Cliff Sheng, Partner and Head of Financial Services, Greater China, Oliver Wyman
Notwithstanding the tremendous scope and opportunity for certain simple products — such as travel insurance and shipping return insurance — in the Chinese insurtech market, several products such as auto insurance and universal life insurance face uncertainties owing to the following four factors:
Macro economy: A fall in Chinese gross domestic product growth to 5 percent or lower would have an adverse impact on per capita disposable income, which in turn could negatively affect the demand for non-essentials such as automobiles, wearable devices and connected home devices. As a result, gross written premium in these sectors would fall.
Regulation: In general, the China Insurance Regulatory Commission has been supportive of innovation, but there are times when it has been too conservative. For instance, the regulator may put a limit on guaranteed return of universal life insurance distributed online. Online universal life was recently stopped by the regulator (which is considered a temporary measure to curb increasing risk). In another case, we observed that the slow adoption of telematics is caused by the tariff set by the regulator even after the recent pricing reform for auto insurance. In another case of regulatory back-and-forth, smog travel insurance, which compensates travelers during bad weather caused by smog, has been stopped by the regulator.
Technology: Future development of technologies such as big data, cloud computing, block chain and artificial intelligence are critical to insurtech. Therefore, technological failures of particular platforms can pose risks for companies, particularly when they are looking to ramp-up operations.
Competition: Traditional insurers and disruptors currently dominate the industry. Traditional insurers may set up joint ventures with tech companies to compete with disruptors, or they might set up subsidiaries to attack this market. New players could also emerge, increasing competition. For example, auto or 3C (computer, communication and consumer electronics) manufacturers could set up insurance companies to insure their own products. Similarly, peer-to-peer insurers may rise to cover online communities and large ecosystems might also self-insure.
Despite these uncertainties and possible risks, there is potential for the insurtech industry in China, with the forecasts clearly suggesting a growing opportunity set for businesses in this space. The question is whether it will meet or exceed expectations.
This piece first appeared on BRINK.