarketinChina.
WedefineInsuretechas"insurancefurtherenhancedthroughtechnologyinacustomer-centricway.
"Itcanbedividedintothreesegments,asinExhibit1.
Thismarkethasattractedbothtraditionalplayers(suchasPingAnandPICC)andonline-onlyplayers(suchasZhongAn).
Exhibit1:ChinaInsuretechsegments,keyplayersandmarketsizeforecastby2020ONLINEDISTRIBUTEDNEWTECHENABLEDSegment2:TechnologyenabledupgradeUtilizingtechnologytoupgradeexistinginsuranceproductstobecomemoretargeted,customizedanddynamicTraditionalproductsSegment1:OnlinedistributionSellingtraditionalinsuranceproductsthroughonlineormobilechannelsSegment3:EcosystemorientedinnovationLeveragingdataanalyticstocoverneedsinembeddedecosystemsthatarenotcurrentlymet2020FCNY197BN2020FCNY202BN2020FCNY747BNTk.
cnInsuranceZhonganInsuranceZhonganInsuranceZhongAnInsurancePICCProperty&CasualtyPICCProperty&CasualtyPingAnInsurancePingAnInsuranceBasedonourforecasts,totalInsuretechpremiumsinChinawillreachover1.
1TNCNY(174BNUSD)by2020.
Thesecanbebrokendownintothefollowingsegments:Onlinedistributionoftraditionalinsuranceproducts(e.
g.
onlineautoinsurancesales):747BNCNYTechnologyenabledupgradesofexistinginsuranceproducts(e.
g.
newhealthinsurancepoliciesorpricesbasedonwearabledevices,telematics):197BNCNYEcosystemorientedinnovationofnewinsuranceproducts(e.
g.
shippingreturninsurance,flightdelayinsurance):202BNCNYCopyright2016OliverWymanThesecondsectionprovidesadeeperanalysisofpossiblebusinessmodelsforInsuretechcompaniesandthepotentialchangesthattechnologydisruptioncouldbringtotheirbusinesseconomics.
WeseethreephasesintheevolutionoftheInsuretechbusinessmodelinChina:Thefirstwavestartedwithtechnology-drivenimprovementsalongthevaluechainofthetraditionalinsurancebusinessmodel.
Thismeansutilizingdigitaltechnologyasawaytoimproveandoptimizeexistingprocessesandproducts.
Thiswaveislargelydrivenbyincumbents.
Inthismodel,thevalueoftechnologyconsistsmainlyofdigitaldistributionandtheoptimizationofoperations.
Thesecondwaveusessuperiortechnologytointegrateinsuranceproductsintoexistingonlineecosystems,byidentifyingconsumers'needs,andcreatingtailoredproductsthataddresstheseneeds.
ThiswavewhichwealsocalldisruptiveInsuretechwillneeddisruptivetechnologyandwillbelargelydrivenbynewstart-upplayerswithinternetDNA.
Thevaluecreatedinthismodelconsistsofincreasingthepenetrationofunder-penetratedproductsusingtechnologytransformation,suchashealthinsurance;orintegratinginnovativenewproductsintoecosystems,suchasshippingreturninsuranceandflightdelayinsurance.
Thethirdwavewilllikelygobeyondinsurance.
Wheninsuranceenginesbecomeembeddedinvariousecosystems,theycouldpotentiallybecomehubsfordataandinformationaboutcustomers.
Withthefastdevelopmentofdatasecurityanddatasciencetechnology,Insuretechplayerswillbeinagoodpositiontoprovideeitherinfrastructureservices,suchasstoringhealthdatainablockchain,orafullsuiteofcustomizedfinancialservicesproducts,suchasconsumerfinanceandwealthmanagement.
Someofthemostinnovativeplayersarepilotingsimilarmodels,andsomeofthesehaveachievedinitialfinancialsuccess.
Inthethirdsection,weidentifykeysuccessfactorsandthecapabilitiesrequiredtosupportInsuretechbusinessmodels.
Theseincludefivemajortechnicalcapabilities:universalconnectivity,customerbehavioranalytics,dynamicpricing,riskmanagement,andautomatedprocessing.
Alsonecessaryareorganizationandgovernancethatresemblethoseofhigh-techstart-ups,accesstoandrelationshipswithmajoronlineecosystems,andahumanresourcesstrategytoattractandretainthebesttalent.
Thereportcloseswithafourthsectionthathighlightsmajorrisksandconcerns,includingmacroeconomics,regulations,technology,andcompetition.
71.
CHINAINSURETECHMARKETOVERVIEW1.
1.
CHINAFINTECHOVERVIEWThetechnologyboomhashitChinaespeciallyfast.
Enabledbytherapidincreaseinmobileandinternetusers,techfirmshavecreatedlarge-scaleecosystemsservingacommunitywithstrongonlineconsumptionhabitsandaheavyrelianceonmobiledevices.
TheseonlineecosystemshavecometosymbolizetheChinesetechsceneandaresignificantcontributorstotheeconomy.
Thefastincreaseinthenumberoftechcompaniesandtherapidgrowthofonlineecosystemsarebasedonstrongencouragementofinnovationandsupportforentrepreneurship.
Themostestablishedtechfirmshavecreatedonlineecosystemsthatencompassallaspectsoflife,rangingfrome-commercetolifestyleservicestofinancialservices.
Theyhavereachedscalesthatarelargeevenbyglobalstandards.
However,Chinadoesnothavematurecapitalmarketsthatcansupportfinancialinnovation,andincumbentstate-ownedfinancialinstitutionsarenotreformingquicklyenough.
ThisgapinsupplyhasprovidedopportunitiesforChineseFintechplayers.
Aidedbyfast-growingonlineecosystemsandatech-savvypopulation,ChineseFintechplayershavecreatedbusinessesthatareoftenlargerthantheircounterpartsinmaturemarkets,infieldssuchasinvesting,financing,paymentandinfrastructure,andprotectionwiththeleadingplayersachievinglargescalesandhighvaluations(Exhibit2).
Exhibit2:ChinaFintechbusinessmodelsandselectedplayersINVESTINGFINANCINGPAYMENTANDINFRASTRUCTUREWealthManagementOnlineInsuranceOnlineSecuritiesOnlineMutualFundInternetFinancingSupplyChainFinancingPaymentCreditResearchInformationAggregatorandProductPlatformP2PCrowdfundingPROTECTION8BNUSDXXBNUSDValuation160BNUSD7BNUSD1.
2BNUSD18.
5BNUSD1.
LatestannouncementoflastroundoffundraisingstockpriceasofSep.
2016Source:OliverWymananalysisCopyright2016OliverWyman1.
2.
CHINAINSURANCEMARKETOVERVIEWComparedtodevelopedmarkets,insurancepenetrationinChinaislagging,witharateof3.
6percentin2015.
Bycomparison,theU.
S.
hasapenetrationrateof7.
3percentandU.
K.
10.
0percent(Exhibit3).
However,theemergingmiddleclassandstronggovernmentsupportformakinginsuranceproductsmoreaccessiblehavedrivengrowthintotalinsurancegrosswrittenpremiums(GWP)inChina.
Theseincreased20%in2015overthepreviousyeartoreach2.
4TNCNY.
Exhibit3:PenetrationofinsuranceproductsNon-lifeLifeTotalChinaMainlandTaiwanUSUKPREMIUMAS%OFGDPIN201510.
0%7.
5%2.
4%7.
3%3.
1%4.
2%19.
0%15.
7%3.
2%3.
6%2.
0%1.
6%Source:SwissReSigma,OliverWymananalysisTheChineseinsurancemarkethasdoubledinsizeoverthepastsixyears.
