The future of insurance is “small”

In October 2013, the first online-only insurance company was launched in China. It was called Zhong An (众安保险). Normally, nobody would have noticed or cared for it, were it not...

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November 4, 2020
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The real question we need to ask ourselves is why these three Chinese technology giants who never invested together before, who each of them have insurance products to offer, and who are the fiercest competitors amongst themselves, would invest in a startup that nobody ever heard about to even become their potential competitor over time? The answer is simple: Inclusion. There is safety in small.

ZhongAn was included in most of China’s tech ecosystems, leveraging each of them. ZhongAn could offer all-inclusive micro-insurance policies as part of online purchases. ZhongAn became inclusive in purpose by addressing the long-tail market: the unserved, underserved, vulnerable and cash-strapped population.

This is nothing new. Amazon had a similar ‘long-tail’ strategy to compete online with the physical bookstores fifteen years ago. Most of us buy bestsellers, while the majority of book titles sell rarely, but require lots of in-store shelve space. More traditional business models remain much obsessed with the 80/20 rules: 80% of the revenue is generated by 20% of customers or 20% of the products are sold to 80% of clients. In the financial and insurance sector we still have that tendency to follow the 80/20 rules around scarce human resources to increase our efficiency: sales agents, brokers, actuaries, risk surveyors, underwriters and lawyers. But isn’t the purpose of today’s disruptive technologies to make these resources abundant? If so, why are most insurance companies today frantically transforming their old business processes digitally to be ready for the new world of automation, a world of AI, IoT, Cloud and Blockchain? What we need is not a transformation, but a reboot. We need to reinvent the whole value proposition. This is what Chinese insurers are doing and we should notice.

Ecosystems thinking

In just 4 years, the digital insurer startup ZhongAn became a decacorn, worth over 10 billion USD. Unlike most insurers, ZhongAn is not a consumer facing brand. Instead, its sales are primarily generated through a network of 300+ “ecosystem partners”. Every single partner belongs to one of 5 ecosystems relevant to offer insurances: consumer finance, healthcare, lifestyle consumption, travel and automobile. This gives them potential economy of scale. In order to acquire new customers, they fully rely on the big partners by solving their no.1 headache. ZhongAn helps Alibaba address shoppers' concerns over unwanted and wrong purchases by underwriting the delivery costs of returned goods. They help travel agent Ctrip cover flight delay annoyance of their loyal customers. They help the largest global car-sharing company Didi to offer car and health insurance to its drivers. And so on…and what does ZhongAn get in return? Lots of new customers. So far 400 million of them, mostly millennials. And lots of small data. Client data that allows ZhongAn to personalize their pricing strategies and make money from the 10 billion policies sold so far. Lots of money.

The COO of ZhongAn Bill Song explained the strategy as such: “Insurance is a data game. In the future, IoT, everything within telematics and even wearables will generate huge piles of data. The question is if you use this data to really generate tailor-made solutions for your new customers. The second time your customer buys the same policy, maybe you could consider different scenarios for pricing. To understand and use your customer’s latest data for recent purchases; that would be the preferred direction.”

In contrast to more traditional insurance institutions, where the sales team often represents 30 percent of total workforce that can be as large as 10,000 employees, Zhong An employs just 5 percent of its personnel in sales. The biggest proportion of its staff (over 50 percent) are engineers responsible for technology developments from AI to chatbots or virtual advisors. And these tech solutions now account for 97% of all the 300,000 daily customer interactions at Zhong An. Instead of hiring actuaries as traditional insurers to analyze the population, risk, historical claims and market prices manually to quote an insurance product, ZhongAn uses machine learning and AI technologies to adjust pricing automatically, instantly and more cost-effectively for every single client. They know you so well, that they can offer you protection products around all activities in your life.


Zhong An is a classic example of how a digital newcomer can still find a place at the heart of what seemed to be a closed market, a ‘red ocean’ populated by countless customers and insurers. Impossible to seize a spot from the product side, instead, Zhong An broke into the market through the internet. They succeeded in navigating their way successfully through this ocean, by catching lots of small fish in a net with a much smaller mesh than its rivals. The concept is actually quite a simple one: every traditional insurance policy is full of ‘small print’, which usually sets out what the policy does not cover. It is on these exceptions that Zhong An has chosen to focus: health policies that exclude cancer or diabetes, e-commerce risks such as product damage and returns, car insurance for young and inexperienced drivers, flight delays at airports, and even hooligan fights at football matches. Zhong An then uses Big Data to identify these and other exceptional needs of its customers to offer new products.

