In this section, we compare online insurers and major conventional insurers in terms of competitive dynamics and market positioning, distribution channels and customer loyalty. We see online insurers and major conventional insurers focusing on different market segments, with different ways of integrating customer stickiness due to their distinctive business models.
Competitive dynamics and market positioning
We do not see the online insurance companies as necessarily competing with the
traditional insurers directly, but rather in meeting unmet demand in niche markets that have been neglected by traditional insurance companies.
Insurance product focus. Most of the insurance companies involved in the InsurTech market are currently focusing on P&C insurance products rather than life insurance products. This is due to P&C insurance products having a much simpler product design, and as they can be relatively easily understood by online customers, namely the general public.
Besides, due to the short-term insurance coverage nature of P&C insurance products, online insurance companies are able to respond promptly to market feedback and offer dynamic and customised products and solutions. Although we believe the life InsurTech market has a promising future, it will take time to cultivate customer awareness of life insurance in order to form a more liberalised life insurance market in China.
Ecosystem oriented. From an InsurTech perspective, traditional insurance companies such as PICC P&C and Ping An P&C maintain dominant positions in the online distribution and technology-driven upgrade segments. Nevertheless, we believe the online insurers are more focused on technology-driven upgrades and online ecosystem platforms. This is because their product design philosophy is biased towards discovering under-served niche insurance demand in various online ecosystems by leveraging their data analytical
capabilities. • 2013.10 • 2015.11 • 2016.02 • 2015.12 • Alibaba • Ctrip • Ping An Insurance • Taikang Insurance • DXY • Yinzhijie (FinTech company) • Honganonline (FinTech company) • Shipping return insurance
• Flight delay insurance • Health insurance • Credit insurance • Auto insurance
• Health & Accident insurance • Investment-linked insurance • Household property insurance • Auto insurance
• Health & Accident insurance • Liability insurance • Guarantee insurance • Household property insurance • Household property insurance • Health & Accident
insurance • Guarantee insurance • Liability insurance • Engineering insurance ONLINE-ONLY INSURANCE PLAYER GROSS PREMIUM (CNYm) LICENSE APPROVAL DATE 1 2 3 4 5 KEY PARTNER
KEY PRODUCT TYPE
ZHONGAN ONLINE P&C INSURANCE
TAIKANG ONLINE P&C
INSURANCE YI AN P&C INSURANCE ANSWERN P&C INSURANCE
13 794 2,283 3,408 2013 2014 2015 2016 9 675 2015 2016 222 2016 75 2016 We see 3 major differences when comparing pure online insurers and
conventional insurers
1. Competitive dynamics and market positioning
China InsurTech market: ecosystem-oriented product development philosophy of the online insurers
Source: Daiwa
Distribution channel
While traditional insurance companies are licensed by the CIRC to sell their products online and offline, the licensed online-only insurers are only permitted to sell and distribute their products online.
Traditional players use the online channel as a supplement to their established offline channels. Traditional insurers generally have well-established offline networks across China to reach end-customers such as tied agent teams and the bancassurance channel. According to the CIRC and IAC, gross premiums for the online P&C insurance market reached CNY50.2bn in 2016, contributing 5.4% of overall P&C insurance gross premiums in China. PICC P&C, the largest P&C insurer in China in terms of 2016 gross premiums, generated only 5.9% of its gross premiums through online channels in 2016.
Online insurers looking to capitalise on online user traffic. The cooperation between online insurers and their ecosystem partners creates a virtuous cycle for both parties, in our view. Therefore, ecosystem platforms are willing to export their user traffic to the online insurers so that they can benefit from the incremental transactions and service charges derived from insurance purchases. In addition, as a result of their backgrounds, the 4 licensed online-only insurers are more open-minded and technologically friendly in connecting with online ecosystem platforms, in our view.
SCENARIO-BASED AND DATA-DRIVEN
Extensive customer data in different ecosystems collected from a variety of sources
Ability to identify the underserved protection needs associated with the inherent risks in various consumption scenarios
Utilization of big data analytics
1
EMBEDDED INTO MULTIPLE ECOSYSTEMS Connection with multiple ecosystems partners’ platforms to gain access to customer traffic and the untapped insurance needs for product design Real-time analysis of behaviour data and customer feedbacks Optimization of existing products and new product design
2
CUSTOMISED AND DYNAMIC PRICING
Dynamic pricing base on various factors, such as customers’ profiles, consumption patterns, and the transaction volumes, etc.
Price elasticity modelling utilizing Cloud-based computing and AI algorithms capabilities
Date-driven and real-time risk tracking in managing product risks
3
INTERNET STARTUP-LIKE OPERATING MODEL Flat working structure with high communication efficiency and quick decision-making process
Small-sized product-driven teams led by product managers Short product development cycle through hypothesis-driven
experimentations, quick iterations and validated learning
4
China insurance sector: channel comparison between traditional insurance and Internet insurance companies
Source: iResearch, Daiwa
Customer stickiness and brand loyalty
Although the online insurance companies have sold billions of insurance policies and served millions of policyholders, their customer stickiness and brand loyalty may be low when compared with traditional insurers. We believe the online players may have a different view of brand loyalty compared with the traditional financial institutions.
Traditional insurers and online insures have different customer focuses, as they are at different stages in their development. Traditional players place more emphasis on brand value and customer stickiness. But for online insurers, cultivating customer loyalty is not a near-term focus. The make-or-break point is whether online insurers can succeed in customer acquisition and conversion rates (the percentage of purchase volume converted from customer traffic), which should support premium-growth sustainability.
Traditional players: higher brand loyalty and customer stickiness. For a long time, the product offerings of the traditional insurance companies were homogeneous. But, in order to expand their customer bases, these companies have been deepening their offline tied agency channels. Reflecting their differing focuses in terms of regions and product lines, and their varying agency-channel strategies, some of these companies are focusing on agent headcount growth while others are emphasising agent productivity and incubating their customer bases. By delivering strong underwriting capabilities and satisfactory services, the traditional insurers have successfully built up solid brand recognition and high stickiness among customers, which has helped increase their pricing power and maximise value per customer.
Online insurers: large amount of customer acquisition and conversion rates.
However, online insurers have a different strategic focus as they are still in the early stages of their development. The challenge is to broaden their distribution and realise economies of scale before the incumbents bring innovation in the niche markets they are cultivating. If the online insurers are not able to meet this challenge, they will likely fail to sustain their premium growth and lower their marginal costs, leaving them at risk of continuous losses.
Most of the insurance products provided by online insurers cater to high-frequency protection needs, such as shipping-return insurance and flight-delay insurance. Therefore, user traffic and the conversion rate play a much more crucial role in sales and distribution. In short, for online insurers, capturing user traffic and lifting the conversion rate is more Direct sales
Insurance company
…
Individual salesperson
Official website
ZhongAn TaikangOnline
Professional agency Professional agent … Professional agency platform Huize (慧择网) Zhongmin (中民保险 网) Insurance
agent Insurance broker
Concurrent-business agency Concurrent-business agent … Online concurrent- business agent Ctrip Bank Customer Third-party platform Third-party platform Comprehensive platform Insurance adviser Ecommerce platform NetEase Sunflower (向日葵保险) Traditional channel Internet channel Industrial Corporate Taobao JD 3. Customer stickiness and brand loyalty