Basedonvarioussources,includingtheChinaInsuranceRegulatoryCommission's(CIRC)five-yearplan,weforecastcompoundannualgrowthof13percentupto2020,takingthetotalto4.
5TNCNY(700BNUSD).
Thiswillconsistof3.
1TNCNY(500BNUSD)inlifeinsuranceand1.
4TNCNY(200BNUSD)innon-lifeinsurance(Exhibit4).
Exhibit4:Totalinsurancepremiums:lifeandnon-lifeinsuranceLifeinsuranceNon-lifeinsuranceTNCNY20150.
81.
62.
420201.
43.
14.
52015–2020FCAGR15%11%+13%Source:CIRC;OliverWymananalysis91.
3.
CHINAINSURETECHMARKET1.
3.
1.
DEFINITIONOFSEGMENTSMarryinginsuranceandtechnologyhasthepotentialtocreateanInsuretechmarketwithavarietyofdifferentopportunities.
OurdefinitionofInsuretechmarketincludesthreesegmentsoftechrelatedopportunitieswithintheinsurancemarket,asshowninExhibit5.
Exhibit5:ThreesegmentsofChinaInsuretechONLINEDISTRIBUTEDNEWTECHENABLEDSegment2:TechnologyenabledupgradeUtilizingtechnologytoupgradeexistinginsuranceproductstobecomemoretargeted,customizedanddynamicTraditionalproductsSegment1:OnlinedistributionSellingtraditionalinsuranceproductsthroughonlineormobilechannelsSegment3:EcosystemorientedinnovationLeveragingdataanalyticstocoverneedsinembeddedecosystemsthatarenotcurrentlymetOnlinedistribution–Sellingtraditionalinsuranceproductsthroughonlineormobilechannels.
Thecontributionoftechnologyinthismarketisitsabilitytoreachlongtail,low-costcustomers,makeoperationsmoreefficient,andimprovethecustomerexperience.
CompetitioninthissegmentcomesfromtraditionalinsuranceplayerssuchasPingAn,aswellasplatformsrunbylargeecosystems,suchasAlipayandTaobaoofAlibabaGroup,andJD.
com.
Technologyenabledupgrade–Utilizingtechnologytomakeexistinginsuranceproductsmoretargeted,customizedanddynamic.
Thisincludestheuseoftechnologytocollectandanalyzemassivedatasets,inordertomanageandreduceunderlyingriskandtooptimizeoperationsandclaimsefficiency.
Forexample,bothPingAnandPICCareadoptingtelematicsandpreparingtolaunchUBI(usage-basedinsurance)products,andZhongAnisofferingcriticalillnessinsurancebasedondatafromawearabledevice.
Participantsinthissegmentwillincludebothincumbentsandchallengersfromvariousbackgrounds,especiallycompanieswithstrongdataanalyticscapabilitiesandthetechnicalabilitytoadaptnewtechnologyandoptimizecurrentoperations.
Ecosystemorientedinnovation–Leveragingdataanalyticstocoverneedsinembeddedecosystemsthatarenotcurrentlymet.
Forexample,onlineconsumerscannotphysicallyfeelortrymerchandise,sotheyoftenfeeluncertaintyorriskoverpurchases.
Forasmallfee(onaverage0.
4CNY,or0.
06USD),shippingreturninsurance(describedinmoredetailinSection2.
1.
2)coversthecostofreturningunwantedgoodsandalleviatesaconsumer'sfearofpurchasinganunwanteditem.
Thisbusinessmodelrequiresafullunderstandingofconsumerneedsineachecosystem.
Italsonecessitatestheabilitytoanalyzealargeamountofdynamicecosystemdatatocreatetherightpricingmodel,aswellastech-enabledoperationstoautomateprocesses,andthehighestlevelofinnovation.
Copyright2016OliverWymanForthelastsegment,thecoverageofpreviouslyuninsurablerisksalleviatesconsumers'concernsandthereforehelpsdrivefutureecosystemgrowth.
Keypropertiesofecosystemorientedinsuranceinclude:Insurancealleviatesworrybyprovidinganadditionallevelofguaranteetotheconsumerduringthepurchasingprocess,italsocanprotecttheconsumeragainstpersonal/propertydamagewhenutilizingdomesticservicesbookedthroughO2O(OnlinetoOffline)platform.
Insuranceencouragespurchasesandconsumptionthroughthehassle-freereturnofgoods,easingtheworryofpurchasinggoodsthatmightturnouttobeunwanted.
Onlineshopperscanpurchasemultipleitemstheywouldliketotryoutinthecomfortoftheirownhomeandsimplyreturntheunsatisfactoryproductsatnoadditionalcost.
Insuranceimprovestheuserexperiencebyloweringthefrequencyofdisputescausedbyunsatisfactoryproductsandprovidingbetterservice.
Thiscanincludetheautomaticpickupofproductsforreturnfromhigh-ratingclients,whereratingsarebasedonanalyticsprovidedbytheinsurancecompanyrelatedtothingslikefrauddetectionandcreditratings.
Thiscreatesavirtuouscycle,inwhichinsuranceproviderscontinuouslyserveconsumers'potentialneedswithintheecosystem–andtheecosystembenefitsfromhighercustomersatisfactionandincreasedconsumption(Exhibit6).
Exhibit6:VirtuouscyclebetweenInsuretechandonlineecosystemIMPACTOFINSURETECHONECOMMERCEPLATFORMInsuretechoverallimpactLendscredibilitytobuyerandsellerIncreasedtransactionsandvolumeLessdisputeandbetteroverallexperienceInsuretechenablesCreditenhancementImprovedriskcontrolEnhanceduserexperienceInsuretechprovidesProtectionagainstunwantedpurchases,badproductqualityCompensationforloss/theftandbadexperienceInsuretechConsumerE-commerceMoneyandcreditGoodsandservicesEcosystemdataRiskprole111.
3.
2.
MARKETFORECASTLookingforward,webelievetheInsuretechmarketwillcontinuetogrowatanimmensepace,fromabout250BNCNY(37BNUSD)in2015toover1.
1TNCNY(174BNUSD)by2020,asshowninExhibit7.
Itwillnotonlyexpandindigitaldistributionchannelsandthroughtechnology-enabledinnovation,butalsothroughinnovativeinsurancepracticesthatserveparticularneedsinonlineecosystems.
Exhibit7:ChinaInsuretechmarketsizeSegment1Segment2Segment3ONLINEDISTRIBUTEDNOW2015:TOTALINSURANCEMARKET2.
4TNCNYFUTURE2020:TOTALINSURANCEMARKET4.
5TNCNYNEWTECHENABLEDONLINEDISTRIBUTEDNEWTECHENABLED207BN747BN197BN202BN28BN12BNOfthethreeaforementionedsegments–onlinedistribution,technologyenabledupgrade,andecosystemorientedinnovation–thespeedofgrowthandkeydriversforeachsegmentwillvary(Exhibit8).
Exhibit8:ChinaInsuretechmarketsizebysegmentsSEGMENT3ECOSYSTEMORIENTEDINNOVATIONSEGMENTBREAKDOWN2015VS.
2020F,CNYBNOtherecosystem2HealthTravelE-commerce2020F8620234775SEGMENT2TECHNOLOGYENABLEDUPGRADESEGMENTBREAKDOWN2015VS.
2020F,CNYBNAutoHealthNon-autoP&C12020F2641671972015122528LifeNon-lifeSEGMENT1ONLINEDISTRIBUTIONSEGMENTBREAKDOWN2015VS.
2020F,CNYBN20151011062072020F411336747+29%+47%+76%20151260.
3231.
