China's Changing Insurtech Market and the Case for More Specific Regulation

Written by Rami Bassil || April 03 2017

Insurtech has grown to be a big part of the Fintech ecosystem. Using technology innovation in order to drive efficiency in the insurance industry to make it more efficient, competitive and millennial-targeted. Advances in technology and data analytics are currently improving and transforming the entire insurance value chain.

The insurance industry, a business of $4.5 trillion globally, has remained largely unchanged for the past 30 years. Nevertheless, investments are increasingly being made in that area, with $2.6 billion of investment in 2015, up from $800 million in 2014 (Financial Times). The industry is leveraging technologies such as blockchain, data mining, and artificial intelligence to create new products such as Black Box Insurance, Digital Insurance Concierge, and 'Insurance Dashboards.'

Black Box Insurance is a technology that uses telematics to offers premiums based on current driving behavior (usage-based insurance) as opposed to historical performance. A Digital Insurance Concierge platform uses artificial intelligence to evaluate whether a user is under- or over-insured and whether there is a better-priced coverage in the market. An Insurance Dashboard is an interactive digital tool that combines and manages all aspects of a user’s insurance policies. It provides a mean where brokers, insurers, insurance shoppers, and policy owners can readily access insurance information with minimal cost.

The United States and China are both big actors on that scene, with firms like Oscar and Huize in the top 5 Insurtech companies by website traffic. However, their involvement in the Insurtech revolution is not comparable to what's happening in China. While the US has a relatively established Insurtech market with an average age of 10 years per Insurtech category (VenturesScannerInsights), China’s a hype for the technology is still at its early stages. Zhong An, China’s first truly digital insurer, was only launched in 2013 by Ping An, Tencent, and Alibaba.

In the US, the Insurtech phenomenon gained momentum due to the availability of innovation and financial support from venture capitalists. Therefore, a lot of new services are being offered. Take MetroMile, for example. The startup leverages telematics technology to offer a pay-per-mile service. Unlike the traditional premium system where drivers are assessed by their historical driving performance, this new technology measures miles driven and other factors like frequency of accidents to calculate a premium. Other American Insurtech startups like Oscar Health, the Zebra, or policy Genius use internet platforms, data mining and blockchain to create new services such as P2P insurance and micro insurance.

In China, the current lack of coordination between regulators make it more difficult for insurtech startups to leverage technologies like telematics and blockchain. While there are various regulators overseeing specific financial sectors, they have not put in place a coordinated organization to control the Insurtech industry. For example, CIRC (China Insurance Regulatory Commission) regulates the digital insurance industry, but still does not have any set guidelines for other aspects of Insurtech. Therefore, most Chinese Insurtechs currently only offer online insurance services. For example, Zhong An and Huize, two of the largest insurtech companies in China, merely offer digital insurance platforms. That being said, CIRC has begun commercial automobile insurance reform for premium pricing and terms management in key locations in China. This move marks the government’s will to pressure companies to study and invest in the usage-based insurance (UBI) technology.

According to “MarketsandMarkets”, the insurance telematics market size in China is expected to grow from $857.2 million in 2015 to $2.21 billion in 2020. With China having the largest amount of cars in the world, the country is expected to lead the global telematics market in the next decade. Also, there is currently no restriction that could hinder the growth and usage of Insurtech by insurance companies under privacy laws. While this may sound unethical, it is a proof of the country’s willingness to improve the industry at all cost.

The significance of Insurtech (and Fintech) has been recognized and endorsed by the Chinese government. Indeed, it is promoting innovation of fintech startups, products, and services, and encouraging cooperation between financial institutions and Internet companies. At the same time, because of recent cases of fraudulent or problematic online platforms, regulators are in the process of drafting new rules to tighten up the control over Internet insurance businesses among others.