This trend is known as ‘customer-centric micro-affinity’, and it is central in the future of insurance in China. ‘Micro-affinity’ is not new in the sector; as witnessed, for example, by the 1-euro train travel insurance policy. In the West, these types of policies were considered as ‘upsell’ products with conditions and procedures that made it cumbersome and frustrating to submit a claim. Traditional insurers prefer to concentrate on professional liability insurance and standard products. Companies like Zhong An know that millennials are more concerned though about things like breaking smartphone screens or spilling coffee on their laptops. These new insurers respond to such concerns via automatic triggers linked to the purchase of phones, laptops or airline tickets, or product return guarantees for online sales. Zhong An uses IoT to refine the customer profile still further, so that it becomes possible for them to offer you cheaper vehicle insurance, because your car and/or phone have ‘revealed’ that you are a responsible young driver. At the same time, it also allows them to distinguish between false and genuine claims through the analysis of typical user profiles and behavior.

The advantages for the customer are clear: access to simple, affordable and most relevant products that are available everywhere and anytime online and also provide a better claims experience. But there are also plenty of advantages for the insurer as well: lower fixed costs and faster claim processing in a scalable model with limitless distribution possibilities via a legion of internet partners. In short, it is a model offering better insights into the needs of more customers across more industries without any loss of customer retention.

So, what are Western insurers waiting for? Maybe for Zhong An to land in Europe or America?


By offering micro-affinity products Chinese insurers gave peace of heart to hundreds of million people: the poor, students, small businesses, startups and people with a medical condition who were underserved by the traditional insurer as their financial or health risk was simply considered too high. Instead of looking at averages and historical profiles of prospects, China’s insurtech and fintechs were acquiring more user data to tailor and fine-tune their offerings to the needs and dreams of customers at any given moment in time. What drove Chinese companies like Zhong An, Ant Financials or Ping An insurance to target the less fortunate prospects instead of the wealthy or government supported policies, was the sheer amount of people in China: 1,4 billion of which 800 million earn less than 300 Euro monthly; 8 million yearly new university students; 400 million digital-native urban millennials; 250 million worried elderly; 20 million hardworking SMEs; and China’s new 700 million middle-class urban citizens.

These Chinese companies’ intentions were seldom to humanize the industry, but to create an industry that solves problems for humans. The irony of the matter is that their pragmatic motives to make quick money from as many people as possible resulted in democratizing the industry in China. The twisted joke is that whilst our financial conglomerates developed social corporate responsibility programs to do good, their Chinese counterparts were raising millions of people’s living standard with microloans, free digital payment services and very affordable insurance products. As fintech and insurtech startups in the West were creating the coolest innovation to challenge the grey suit bankers at the top, Chinese startups were building a new industry model bottom-up by leveraging the upward social mobility of China.

It will probably remain a mystery for long how China’s big ecosystems like Ant Financials or Ping An became the customers’ and investors favorite partner in just five years’ time, whilst our lifelong Western financial trusted partners are now more often trying to get rid of their reputation of being heartless and greedy.

We shouldn’t dwell on this too long, and instead jump on the train of inclusion that China has set in motion. The reason is simple: it’s good for the world. Especially since the COVID-19, customers will expect insurers and banks to take their responsibility to make the world better. A month ago, China held its first In.clusion FinTech conference, sponsored by Ant Financials and Shanghai government to promote financial inclusion. China FinTech expert Richard Turrin wrote that “China’s In.clusion conference’s focus was squarely on humanizing fintech to show how it can bring financial inclusion to the poor across not just China, but the world”. China is changing the world of insurance forever by offering a new paradigm: An industry that offers personal, digital, immediate, affordable insurance while putting the customer at the center of its operations, no matter how small they are. Or as Alibaba puts it: “To the greatness of small” (which was the slogan of its first Olympics brand campaign, using emotional storytelling techniques to drive awareness of its support of small businesses).

If you want to learn more about the future of insurance, join our free webinar on November 13. We’ll discuss what will change the sector for good:

  • How can you improve customer experience by using emerging technologies?
  • How to use data to create a win-win for you and your customer?
  • How to develop better products by collaborating with tech companies and start-ups (insurtech)?
  • How to make internal processes more efficient in a risk averse and regulated environment?
  • How to foster an in-depth cultural transformation that should come along with these initiatives?
Pascal Coppens
Pascal Coppens
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November 4, 2020
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