Chinese insurtech of the future – McKinsey
By integrating innovative technology with traditional insurance, new insurtech models promise to improve the affordability and accessibility of insurance and to transform the industry ecosystem. One of the most prominent players in this space is WeSure, Tencent’s insurance-agency platform. WeSure teams up with major domestic insurance companies to enable users to purchase insurance, make inquiries, and file claims through WeChat—a widely used messaging, social-media, and payments application in China.
Violet Chung, a partner at McKinsey’s Hong Kong office, recently had an in-depth conversation with Ren Huichuan, the senior adviser at Tencent Group. They discussed WeSure’s values and business philosophy; the thinking behind its core “moats,” or competitive advantages; and the wide-ranging challenges confronting both digitally native and traditional insurers.
This article is part of McKinsey’s Insurance Industry Leaders and Shapers interview series and has been edited for clarity.
Building an innovative, customer-first insurance platform
McKinsey: How would you describe the core values of WeSure?
Ren Huichuan: WeSure is Tencent’s insurance-services platform. We have made many significant forays into online insurance since our incorporation about four years ago.
I think our first core value is our business philosophy: we are an insurance-services platform driven by our users. In other words, we are an insurance-services platform designed to help users purchase insurance, rather than one designed to serve insurers. We adhere to the philosophy of placing user value first, which Tencent has always advocated. The company hopes to help users independently pick out and purchase the insurance product that is best for them in a quick and convenient manner, rather than sell and market products.
The second core value is insurtech exploration. The WeSure tech team is actually quite large, with a staff of several hundred. About half work with technology, and many used to work at Tencent. We have put a lot of high-tech effort into exploring scenarios, data, and services, and we have created many innovative products as a result.
For example, regarding products, WeSure cooperates with insurers to build a risk-control platform, focusing on risk identification, anti-fraud, and helping insurers reduce risks across businesses involving insurance application, underwriting, and claims. As for our service, WeSure has aligned the claims and service interface with insurers, simplified the process, and reduced complexity to provide users with high-quality and convenient insurance services. We’ve also explored ways to better respond to COVID-19 and serve small businesses.
In short, WeSure is a platform-based company with a customer-oriented philosophy set up to help customers find the insurance product or service that is right for them. We bridge the two sides of the market, connecting customers on one side and insurance providers on the other—but our philosophy is fundamentally customer oriented.
Developing three core moats
McKinsey: Compared with other insurance-technology companies, what are some of your company’s competitive advantages, or “moats”?
Ren Huichuan: Every enterprise wants to build its own moat, but moats are dynamic. Even if you
have a moat now, it can be overcome by a competitor after some time, leaving you with less of an advantage. Therefore, building new moats is an ongoing process.
When WeSure was first founded, it was a new member of the Tencent family. Therefore, our first moat was our good brand reputation and rich ecosystem brought by Tencent as our major shareholder. We are an insurance-services platform based on the WeChat ecosystem. We have an exclusive portal on the WeChat grid called “Insurance Services,” which offers a very quick and convenient channel for customer outreach.
For our part, WeSure must also rely on our own strengths to build new moats. We cannot simply
“live off our parent.” WeSure’s moats are still those things I mentioned earlier. The first is to lower the barriers to insurance—making it easier to purchase insurance and improving the accessibility of insurance products. For example, we had a product called “WeInsurance – Million Medical Insurance.” We revised the documents 46 times to ensure that the public understood the terms and conditions and how to use the product. When designing the purchase path (basically, each customer’s click-and-purchase process), we wanted to minimize the time it took customers to purchase the product. We designed a number of simple medical-insurance offerings with lower barriers, stronger protection, and higher leverage, such as critical-illness insurance. Later, we further expanded the product categories to auto insurance and small-business insurance.
The second moat is to combine products with scenarios. Insurance companies cannot offer highly specific insurance products and services because of cost considerations. WeSure offers small-business insurance because WeChat Pay has 50 million small-business accounts. WeSure provides account-security insurance to these small businesses with WeChat Pay as the receiving account, and it’s very affordable, just 0.66 renminbi (US $0.10) per year. We also provide insurance products targeted to scenarios such as employer liability insurance, public liability insurance, and safety liability insurance.
There’s another moat that will not yield immediate results but will offer competitive advantages over the longer term. WeSure continues to adhere to Tencent’s “long-term and patient” business philosophy. That is why premiums do not rise rapidly, but gradually. Customer value is WeSure’s first priority. Our products undergo a rigorous selection process, and the services we offer to our customers must not contain misleading or fraudulent content. We hope our customers will take the initiative to purchase products and services based on their own knowledge and understanding, rather than being convinced to buy a product or service. So we need to enhance our services and build trust.
WeSure has come up with many innovations in this area and has pioneered a few industry standards. In terms of insurance, WeSure has three major tools. The first is appraisal. This means evaluating the type of insurance a customer needs, including the level of risk of the individual and their family. The second is comparison. For example, when you are thinking about purchasing a particular type of insurance, can you compare the products of major insurers and their different metrics to make an informed decision?
The third is a policy-administrator tool. For example, a household might have five to six policies. In this case, it can be difficult to remember when each policy will mature, when payments are due, and the specific coverage of each policy. The policy-administrator tool can help you manage all your insurance policies and plans. To access these services, however, the customer must be able to take the initiative to obtain insurance themselves.
Challenges confronting online insurance
McKinsey: In your opinion, what challenges lie ahead for WeSure?