Non-autoP&Cincludeinsuranceproductssuchasproperty,accidentandtravel2.
Otherecosystemsincludefinancialservices,lifestyle,sportsandentertainment,etc.
Source:Industryresearch,OliverWymananalysisCopyright2016OliverWymanOurestimatesshowthatGWPfortheonlinedistributionsegmentwillgrowfromabout207BNCNY(31BNUSD)in2015toabout747BNCNY(113BNUSD)in2020.
Withinthissegment,non-lifeinsuranceproductswillgrowatafasterpacethanlifeproducts.
Forthetechnologyenabledupgradesegment,weestimateGWPwillgrowfromabout28BNCNY(4BNUSD)in2015toabout197BNCNY(30BNUSD)in2020.
Themaincontributionswillcomefromautoandhealthinsuranceproducts.
TechnologicaladvancesinareassuchastelematicsandprecisionmedicineareforecasttobesignificantdriversofGWPgrowthinthissegment,takingsharefromtraditionalbusinessmodels.
Inecosystemorientedinnovation,GWPisprojectedtogrowfrom12BNCNY(1.
8BNUSD)in2015to202BNCNY(31BNUSD)in2020.
Thee-commerceandtravelecosystemsareexpectedtobethemaincontributorsinthissegmentduetotheirsheermarketsizeandthegrowingconsumerdesiretoinsureagainstrisksrelatedtotheseecosystems.
OurforecastingmethodologyandkeyassumptionsarefurtherdiscussedinAppendixB.
1.
3.
3.
REGULATORYENVIRONMENTChinaInsuranceRegulatoryCommission(CIRC),theinsurancemarketregulatorinChina,governsbasedonathree-tierregulatoryframework:nationwidelicensecontrols;approvalsofproductfeaturesandprices;andmarketentrycontrolsforeachprovince.
WehaveobservedanumberoftrendsrelatingtotheregulationofInsuretech:HeadwayinfosteringinnovationOnline-onlyinsurancelicensesarebeingapproved(fourissuedasofSeptember2016).
Provincialentryforinnovativeinsuranceproductsisbeingallowed.
Forexample,shippingreturnandflightdelayinsurancecanbedistributedtonationwideclients,whileinsurersstillneedtogetapprovalfromprovincialregulatorsforautoinsurance.
SweepingchangestoC-ROSShavemadeitmorebeneficialrisk-wisetofavortheretailinsurancebusiness.
Forexample,insuringsimplerisk,suchasautoinsurance,willrequirelesscapitalthancommercialinsurance.
Manymoreinsurancelicenseshavebeenissuedrecently.
Thismakesiteasiertocapturefuturecross-sellopportunities,becauseasingle-licenseinsurercanapplyforanotherlicensefasterandmoreeasilythanbefore.
CIRChasmadeeffortstofosterinnovationandboostretailinsurancepenetration.
Inhealthinsurance,ithasofferedtaxrebatesandencouragedtech-basedinnovationssuchasinsurancelinkedtowearabledevices.
DifferencesinregulatoryconstraintsbetweennewandexistingproductsNewproducts,suchasshippingreturninsuranceandone-timeaccidentandliabilityinsurance,canbelaunchedquicklyafterfilingwithCIRC.
Theregulatoracceptsalargerangeofpricingandunderwritingpractices,makinginnovationssuchasdynamicpricingandunderwritingfeasible.
Matureproducts,suchasautoinsurance,areregulatedbyboththeprovincialandthenationalregulators,andaredifficulttodisruptintheshortterm.
However,thebarrierforhealthinsuranceinnovationislowerthanthatforautoinsurance,mainlybecausehealthinsurancehasasmallerpremiumpoolandthegovernmenthasaregulatoryagendatoincreasepenetration.
13Mandateof'inclusivefinance'Higherlevelsofeducationandfinancialsophisticationarehelpingpeopleunderstandthebenefitsofinsurance.
Chinaisexpandinginsuranceasakeyprotectionandfinancialplanningtoolforthemasses.
Giventhedominantroleoftechnologyandmobilecommunicationsintheconsumermarket,'inclusiveinsurance'inChinawillbelargelymadeavailablethroughdigitalchannels.
1.
3.
4.
COMPETITIVELANDSCAPEGiventhefavorableregulatoryenvironmentacrossthethreeInsuretechsegments,someplayershaveoperatedinseveral–evenall–ofthesegments.
TheonlinedistributionsegmentismainlydominatedbytraditionalinsurerssellingP&Cproducts(Exhibit9).
Exhibit9:OnlineinsuranceP&CGWPoftraditionalinsurancecompanies,2015BNCNYPICCPingAnCPICChinaContinentSunshine33.
623.
64.
33.
82.
5Source:InsuranceassociationofChina,OliverWymananalysisThetechnologyenabledupgradesegmentisthebattlegroundformanynewinnovativeproducts.
Online-onlyplayerslikeZhongAnofferflightdelayinsuranceutilizingreal-timeweatherdata,historicalflightresults,andpurchasehistorydatatodeterminepricingandpayoutconditions.
OthertraditionalinsurerslikePICCandPingAnareadoptingtelematicstoimproveautoinsurancepricingmethodology.
Ecosystemorientedinnovationisasegmentthatismainlycoveredbyonline-onlyinsurers.
Theirabilitytodevelopinsightsfromlargeamountsofcustomerdataisunparalleled.
Belowaresomekeyproductsandpartnersofonline-onlyinsurers(Exhibit10).
Copyright2016OliverWymanExhibit10:Online-onlyinsuranceplayersinChinaPLAYERZHONGANINSURANCETK.
CNINSURANCE1AN.
COMINSURANCEANSWERNPROPERTY&CASUALTYINSURANCEGWP(MMCNY)201420152016H1201320152016H12016H12016H11010702,2831,352794130.
8Licenseapprovaldate2013.
102015.
112016.
22015.
12KeypartnersAlibabaCtripPinganTaikanginsuranceDXYYinzhijie(aFintechcompany)Honganonline(aFintechcompany)KeyproductsShippingreturninsuranceFlightdelayinsuranceIntelligenthealthinsuranceInvestment-linkedinsuranceAccidentinsuranceMedicalexpensesinsuranceHouseholdpropertyinsuranceOnlinepaymentinsuranceHouseholdpropertytheftinsuranceSource:CIRC,companywebsites,OliverWymananalysisInthecurrentcompetitivelandscape,thechoicesoffocusofdifferentplayersaredeterminedbyitsbusinessmodelandcapabilities,whichwewillfurtherdiscussinthefollowingchapters.
152.
INSURETECHBUSINESSMODELSFORCHINA2.
1.
EVOLUTIONOFBUSINESSMODELSToseizemarketopportunities,itiscriticaltohavetherightbusinessmodel.
Inthedigitalrevolution,technologyhaspermeatedintoinsurancecompanies'businessmodelsandtriggeredtheriseofInsuretech(Exhibit11).
Exhibit11:TheevolutionofInsurancebusinessmodelsTechnologyenablementHomogenousproductsAssetandpeopleintensiveHistoricaldatadrivenMosttraditionalplayersinChinaareusingdigitaltoimproveexistingproducts/processesEcosystemintegrationDynamic,unidentiedcoverageneedsTailored,ecosystemintegratedproductdesignBigdataenableddynamicpricingEmbeddedinecosystem,scenariodrivensalesprocessPeopleandassetlightoperationsFuturederivativesofexpansionInsuranceinallexistingecosystems,abletogatheruserbehaviorandcreditdataofallecosystemsProviderofdataoroeringcomprehensiveservicesbasedondatacollectedfromallecosystemsInthelongterm,providingallnancialserviceproducts,usingalltheaccumulatedcustomerdata/information(e.
g.
anonlineversionofPingAnGroup)Wave1Wave2Wave32.
