The death of the salesman? Chinese digital insurance could make huge cuts to traditional profits

The number of insurance policies sold in Asia will see significant growth over the next three years. Digital technologies are giving customers a better deal and forcing big changes in the way companies operate.


Digital insurance companies are leading a perfect storm that could shrink the earnings of traditional members of the industry by as much as 40%, shows recent data. This threat for the market also ushers in welcome change for buyers. “Digital technology has the potential to transform how we look after customers,” said Chris Wei, Executive Chairman of Aviva Asia and Global Chairman of Aviva Digital.

The traditional companies are still profitable, despite more players in the market

Insurance penetration in China remains woefully low compared to other developed countries. The big Chinese insurance players still perform well; often posting an operating profit to assets ratio of between two and 4%. There is, however, huge room for growth. Insurance penetration is forecast to grow in the double digits until 2020.

This will be fuelled by companies using new non-financial online domains to take their products to untouched parts of the market. For example, Ping An is using its free medical advice platform to cross-sell insurance products and generate new online insurance customers.

Financial Technology (Fintech) creates an all-new customer centric focus

This kind of technology uses data-driven analysis to match the most suitable insurance product to each customer’s risk profile. Known as Insuretech, it helps consumers manage the risk of their activities from business transactions to lifestyle choices. Apps can track customers’ off-and-online activities – using their online shopping habits to determine income level and using places they visit to advertise relevant insurance products.

For example, customers of Zhong An Online P&C Insurance Co. Ltd (Zhong An) download an app which tracks their activities and prompts cuts to their premiums if they hit health targets, such as exercising and dieting. This allows insurance companies to interact with customers past the sell stage, and reduces the number of expensive claims. Insured people who hit their targets are likely to be healthier and less likely to need to claim.

The contribution this technology makes to the insurer’s bottom line contribution is phenomenal. Zhong An turned a US$30 million profit in 2015 after just two years of operations. They sold US$32.5 billion worth of policies in 2015, an increase of 160% from the year before.

Lower premiums and improved ease of access is encouraging people to buy products

Creating a digital marketplace helps democratise the process of choosing insurance products. Customers can access deals and information whenever they wish. They also get what they pay for instead of paying outsized premiums which go into the operational costs of the insurer. Prices are driven down as companies do not need to pay commissions to insurance salesmen who may hard-sell or mis-sell non-suitable insurance.

Day-to-day customer support through a mobile app regularly informs the consumer of product updates and answers the questions about qualifying criteria of claims. Robo advisory support staff which can work 24/7 can support 10,000 clients at a fraction of the cost of human staff.

There is also more room for niche products which cover previously uninsurable risks. These products differ from traditional long-term insurance in their short-term coverage period, usually within a matter of months as compared to years. For example, the 150 million users of the Chinese e-commerce platform, Taobao, can insure against the cost of returning an unsatisfactory product. Cover costs half a yuan against the average shipping cost of 12 yuan (US$1.7).

More disruption on the way as Insuretech gathers steam

Big non-financial and non-tech companies which hold huge data sets are also eyeing the insurance market. For example, Wanda Group can mine its real estate databases to sell property-related insurance policies. Their strong offline customer networks are prime for insurance cross-selling.

Peer to peer (P2P) insurance is also emerging. This is where customers create a social bucket of funds which everyone pays into to be insured. The result is cheaper premiums as the system bypasses brokers and salesmen. The insured member only pays for their own insurance and receives a share of the premiums paid in if no claims are made.

Digital insurers will need to be aware of industry regulations in order to legitimise and legally scale up their offerings. Funds need to be managed transparently and “firewalled”. This means funds will not be put into non-core actions, such as company acquisitions.

Slowing rates of Chinese private investment mean that insurers need to find new avenues of growth. This can only mean more innovation in the Insuretech industry. The scale of adoption of this technology has moved at a faster pace than regulations can keep up with, and new rules are expected as regulators look to increase customer protection and protect customer data.

This is not the end of the insurance salesman

It is not all doom-and-gloom for the insurance salesman. An extra 1.9 million people joined the profession in 2015, taking the total number of these workers at the end of 2016 to 6.6 million.

The process of buying-and-selling insurance is fraught with risks and consumers need to be aware of the fine print associated with each product. This task has traditionally fallen upon the informed advice of the insurance salesman.

While consumers use digital marketplaces to search for insurance, 75% prefer to speak to an agent before making a purchase. Digital tools are still critical to this relationship and an insurance professional may use a mobile device to manage clients online or organise sales leads. The insurance salesman is not dead; he just needs to evolve in order to survive.