How Baidu, Alibaba, and Tencent plan to dominate Chinese online insurance

Alibaba’s Jack Ma (L) and Tencent’s Pony Ma (R) are unlikely business partners

The race to capture China’s nascent online insurance market is in full swing. Baidu, Alibaba, and Tencent – collectively referred to as BAT – are clamoring for a slice of an industry ripe for disruption amid rising premiums and tighter regulation.

Earlier this month, Chinese regulators gave Tencent the greenlight for its latest insurance play – an independent online insurance unit called Weimin Insurance Agency – of which Tencent owns roughly 58 percent. Soon, Weimin products are expected to be available for sale through Tencent’s wildly popular social networks, WeChat and QQ, to hundreds of millions of users.

This approval came less than a month after the blockbuster IPO of another Tencent-backed insurer, ZhongAn Online Property & Casualty Insurance. ZhongAn is Asia’s largest fintech listing ever and one of Hong Kong’s biggest IPOs this year. Together, Tencent and Alibaba’s Ant Financial own nearly 30 percent of the company, which will come down to 20 percent after it goes public.

To put things into perspective: ZhongAn, which is China’s first online-only insurer, has raised US$1.5 billion, bringing its valuation to a whopping US$11 billion. It’s officially a “decacorn.”

Rise of micro-insurance

Clearly, ZhongAn’s business model of selling high volumes of online-only insurance products (most of which are low cost) by partnering with China’s biggest tech companies resonates well with investors.

The Shanghai-based insurer embeds its products directly within the ecosystems of more than 180 partners including a few Chinese tech titans. For instance, ZhongAn sells cracked screen insurance to customers when they buy a phone on Xiaomi’s website, flight delay insurance on Ctrip (owned by Tencent), and its best-selling shipping return insurance directly on Alibaba’s Taobao. Thanks in part to these partnerships, ZhongAn sold more than 100 million shipping return policies during Singles’ Day in 2015, according to data from CBInsights.

While insurtech is still in its early days, it appears that the insurance company of the future will offer tailored, situational micro-policies at every stage of the consumer journey while leveraging massive online distribution networks to drive sales to China’s legions of shoppers.

Look no further than Alibaba – perhaps the most recognized name among BAT globally – which is also aggressively expanding its online insurance footprint. Its latest foray in a string of moves: an online health insurance joint-venture with China Taiping Insurance in April 2016 through its health subsidiary.

Prior to this, Ant Financial purchased a controlling stake in Cathay Insurance for US$188 million. The deal allows Ant Financial, which operates a platform offering insurance products (Caifu Hao), to expand its product range with a particular focus on millennials. Caifu Hao plans to provide detailed user profiles and information so that financial institutions can better customize offerings.

“In our research, we discovered that [China’s] post-1980s, and especially its post-1990s generation, increasingly want more personalized and segmented financial products,” Zu Guoming, president of Ant Fortune (Ant Financial’s mobile investing app), stated in a press release.

Meanwhile, Baidu, the internet search engine giant, has mapped out plans to offer customized insurance products that cover “scenarios generated by everyday internet use” through its joint venture with Allianz, Bai An.

These micro-policies would then be sold via Baidu’s vast distribution networks. The company has more than 660 million monthly active users on mobile search and operates 14 mobile apps including Baidu Map, which it plans to use to better price auto insurance by tapping user and driver information.

“We know a lot about car owners’ driving preferences. What are their average driving speeds? Do drivers hit the brakes very often? All of this driving behavior can be taken into consideration to find out how much they need to pay for auto insurance,” said Robin Li, Baidu’s chairman and chief executive.

Insurtech versus online insurance