1.
1.
WAVE1:TECHNOLOGYENABLEMENTThetraditionalinsurancemodelisbasedonservingclearandtangiblecustomerneedsbyprovidingahomogenousproduct.
Pricesaredecidedusingactuarialmodelsandanalyzingstatisticsandhistoricaldata.
Tosellastaticandhomogenousproduct,largesalesteamsareneededtodrivesalesandgainmarketshare.
Largeoperationalsupportteamsareneededtoo,makingthetraditionalbusinessmodelbothasset-andpeople-intensive.
Traditionalplayersarenowutilizingdigitaltechnologytoimprovetheirprocessesandproducts.
Oneexampleisonlineandmobiledistributionchannels,whichreducetheneedforsalesstaff.
Anotherisautomatedclaimsprocessing,whichreducesstaff,lowerscosts,andincreasesoperationalefficiency.
However,thisisdonewithoutdisruptingthefundamentalsofthetraditionalinsurancebusinessmodel(Exhibit12).
Organizationalinertiameansthatsometraditionalplayersarestillunabletofullyutilizethepowerofdigitalchannelsfordistribution.
Copyright2016OliverWymanNewchallengersarealsotryingtodriveinnovationsofexistingproducts,leveragingstrengthinconnectingecosystemsandflexibilityinadoptingnewtechnologies.
Inaddition,newchallengersstarttopartnerwithtraditionalplayers,forexample,ZhongAnandPingAnarecoinsuringonlinedistributedautoinsuranceinsomeprovinces.
Exhibit12:ExamplesoftechnologyenablementacrossinsurancevaluechainCustomerstrategyProductandpricingMarketingDistributionU/WandpolicymngtClaimsmngt10.
Directdistribution13.
Processdigitization16.
Digitalsupplychain4.
Productmodularization7.
Digitalmarketing1.
Customerintelligence11.
Agentofthefuture14.
Customerself-care17.
Digitalrestitutionin-kind5.
Dynamicpricing8.
Real-timemarketing2.
Customerexperience12.
Digitalecosystems15.
Digitalemployeeenablement18.
Digitaleldforces6.
TelematicsandloT9.
We-marketing3.
CVM2.
1.
2.
WAVE2:ECOSYSTEMINTEGRATIONIntheecosystemintegrationbusinessmodel,Insuretechcompaniescreateauniversalanalyticsandprocessingenginethatcanoperateseamlesslywithineachonlineecosystem.
Thisengineactsasthelinkbetweentheecosystemandtheinsuranceprovider,gatheringconsumerdatafromtheecosystem;applyinganalyticstocreateandprocesscustomized,scenario-basedinsuranceproducts;andprocessingclaimswithautomationtechnology.
Thisdisruptivebusinessmodelisbothasset-andpeople-light,andisthedirectoutcomeofInsuretechinnovation.
ItisbasedontheabilityofInsuretechcompaniestointegrateintoexistingonlineecosystems,andthenidentifyconsumers'needsandcreatetailoredproductsthataddresstheseneeds.
Thekeystosuccessarebeingableto:Utilizeanalyticsandtechnologytoderiveinsightsintocustomersthatcannotbefoundinhistoricaldata,andusetheseinsightstocreateinnovativeinsuranceproducts.
Forexample,utilizingdatafromwearabledevicescanhelpinsurersdevelopinsightsintopersonalhealththathistoricaldatacannotprovide.
Theseinsightscanbefurtherusedtoofferproductsthatarepricedinlinewiththerisklevelandhealthofaninsuredindividual.
17Usebigdatatodesignproductfeaturesandofferdynamicpricingforspecificscenarios.
Forexample,Helijiaisanonline-to-offlineservicethatprovideson-callmanicuresincustomers'homes.
Thesafetyoftheserviceproviderandoftheconsumerisatriskgiventhemultipleunknownsinthisscenario,andanaccidentinsuranceproductcaninsureagainsttheserisks.
Thepriceisdetermineddynamicallybyfactorssuchasthehistoricalratingsofserviceprovidersandthefrequencywithwhichtheconsumerbuyssuchservices.
Digitallydeliverandprocessinsuranceclaims,usuallyinconjunctionwithcustomerbehaviorintheecosystem.
Thisisanintegralpartoftheexperience.
Forexample,flightdelayinsurancepaysoutwhenaflightisdelayedforacertainamountoftime,usuallyovertwohours.
Thisinsuranceispurchaseddigitallyandpaidoutdigitally.
Anautomatedprocessingenginetakescareofalloperationaltasksusingflightandpurchasedata.
Belowisacasestudyofashippingreturninsuranceproduct,whichshowshowInsuretechplayersaredevelopinginnovativeinsuranceproductsundertheecosystemintegrationmodel.
Casestudy:E-commerceshippingreturninsuranceChina'sonlineandmobileshoppingmarketisa6TNCNY(1TNUSD)industry,withclothingmakingupthelargestpart.
TheaveragetransactionvalueforclothingonTaobaois60CNY(10USD),andtheaveragecostofshippingisaround12CNY(2USD).
ClothesshoppingontheInternetcomeswiththefollowingchallenges:Customerscannotknowifthesizeisright;theyarenotsureaboutthematerialused;andtheyoftensimplydonotknowwhethertheywillliketheproductdelivered.
Astheaveragecostofshippingisnearly20percentofthetransactionvalue,returningitemsareasignificantexpense.
Sowhenshippingreturninsurancewasintroduced,itresonatedstronglywithconsumersandmerchantsalike.
Shippingreturninsurancecostsonaverage0.
4CNY(6centsUSD)andpaysoutthecostofshippingautomaticallyifaproductisreturned.
Paymentisautomaticallytriggeredwhenthesellerapprovesaproductreturn(Exhibit13).
Inthiscase,theinsuranceproducteliminatedpainpointsforboththeconsumerandmerchant:Consumersnolongerhadtoworryaboutnotlikingaproducttheypurchased,becauseforanominalfeetheycouldbuyshippingreturninsuranceandreturntheproductatnoextracost.
Merchantsspentlesstimeonproductreturndisputes.
Theycouldalsopurchaseshippingreturninsurancefortheircustomersforanominalfee,allowingcustomerstofreelyreturnproductstheydidn'tlike.
ZhongAnInsuranceandAlibabajointlydevelopedthisproduct.
By2015ithadbecomea1.
1BNCNY(0.
17BNUSD)market,withpeakvolumereaching100MMCNY(15MMUSD)onNovember11,2015–China'sBlackFriday.
Atthesametime,Taobaoe-commercevolumehasgrown35percentthankstoconsumers'increasedwillingnesstobuyproductsonline.
Thisisanexampleofhowaninnovativeinsuranceproductcanbenefitboththeinsuranceproviderandtheecosystemitserves.
Copyright2016OliverWymanExhibit13:Ecosystemorientedinnovationexample:shippingreturninsurancePROCESSKEYHIGHLIGHTSPickoutproductsonlinePurchaseproductsandShippingReturninsurancePayforshippingbacktosellerandinduceclaims(tocovershippingcosts)Shippingreimbursementpaymentreachaccountwithin72hoursGetapprovalfromsellerforproductreturnDynamicpricingInsurancepremiumvariesbasedonthehistoricalreturnratioofthebuyer,thepurchasedproductandstore,aswellasthepurchasenumberetc.
Averagepriceis0.
4RMBInsurancepurchaseoptionshownintheTaobaoproductpaymentpageinonelineOnlyoneclickisneededtocompletetheinsurancebuyingprocessPurchasetheShippingReturninsurancefor0.
