The world of InsurTech is full of innovative companies meeting consumer needs in fresh ways. We can all agree that many of these start-ups have some brilliant ideas – Cuvva is targeting the on-demand niche, Ladder is rehabilitating life insurance for millennials, and Lemonade has a revolutionary approach to claims.
However, each of these currently lacks scale; there’s a huge gulf between them and incumbent insurers. So, while there’s lots incumbents can learn from these companies about attuning to customer needs, the threat from new entrants is not imminent, is it?
Enter Zhong An, the Chinese InsurTech company that has sold 5.8bn insurance policies in 4 years, and is gearing up for a $1.5bn IPO. Zhong An is a different breed of new entrant. Launched in 2013, they have 200+ policies that are typically micro-insurance – very cheap policies that give a low level of cover, such as e-commerce return shopping insurance.
Zhong An brings together the innovative strategies of numerous start-ups and high-growth companies. Here are 4 key reasons that Zhong An could really shake things up:
1. Corporate partners are used to fuel growth, like PayPal
One key to Zhong An’s success is their distribution model, and how this leverages corporate partners. There are similarities to Paypal here: PayPal grew for many reasons, but undoubtedly exposure via eBay played some role in PayPal’s early growth trajectory.
Similarly, Zhong An noticed a niche for a new, cheap insurance product to meet a consumer pain around online shopping: for a few cents, a customer is able to insure themselves for the risk of needing to return a product. In some cases, the customer pays for this. In others, the seller foots the bill. The trick is that by using partners such as TaoBao, achieving scale quickly becomes much more viable. This delivered immediate exposure to TaoBao’s 400m active users, each of which theoretically represented several opportunities for Zhong An to make a sale.
And Zhong An have not restricted this approach to ecommerce. They now have 300+ partners extending their reach across ecommerce, health, travel, auto and banking.
2. They utilise multiple data sources to better understand customers, like Haven Life
Better data, or better use of data to understand customers in a new way, can be a huge driver of competitive advantage. Haven Life provides Life Insurance in New York, and by pulling together a range of data (including driving records and prescription histories), Haven gives customers instant acceptance decisions without medical examinations.
Zhong An also work to unlock the power of varied data sources. They do so by leveraging their corporate partners. The three major corporate investors (Alibaba, Tencent and PingAn) all have a different view of a consumer’s online behaviour, and Zhong An is able to tap into all of this to refine pricing and risk control. The UK equivalent could perhaps be combining data from Amazon, WhatsApp and RSA; potentially a hugely powerful advantage resulting from unparalleled customer understanding.
3. They fail fast, like Kroodle
There are many merits to the argument that “Fail Fast” is all hype. However, like Kroodle, a dutch insurer using Facebook data to rapidly evolve products, Zhong An are making this mentality work.
Zhong An claim to be able to launch a product in 5-6 weeks, and they use this ability to respond in a very agile way to potential customer needs. Sometimes this works, sometimes it doesn’t.
A good example is a self-inflicted liver damage insurance product that was offered specifically for the 2014 football world cup. According to the FT, $1 covered customers for nearly $300 in hospital fees for 30 days. This product was not successful – 24 policies were sold in around a week – but the fail fast approach has also produced some hugely successful policies covering travel, personal accidents and even cover that pays out when the weather gets too hot. Overall, they have sold nearly 6bn policies. They must be doing something right.
4. They ‘get’ millennials, like Lemonade
Lemonade are renowned innovators for a number of reasons, some of which Zhong An share. One of these is recognising millennials’ need for tangible, immediate gratification. Unlike many traditional insurers, these innovators pay claims near-instantly, giving customers an immediate reminder of the value of their policy and the user-friendliness of their service.
While Lemonade have a no quibble approach, leaving them open to fraudulent claims, Zhong An typically insure claims that are instantly verifiable. For example, their flight delay insurance (their second most popular product) has a simple verification path which often allows claims to be processed while customers are still in the departure lounge.
So, what impact might they have?
Zhong An are clearly on a great growth path in China. They’ve succeeded in key areas that allow them to go beyond the great ideas of many InsurTech innovators, and generate scale in terms of customer base. The European insurance market has been ripe for disruption for a long time; the question is how this kind of move will be made in Europe, and not when. It would be a big ask for Zhong An to replicate their model in Europe. It would require a new, European distribution network, and the power of their Chinese network would be extremely hard to replicate.
If not Zhong An, then who? This leaves a huge opportunity for European insurers, large and small. Zhong An proves that it is possible for a new entrant to steal market share – in 4 years they can count over half of China’s internet users as customers. The European insurance industry is not prepared to defend against this, whether the challenge comes from Zhong An or another company replicating their model. The window for incumbents to innovate to engage customers has not yet closed. Learning from innovators like Zhong An, and learning how to defend against them, will be critical to secure future market dominance.