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Insurers see Internet as channel, market and business model
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The tie between the Internet and insurance has been strengthened, as the Internet becomes not only a channel but also a market and business model for insurers.
Last Thursday, Zhong An Online Property & Casualty Insurance Co started selling its first product that helps online vendors on Taobao.com cover deposit requirements. The company is China’s first and probably the world’s first insurance company designated to cover Internet businesses.
When they buy an insurance product from Zhong An, vendors will no longer be required to pay a minimum 1,000 yuan (US$164) deposit, depending on the products they sell and the size of turnover.
The product was priced at 3 percent of the amount of the deposit that shop owners wish to be exempted from.
Zhong An aims to extend the product to other online marketplaces after the company gains more experience and reaches agreements with other Internet companies about client data usage, said Zhang Xiaorui, the product’s designer.
The joint venture attracted huge attention from Day 1 as its co-investors include financial conglomerate Ping An Insurance (Group) Co holding a 15 percent stake; e-commerce giant Alibaba holding a 19.9 percent stake; Internet giant Tencent holding a 15 percent stake, and other Internet and investment companies.
The company’s Internet DNA and the first online insurance license it received from the China Insurance Regulatory Commission made it a standout in the financial industry.
The company hopes to blaze a trail in the realm of Internet finance, incorporating innovation and entrepreneurship that are characteristics of Internet explorers.
“We can facilitate financing by using the data and cloud computing to establish a credit system for businesses and users,” said Jack Ma, chairman of Alibaba. “In principle, what an insurer can do can all be done by Internet companies. We can make insurance simpler with our technology.”
New enthusiasm
This new enthusiasm about incorporating insurance with the e-commerce was echoed by traditional market players.
Late November, Beijing-based Taikang Life started offering tailor-made accident and health insurance products for online shop operators and shop assistants who are not covered by the social security system.
The products were for 5 to 10 yuan a month, and policy holders can claim compensation in various provinces, making it suitable for those who don’t have a fixed work place.
A survey by Taobao.com showed that 55.2 percent of online shop operators and 45 percent of shop assistants do not pay for social security.
“There are a lot of people out there who need our help. We can cover more of them with the Internet than any traditional methods,” said Wang Daonan, vice president of Taikang. “The Internet reminds us of the importance of really serving the clients.”
Other insurers, such as Huatai Insurance Group and China Life Property & Casualty Insurance Co, have launched insurance products to cover consumers’ delivery fees when they have to return a product purchased online.
The most promising benefits the Internet can provide to traditional insurers are data related to individuals’ and companies’ businesses.
The data provides unprecedented convenience for insurers to assess risks and price their products.
Companies operating “product return insurance” can easily raise prices for consumers who return their products more frequently.
More importantly, the comments consumers leave online after each purchase provide credit records of the vendor that are impossible to track in brick-and-mortar sales.
“Among China’s three Internet giants, Baidu is strong at finding information and has a lot of external data, while Alibaba is strong at e-commerce and has much trade data,” said Ren Huichuan, CEO at Ping An Property & Casualty Insurance Co. “Tencent has huge data about a person’s behavior and social relationships.”
All the data are valuable to insurers, but to gain access to the data requires extensive measures to protect privacy. On the other hand, challenges are also greater for insurers to retain clients since insurers' prices and services are also more transparent for them, Ren said.
Analysts are quick to point out the limitations of online insurance products, since their services are simple and easily duplicated. The products’ profitability is low due to the low price.
“Internet insurance products may help some users hedge risks,” said Zhang Meng, a researcher with Analysys International. “The size of online insurance products will remain small in the next few years, and it is still too early to see how online insurance may improve the e-commerce environment.”
For veterans in both insurance and Internet industries, the needs for online insurance will not challenge the traditional ones in the years to come.
The needs for complicated insurance policies, such as those for nuclear power stations, will remain offline.
Also, wealthy individuals, who create high values for insurers, are likely to require customized services from professional insurance agents.
The temptation of gaining easy revenue by selling high-yield wealth management products to price-sensitive web users also poses challenges to life insurers’ margins. Rating agency Moody’s has warned domestic life insurers that the industry may face a downward pressure in two years if companies postpone shifting their focus from cheap wealth management products to higher value-added assurance products.
“Financial institutions are exploring how to use the Internet to save costs and improve efficiency, while Internet companies are using huge data to offer financial services,” said Peter Ma, chairman of Ping An and a major investor in Zhong An. “I wouldn’t deny that all insurance products can be sold online ultimately, but that may take 1,000 years.”
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