5RMB,get8RMBbackifgoodsarereturnedInteractionwiththeecosystemIntegratedwithTaobaoImprovescustomerexperiencebyreducingcostofhavingtoreturnproductsIncreasedaveragestoretracofsellerby35%1Increasedaveragesalesrevenueby35%1Decreasedtheaveragedisputerateby30%1Seamlesscustomerexperience123Taobao.
com1.
RefertoAppendixCSource:Taobao.
com,OliverWymananalysisMajorplayersfocusingonthismodelarenotincumbents,butrathernewcomerswithstrongInternetbackgrounds.
Theseinnovatorsprovidescenario-based,customer-centricproductsasonline-onlyinsuranceproviders.
Theseinsurersintegrateintoecosystemsandusebigdatatechniquestoanalyzeconsumerbehaviorandneeds.
Productmanagerleddevelopmentteamsthenusetheseinsightstodevelopscenario-basedproducts.
Theyarelaunchedquicklyanditeratedseveraltimestooptimizepricingandenhanceproductfeatures.
Theyutilizestreamlinedoperationsusingautomatedenginesthatprocesstensofthousandsofpoliciesandclaimspersecond.
192.
1.
3.
WAVE3:FUTUREDERIVATIVESOFEXPANSIONAstheneedforinsuranceproductsgrows,playerscanbecomeembeddedinnearlyalltechnologyecosystems,providingspecificservicestoeachonewhileutilizingthesameanalyticsandprocessingengine.
Thisapproachwillprovideaccesstoavastarrayofconsumerdataandcreateopportunitiestoanalyzeandoptimizeproductsindifferentecosystems.
Astheecosystemintegrationmodelexpandsandaccumulatesdata,interestingbusinessmodelsstartbecomingpossible.
Infrastructuralservicesprovider:Datagatheredfromdifferentecosystemsareextremelyvaluable,astheyprovidesignificantinsightsintoconsumerbehavior.
Onepotentialmodelistobeaproviderofcreditdata.
Analysisofmultiplesourcesofconsumerdatacanproducemetricssuchascreditratingsandfraudprobabilities.
Anotherpossiblemodelwoulduseblockchaintechnologytoprovidepersonalhealthinformationoncustomerscollectedthroughwearables,insurancepolicies,imagerecognition,andpartnershipswithhospitals.
Comprehensivefinancialservicesprovider:Inthelongterm,withtherightanalyticaltools,consumerdatacanbeusedtodigitallyprovideasuiteofcustomizedfinancialproducts.
Theabilitytomanageriskisessentialforfinancialinnovation,andwiththebreadthofdatagatheredfromtechnologyecosystemsandinsuranceproductsmeansthatriskmanagementisnolongerabottlenecktoproductdevelopment.
Ultimately,acquiringcustomerswillrelyonbeingabletoprovideproductsthattheytrulyneedandinsurersthatareintegratedintoecosystemsshouldunderstandthiswell.
Oneexamplewouldbetoexpandintoconsumercreditbyutilizingthedatafromecosystemssuchastravel,jobwebsites,e-commerce,andwearables.
Travelchoicesprovidedatathatcanindicatewealth.
Jobsitesyieldinformationthatcanpredictpotentialearningpower.
E-commercedatashowspendinghabits,whichprovidecluestomoneymanagementability.
Andwearablesdataprovideapictureofaconsumer'sstateofhealth,whichislinkedtorepaymentability.
Suchdatacanbeusedtopaintacompletepictureoftheriskattachedtoaborrower.
Thispicturecanthenhelptodetermineinterestratesandtopriceproductsdynamicallyinawaythatminimizesdefaultrates.
Anotherideaiswealthmanagementservices.
Datapointsfromlife-insuranceproducts,wearables,e-commerce,andconsumercreditareindicatorsofstageoflife,wellness,andspendinghabits.
Theycanallbeusedtodetermineaperson'sriskappetite.
Technologythatmatcheswealth-managementproductswiththerightriskprofileincreasescustomersatisfactionandboostssales.
ThismodelwillultimatelytakeInsuretechplayersbeyondinsurance,turningthemintocustomer-centricdigitalserviceproviders.
SomeInsuretechplayers,suchasZhongAnInsurance,havebeenpilotingthismodelinselectedmarkets.
Currently,theyaremainlyoperatinginthefinancialservicesspacebyprovidingproductssuchasshippingreturninsurance,flightdelayinsurance,autoinsurance,precisionmedicalinsurance,individualcreditenhancement,andconsumerfinance.
Yetinthefuture,theyhavethepotentialtooperateinthenon-financialservicesmarketaswell,providingcredit,healthandautomobiledata.
(Exhibit14)Copyright2016OliverWymanExhibit14:PotentialfuturederivativesofInsuretechinChinaEnterpriseLevelCreditinsurancetosatisfyconsumernanceneedsRiskcontrolsystembasedonecosystemConnectnancialneedsbothonlineandoineEmbeddedproductdesignDynamicpricingAccumulatedindividualdataIdentifyconsumernanceneedsLifeinsurancebasedonlifescienceCreditaccumulationbyusingofFin-lifeAccesstofuturegenetechnologyintheformofwealthmanagementPersonalizedpricingbasedonthehealthdataHealthmanagementplanningHealthcarerelatedconsumernanceRisk-basedpricingDrivingbehaviortrackingAutonanceAutomaticunderwritingandclaimingprocessFrauddetectionbasedonbigdataIdentifyconsumernanceneedsEnterpriseLevelArticialIntelligenceCloudComputingBlockChainDataLifeInsuranceCreditGuaranteeConsumerFinanceLifeScience+WealthmanagementHealthE-Commerce3CMotorInsuranceIndividualCreditPrecisionMedicalVehiclenetworking+AutoFinancingHardwareupgradingSource:iResearch;ZhongAn212.
2.
ECONOMICEVOLUTIONAsinsurancecompaniesmovefromtraditionalbusinessmodelstodisruptive,techorientedInsuretechmodels–inparticularoftheWave2type–theeconomicsareboundtochange.
Fromatop-lineperspective,Insuretechplayerscangrowmuchfasterthantraditionalplayersthankstolargesetsofhigh-qualitycustomerdatathatprovideinsightsintoconsumersandaccuratecontactinformationofconsumers.
Insuretechplayerswillalsobenefitfromthefastgrowthoftheirconsumption-drivenecosystems.
Fromabottom-lineperspective,astechnologyenrichesautomationandanalytics,bothriskandcostmodelschangesignificantly.
Insuretechplayerscanautomateprocessessuchasproducttestingandriskcontrolbetterthantraditionalplayers.
Thiswillenablethemtosignificantlyincreasespeedofproductlaunchandupgrades,andreducelaborcosts.
Moreover,disruptiveInsuretechplayersarestillintheearlystagesofdevelopment,andhavenotyetfullyamortizedtheirITinvestmentsorreachedeconomiesofscale.
Weanticipatethataftereconomiesofscalehavebeenreached,ITdevelopmentcostswilldecreaseasapercentageofgrosswrittenpremiums.
Exhibit15showsthedifferenceinbusinessmixbetweenatraditionalinsurerandatypicalWave2Insuretechplayer.
Withlittleautoorcommercialpropertyinsurance,theInsuretechinsurercurrentlyfocusesoninsuringriskindigitalecosystems,offeringproductssuchase-commercebuyerprotection,shippingreturninsurance,flightdelayinsurance,andtravelinsurance,butinthefuturewilllikelyexpandintomoretraditionalinsuranceproducts.
Exhibit15:Revenuestructuresofatypicaltraditionalplayervs.
typicalInsuretechplayerTRADITIONALPLAYERINSURETECHPLAYERE-commerceTravelOtherAutoCommercialpropertyLiabilityHealthCargoAccidentOther3CHealthcare73%53%26%18%1%2%11%2%5%1%5%4%4%Source:Annualreports,ZhongAn,iResearch,OliverWymananalysisCopyright2016OliverWymanExhibit16showsthedifferencesincoststructurebetweenatypicaltraditionalinsurerandaWave2Insuretechplayer.
Thelatterhasalowercustomeracquisitioncostthantheformer,buthighermanagementcosts,becauseoflargeinvestmentinITdevelopmentduringtheearlystagesofbuildinganInsuretechbusiness.
Managementcostisestimatedtodecline,onceascaleeffectisachieved.
Exhibit16:Coststructureofatypicaltraditionalplayervs.
typicalInsuretechplayerTraditionalplayerInsuretechplayer%,AS%OFTOTALEXPENSESANDCLAIMCOSTSManagementNetcommission/acquistion1NetclaimsBigamountofITinvestmenthappenswhilestartingInsuretechbusinessManagementandITcostwilldeclineoncescaleeectisachieved68%21%11%60%100%100%35%5%1.
Someacquisitioncostmaybeincludedinmanagementcost,becauseofdifferentaccountingpracticesSource:Annualreports,OliverWymananalysisIftheWave2Insuretechplayerfurtherevolvesintoaninfrastructureserviceprovideroracomprehensivefinancialservicesprovider,itstoplinewillincreasesignificantlywithonlyamarginalincreaseincosts.
Thatwillbethankstoitsexistinginfrastructurecombinedwithdataaccumulatedfrominsuringvariousecosystems.
Anasset-light,high-margincompanywillemerge.
233.
KEYSUCCESSFACTORSFORINSURETECHBUSINESSMODELThesuccessoftheecosystemintegrationinsurancemodelintheInsuretechmarketdependsonfourkeyfactors.
Exhibit17:KeysuccessfactorsforInsuretechinChinaKeysuccessfactorsTechnicalCapabilitiesBigdata/Cloudcomputing/AI/Machinelearning/IoTInternetstartup-likeoperatingmodelAccesstopartnershipsandecosystemsTalentandincentivemanagementUniversalconnectivityCustomeranalyticsDynamicpricingRiskmanagementAutomatedprocessing1234#1Successfactor–Technicalcapabilities:AnillustrationofhowtechnicalcapabilitiescometogetherduringaniterativelearningprocessisshowninExhibit18.
Universalconnectivityisessentialforconnectingecosystemsandrelevantpartiesinordertoacquirecriticaldataforproductdevelopmentandcustomeracquisition.
Thekeystepforachievinguniversalconnectivityistomigratefromtraditionaltechnology,whichutilizesmainframesforcentralizedprocessingandrelationaldatabases.
Thisshouldbereplacedbynew,bigdataandcloudcomputingtechnologiesthatallowtheparallelprocessingofdifferentdataformats.
Suchtechnologyprovidesmuchlargerdatastorage,extractionofagreatervarietyofdata,andfasterdataprocessingacrossdifferentecosystems.
Customeranalyticshelpinsurersdrawinsightsfromlargeamountsofnewanddynamicdata.
Thesehelptoenhancethecustomerexperienceandbetterservecustomerneeds.
Advancedanalyticaltoolsandskilleddatascientistsarepivotalforeffectivecustomerrelationshipmanagement.
Datascientistsarestartingtoadoptcustomerintelligenceanalyticstoolssuchasthenano-andpico-segmentationofclients,predictivemodelling,andbehaviorpatterning.
Theseanalyticaltoolsprovideadetailedunderstandingofcustomersandtheyaidpredictionsandstrategicdecisionsbasedonthepatternsandmotivationsbehindcustomerbehavior.
Copyright2016OliverWymanDynamicpricingallowssavvyinsurerstodesignacustomizedandcompetitivepricingstrategy.
Likewiththeenablersofcustomerbehavioranalytics,dynamicpricingneedsadvancedanalyticaltoolsforpricingandstrongtechnicalteams.
Asbigdatatechnologybecomesmoreprevalent,thepricingteamcanadoptsophisticatedpriceelasticitymodellingthatutilizescomplexmachine-learningalgorithms.
Thiscanhelpstudyrichsetsofclientandcompetitiondata.
Riskmanagementliesattheheartofanyinsurer'sbusiness,asmajorfraudeventsordataleakagecancausesignificanteconomicandreputationlosses.
Tocombatfraud,artificialintelligencecantracecustomertransactionbehavioranddetectfraudulenttransactionpatterns.
Artificialintelligencehasalreadybeenwidelyusedtodetectcreditcardfraud,andinsurerscanleveragethetechnologytopreventactsoffraudsuchasfalseinsuranceclaims.
Inaddition,blockchaintechnologydecentralizesandscattersinformation,sodatacanberecordedinasecuredform.
Automatedprocessingisvitalforkeepingabusinessmodelviable.
Automationtechnologyisessentialforkeepingoperatingcostsdownwhenaninsurertestsandlaunchesdozensofnewproductseverymonth,processesmillionsorevenBNsofpoliciesinoneday,anddynamicallyadjustspricingbasedonthelatestdataandgranularinsightsintocustomerbehavior.
Akeyadvantageofautomatedprocessingistheabilitytosettleclaimswithouthumaninterventionoreventheinvolvementofclients.
Payingoutclaimsaccuratelyandwithoutdisputesormistakeswillbeanintegralpartofprovidingservicesatminimumcost.
Automationtechnologycanalsobeusedinriskmanagement,suchasautomatedfrauddetectionandalertsforabnormalbehavior.
Exhibit18:IterativelearningusingtechnologicalcapabilitiesExistingdataE-commerceSocialmedia…NewdatafromtrialsUnderwritingdataClaimdata…AnalysisClaimanalysisProtabilityanalysisSegmentanalysis…ModelBehavioralmodelCorrelationmodelFrauddetectionmodelEventforecastmodel…PricingmodelUnderwritingrulesPolicy/CoverageApp/InterfaceProcessDataAnalysis/ModelUpdatedsolutionTrialanderror/learningalgo25#2Successfactor–Internetstartup-likeoperatingmodel:Thetraditionaloperatingmodelissplitintodepartmentssuchasproductdesign,productpricing,marketing,sales,underwriting,andclaims.
Productlaunchesrequirealongprocess,becauseeachdepartmenthastogiveitsapproval.
Incontrast,theInsuretechcompanyoperatingmodelshould:Operatealeanstart-upculturewithflatworkingstructuresandproduct-driventeams.
Maintaintransparencyandaccountabilitythroughouttheorganization.
Shortenproductdevelopmentcyclesthroughhypothesis-drivenexperimentation,quickiterations,andvalidatedlearning.
Developproductsthattrulymeettheneedsofcustomers,thusreducingriskandthefundingrequired.
Exhibit19:ComparisonofoperatingmodelsProduct1ProductpricingMarketingSalesUnderwritingClaimsTRADITIONALINSURANCECOMPANYOPERATIONMODELDISRUPTIVEINSURETECHCOMPANYOPERATIONMODELProductdesign.
.
.
.
.
.
.
.
.
MarketingMarketingClaimsClaimsClaimsAppmoduleActuaryActuaryBusinessdevelopmentBusinessdevelopmentAppdesign/ITAppdesign/ITProductmanagerProductmanagerProductmanagerProductteam1Productteam2Productteam3Copyright2016OliverWyman#3Successfactor–Accesstoecosystems:Beingabletodeveloprelationshipswithtechnologyecosystemsisamustinordertogainaccesstoconsumerdataanddevelopinsuranceproductsthatmeettheirneeds.
Suchaccessneednotnecessarilybeexclusive,giventhatmostonlineecosystemsareopenforaccessbytheirnature.
However,earlyaccess,smoothbusinesscooperation,andtop-levelrelationshipscanhelptoestablishdominance.
OneexampleisZhongAnworkingwithTaobaoearlyontogainaccesstoitse-commerceecosystem,andthenintroducingshippingreturninsurance.
PinganInsuranceworkedwith58Daojia,adomesticservicesprovider,toprovideintegratedpropertyinsurancethatcoversdamagedcausedtohouseholdgoodsbydomesticworkers.
Shareholderbackgroundswillbeadeterminingfactoringainingsuchaccess,followedbystrongbusinessdevelopmentteams,personalrelationships,andfamiliaritywiththeecosystem'smanagementandtechnologyteam.
Exhibit20:WeeklyuseofmajoronlineecosystemsinChina8:00Grabtaxitowork21:00WatchonlineTV18:00Dothelaundrydelievery16:30ReservehousekeepingserviceUseDiDiCarServiceWatchlatestTVseriesbyusingiQiYiUseEDaixitopickupdirtyclothesforlaundryUsehousekeepingapptobookcleaningserviceandgethelpfordinnerUseTiantianFruitGardentogetfruitUseDaZhongDianPingtopickaplaceforlunchDuringlunchbreak,dosomeonlineshoppingandpayutilitybillsUseMeituantobuybreakfast9:00Getbreakfastdelivered11:30Orderfruitfordelivery12:00Browselunchoptions13:00Onlineshopping/errandsduringlunchbreakWeekday10:00Petcare21:00Hitthegym18:00Getnecessarymedicine16:00GetafternoontreatsUseMeiChongtotakecareofpetsTakecoursesfromappsLikeQuanChengReLianBrowseYaoQuNaAppformedicineandhealthproductsBuyBubbleTeaandcakeusingLINQuAppUseLicaiKaorotherstockappUseQQMusicApptolistentomusiccollectionUseTaskRabbitApptogettutorsUseHelijiatogetnailsdone11:00NailCareService11:30TrackInvestments13:00ListentoQQMusic14:00BuylessonsforyogaWeekend17:00BookholidayBookdaytripfromTravelAppSource:OliverWymananalysis27#4Successfactor–Talentandincentivemanagement:Talentwise,astrongteamwillconsistoftechnicalexperts,insuranceexperts,actuarialexperts,andstrongbusinessdevelopmentteamstobuildrelationshipswithonlineecosystems.
Butinordertoretaintoptalent,itisimperativetoimplementincentiveschemesandgivetalenttheopportunitytogrow.
Wehaveobservedseveralincentiveprogramsintheindustrythathelpalignpersonalanddepartmentalincentiveswithstrategiccorporategoals:Eachbusinessunitistreatedasanindividualprofitcenterinordertobettertrackperformanceandrewardbothindividualsandgroups.
Astockpurchaseplanisofferedtoallemployeestomotivateperformanceandaligntheirinterestswiththoseofshareholders.
Innovationisacorecomponentofthekeyperformanceindicatorssystem,inordertorewardandincentivizecreativeideas.
Exhibit21:KeyInsuretechtalentneedsandmotivationsTALENTPOOLTALENTMOTIVATIONPYRAMIDInsuranceProductsActuarialRegulationInternetBusinessdevelopmentEcosystemrelationshipTechnologyBigdataAppUserinterfaceDreamsCareerplanGovernanceIncentiveCopyright2016OliverWyman4.
RISKSANDUNCERTAINTIESPrevioussectionshavediscussedattractiveopportunitiesintheChineseInsuretechmarketthataredrivenbynewtechnologiesandgrowingecosystems.
However,whilethereisplentyofopportunityforafewsimpleproducts,suchastravelinsuranceandshippingreturninsurance,manyotherproducts,suchasautoinsuranceanduniversallifeinsurance,faceinherentuncertainties.
Theseareduetothefollowingfourfactors,showninExhibit22.
Exhibit22:KeyrisksanduncertaintiesforInsuretechChinaInsuretechopportunitiesMacroeconomyRegulatoryCompetitionTechnologyMarcoeconomyIfannualGDPgrowthweretodropto5%orlower,therewouldbeasignificantimpactonpercapitadisposableincome.
Thiscouldnegativelyaffectpurchasinghabitsforgoodswithnon-rigiddemand,suchasautomobiles,wearabledevicesandconnectedhomedevices.
TheGWPinthesesectorswouldfallasaresult.
However,disposableincomehasarelativelysmallerimpactontheinnovativeinsurancepracticesinrisingonlineecosystems:Theseonlineecosystemsarereplacingofflineretailconsumption,andhavestronggrowthmomentumovertheshortandmediumterm.
29RegulatoryTheregulatorhasbeensupportiveofinnovationingeneral.
Butwehavealsoobservedexamplesofconservatismfromtimetotime.
Herearesomespecificexamples:Theonlinedistributionofproductssuchasautoinsurance,universallifeinsurance,andhealthinsurancemaybeconstrainedbymoreregulatoryrequirements.
Forexample,regulatormayrequirestricterconfirmationthroughcallcentersbeforeonlinepurchasedautoinsurancepolicybecomeseffective,andregulatormayputalimitonguaranteedreturnofuniversallifeinsurancedistributedonline.
Recently,onlineuniversallifewasstoppedbyregulator,whichisconsideredastemporarymeasuretocurbincreasingrisk.
Technologyadoptionininsuranceproducts–suchasautoinsuranceandhealthinsurance–maybediscouragedifthede-tariffprocessslowsdown,forexample,wehaveobservedthattheslowadoptionoftelematicsiscausedbythetariffsetbytheregulatorevenaftertherecentpricingreformofautoinsurance.
Ecosystem-basedinnovationmayslowiftheregulatorstrengthensapprovalrequirementsfornewproductscoveringunfamiliarnewrisks.
Forexample,smogtravelinsurance,whichistocompensatetravelersduringbadweathercausedbysmog,hasbeenstoppedbytheregulator.
TechnologyInsuretechishighlydependentonthefuturedevelopmentoftechnologiessuchasbigdata,cloudcomputing,blockchainandartificialintelligence.
(However,anassessmentofthesetechnologiesisbeyondthescopeofthisreport.
)Technologicalfailuresofparticularplatformsalsoconstituterisksforindividualcompanies,particularlyintheramp-upphaseofanewenterprise.
CompetitionCurrently,thefieldisdominatedbytraditionalinsurersanddisruptors.
Tocompetewithdisruptors,traditionalinsurersmaysetupjointventureswithtechcompanies,takingadvantageofthelargenumberoftheseinChina,orsetupsubsidiariestoattackthismarket.
Moreover,otherplayersmayemergeinthefuture.
Auto,connectedhomeand3C(computer,communicationandconsumerelectronics)manufacturersmightsetupinsurancecompaniestoinsuretheirownproducts;peer-to-peerinsurersmightrisetocoveronlinecommunities;andlargeecosystemsmightself-insure.
Copyright2016OliverWymanAPPENDIXA:EXAMPLESOFTECHNOLOGYADOPTIONANDECOSYSTEMSChinahasanonlinepopulationofhundredsofmillions.
Theyshop,booktravelplans,orderfoodandchatonline.
TheaverageweeklytimespentonlinebyChinesewhousetheInternetisestimatedat26hours.
SeeExhibit23.
Exhibit23:DigitalpenetrationinChina(Dataasof2016H1)Internetpopulation710millionsMobileinternetpopulation656millionsOnlinepaymentusers455millionsOnlineshopper448millionsOnlineTravelbooking264millionsWeeklytimespentonline26hoursExhibit24:Monthlyactiveusersofmajorecosystems48MM46MMHealthXYWY.
com120ask.
comLifestyle30MM250MM58.
comdianping.
com190MMFinancialservicesAlipay380MM120MME-Commercetaobao.
comjd.
comSource:OliverWymananalysis,companypressrelease31Apartfromthesemajorecosystems,therearehundredsofsmallerecosystemswithactiveusersinthetensofmillionseachmonththatencompassvariousareasoflife.
ThispointstotheimportanceofecosystemsinChinaandhowmuchChinesepeoplerelyonthem,indicatingfurtheropportunitiestointegratefinancialservicesintothoseecosystems.
Thescale,speedofgrowth,anduniqueimportanceofonlineecosystemsinChinahavethreeparticularimplicationsforotherindustries,includingfinancialservices:Theyhaveestablishedanenormouscustomerbasewithlargeamountsofdataandinformationoncustomerbehavior.
Otherindustriescouldpotentiallyleveragethis.
Forexample,Taobaohasnearly500millionregisteredcustomersandtrillionsofdatapoints.
Theyhavethepotentialtotriggerbusinessflowsinotherindustries.
Forexample,onlineshoppinghastriggeredpaymentandfinancingneedsforthefinancialservicessector.
Bytheendof2015,AntFinancial(thefinancialarmofAlibaba)hadcompletedover6TNCNYinpayments,over30BNCNYinfinancing,andover1TNCNYinmanagedinvestments,entirelythroughthemultipleecosystemsintheAlibabagroup.
Theycanserveastestingbedsforleading-edgetechnologiessuchasartificialintelligence,theInternetofThings,blockchain,andbigdataanalytics.
Forexample,Alibabaisutilizingartificialintelligence,facialrecognitiontechnology,andbigdataanalyticstogathercreditinformationfrommultiplesources.
Thiswillhelpcreatecompletepicturesofconsumers'creditprofiles,whichcanbeusedinfinancialproducts.
Copyright2016OliverWymanAPPENDIXB:KEYMETHODOLOGYANDASSUMPTIONSOFOURFORECASTSEGMENTS1&2:ONLINEDISTRIBUTION&TECHNOLOGYENABLEDUPGRADEPRODUCTSInordertoforecastGWPforthefirsttwosegments,weselectedkeyproductsthatwillbeimpactedbyadvancesindigitaldistributionchannelsandtechnology.
Theseincludeauto,health,property,accident,travelandlifeinsuranceproducts.
Themethodologyisbasedmainlyonthefollowingthreetypesofdata:1.
HistoricalGWP2.
Onlinepenetrationrate3.
TechnologypenetrationrateHistoricalGWPservesasabaselinetoforecastthefuturegrowthrateofGWP.
AdditionalfactorsconsideredontopofhistoricalGWPincludetheGDPgrowthrateandtheincreasingawarenessofandneedforinsuranceproducts.
Thefutureonlinepenetrationrateforeachproductisderivedfromcurrentonlinepenetrationratesandbenchmarksfordevelopedmarkets.
Forinstance,autoinsurancehasacurrentonlinepenetrationrateofabout10percent,andthepenetrationrateforecastfor2020isbenchmarkedagainstthecurrentU.
S.
penetrationrateof25percentandU.
K.
rateof30percent.
Similarly,futuretechnologypenetrationratesforotherproductsarederivedfromcurrenttechnologypenetrationrates,projectionsoffuturepenetrationrates,andbenchmarksfromdevelopedmarkets.
Inautoinsuranceforexample,thecurrenttechnologypenetrationrateisabout4percent.
Thisconsistsmainlyoftelematicspenetration(about2.
5percent)andsomeothertechnologies,suchasblockchain,artificialintelligence,andcloudcomputing,whichoptimizetheprocess.
Basedonbenchmarksacrossvariousdevelopedmarkets,technologicaladvancementwillgrowatabout20percentperannum,andcontributetoapenetrationrateofabout10percentin2020forautoinsuranceproducts.
Therefore,digitalchannelGWPcanbecomputedasafunctionofannualforecastGWPandtheonlinepenetrationrate.
TechnologyenabledupgradeproductscanbecomputedasafunctionofannualforecastGWPandthetechpenetrationrate.
33SEGMENT3:ECOSYSTEM-ORIENTEDINNOVATIONToprojecttheGWPofinnovativeproducts,majorecosystemssurroundingconsumers'regularactivitiesareconsidered,suchase-commerce,travel,financialservices,health,sports,entertainment,lifestyle,andeducation.
Themethodologyismainlybasedonthefollowingtypesofdata:1.
Ecosystemmarketsize2.
RiskaversionThemarketsizeofafutureecosystemisderivedfromthehistoricalmarketsizeoftheecosystem,growthfactorssuchaspersonaldisposableincome,andthehistoricalmarketgrowthrateoftheecosystem.
Theriskaversionfactorisdefinedasthepremiumrelativetotheinsuredvaluethatanaveragepersoniswillingtopaytoinsureagainstrisksintheecosystem.
Thefactorisafunctionofthefollowingtwoitems:a.
Pricingb.
PenetrationratePricingisdefinedastheamountofpremiumrelativetotheinsuredvaluethatacustomeriswillingtopayforeachtransactioninaparticularecosystem.
Thepenetrationrateisdefinedastheproportionofpeoplewillingtoinsureagainstrisksinvolvedinthetransaction.
Forinstance,thepricing(230CNYtoinsure10,000CNY)andpenetrationrate(about5percent)oftraveltourcancellationinsuranceareadoptedasproxiestodeterminepricingintheoveralltravelecosystem,aswellasthepenetrationrate.
Themaindriverofriskaversionisthepenetrationrate–thatis,morepeoplewillingtobuyandmoreneedscoveredintheecosystem.
Hence,theGWPforecosystem-orientedinnovationproductscanbecomputedfromtheecosystemmarketsizeandtheriskaversionfactor.
Copyright2016OliverWymanAPPENDIXC:SCREENSHOTSOFTAOBAO'SSTATISTICSONSHIPPINGRETURNINSURANCE35ABOUTOLIVERWYMANOliverWymanisagloballeaderinmanagementconsulting.
Withofficesin50+citiesacross26countries,OliverWymancombinesdeepindustryknowledgewithspecializedexpertiseinstrategy,operations,riskmanagement,andorganizationtransformation.
Thefirm's4,000professionalshelpclientsoptimizetheirbusiness,improvetheiroperationsandriskprofile,andacceleratetheirorganizationalperformancetoseizethemostattractiveopportunities.
OliverWymanisawhollyownedsubsidiaryofMarsh&McLennanCompanies[NYSE:MMC].
Formoreinformation,visitwww.
oliverwyman.
com.
FollowOliverWymanonTwitter@OliverWyman.
ABOUTZHONGANZhongAnInsuranceisthefirsttrulyonlineinsurancecompanyinChina,co-foundedbyreputablecompaniessuchasAntFinancial,TencentandPingAnGroupon6thNovember2013.
Tillnow,ZhongAnhasdeveloped200+insuranceproductsservingmorethan400millioncustomers.
ZhongAnaimstoreshapetraditionalinsurancebyapplyinginternetthinkingacrosstheinsurancevaluechainfromproductdesigntoclaimsservicingwithitscorestrengthsintechnology.
Formoreinformation,visitwww.
zhongan.
com.
Copyright2016OliverWymanAllrightsreserved.
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