Ren Huichuan: Let’s start with fintech. The financial-services industry is unique and has negative risk externalities, which is one of its more distinctive characteristics. The industry has a significant and systematic impact on the national economy and the lives of normal people.
I’ve been working in the financial-services industry for 31 years. I have been involved in the liability side (property-and-casualty insurance as well as life insurance) and on the asset side (insurance investment), including securities-market and banking-industry operations. I’ve also been involved in business management. I’ve noticed that people are awed by the financial industry and its risks. Ultimately, both fintech and techfin services should not deviate from the core rules and essence of financial businesses. We must respect these rules, the risks, the negative externalities, and the interested parties. Technology should serve finance. That’s the first point I want to make.
The second point relates to the buoyant development of fintech in China over the past few years. Many companies with large market value have sprung up. I think there are a number of reasons for this. First, China has an enormous retail market, so as long as a fintech company is consumer facing, it will have a rapidly growing customer base. Next, as driven by some external resources, enterprises can accomplish projects that normally take three years in a single year by investing huge amounts of resources.
Unfortunately, there are inherent problems with this model. I think it’s almost like getting a shot of steroids. There’s a bit of puffiness and unhealthy growth, with inherent risks. That’s why we should respect the rules and patterns of the financial industry as well as normal enterprise growth.
Of the three major financial sectors—banking, securities, and insurance—insurance is the most closely related to the national economy, the livelihoods of normal people, China’s fundamental policies, and our Chinese dream. Insurance is particularly relevant to people’s lives.
Of the three major financial sectors—banking, securities, and insurance—insurance is the most closely related to the national economy, the livelihoods of normal people, China’s fundamental policies, and our Chinese dream.
Of course, banking and securities operations are also very important, but insurance is more directly related to social and public administration.
In China, we have basic medical insurance and social security, and on top of these, we may need some commercial insurance that provides greater coverage. Higher value-added insurance may be provided to middle-class and wealthy households. WeChat currently has 1.2 billion users, and one billion are monthly active users. To date, WeSure has served a total of about 90 million users with about 30 million currently active users. Because WeSure can easily reach out to customers and we are an inclusive insurance platform, we really want to become an insurance-services platform akin to a public utility.
Our program “Huiminbao,” which we are now actively promoting, is based on this philosophy. Because Huiminbao has very low premiums and extensive coverage, it requires a very low cost ratio. Meanwhile, we know that traditional insurance products and the insurance industry have very high channel costs.
Insurance is a financial product required by almost everyone, but it’s also a product that customers do not take the initiative to understand and purchase because demand is not rigid enough. Purchasing insurance is a rational decision. Not everyone thinks about preparing for a disaster before it arrives, and the money you spend may not result in any benefit for three consecutive years. Therefore, insurance products are very difficult to sell.
My third point is that the insurance business model is in transition—just like the process of switching from fuel-based vehicles to new energy vehicles. Insurance demand has been increasing in tandem with the rise in per capita income. Our need for protection is rising.
Over the past couple of years, however, the insurance industry has encountered an inflection point. The traditional insurance-sales approach, which is mainly based on offline channels, is not
very popular among the new customer base. Therefore, we must look for methods that are better suited to this new customer base in China. For customers with greater self-awareness, we need to offer a more convenient service platform with more cost-effective products. Certainly, this is a huge challenge for WeSure. Insurance is a low-frequency purchase, but the internet is a high-frequency
place. WeSure is purely online, but most traditional insurance is offline. So how do we combine online and offline, as well as services and insurance products?
Another major challenge is getting customers to put in the effort to find and compare products. Tencent and WeSure have always subscribed to the philosophy that as long as we have a good product, customers will come to us. Unfortunately, insurance products suffer from a lack of rigid demand and perception issues. Just because you have a good product does not necessarily mean that customers will take the initiative to approach you. We still need to communicate with customers, provide some insurance tools, and provide a platform to build trust with customers and help them learn about insurance so that they will consciously take the initiative to purchase insurance.
McKinsey: What you just mentioned sounds like a “push and pull” strategy.
Ren Huichuan: That’s right. In the past, we were told that insurance must be pushed to the customer. It must be sold, not acquired. Now, many millennials are risk aware and are able to purchase insurance, so they can take the initiative to search online.
Take a household of three or four. Taking into account the size of the mortgage payments and the one or two cars owned, how much protection does such a family require? Customers won’t listen to what someone tells them; they won’t believe you anyway. It’s best if they search on their own, listen to the advice of KOLs [key opinion leaders], and then make their own choices based on their own judgment. I think we should go along with this consumer trend.
Advice for insurers
McKinsey: Today, many traditional insurers face significant challenges, particularly around offline expansion and development. What advice would you give them?
Ren Huichuan: In the past two years, a mismatch between old supply and new demand has emerged in the insurance industry, particularly in the traditional approach of insurance sales. I think demand in China’s insurance market remains, but with a mismatched supply.
Let’s look at the major insurance classes: personal, property, and liability insurance. In terms of personal insurance, China is the most populous country in the world. It is now a moderately well-off society based on per capita income, so there is a very strong demand for insurance. In particular, two major sectors in the country need to be supplemented by commercial insurance. The first is the medical-and-healthcare sector. The needs and quality requirements of users are rising, but healthcare cannot be completely free of charge.
The second is in the pension sector. China’s aging population may pose significant challenges to state pension services in the future, which will have to be supplemented by insurance companies. Therefore, companies that can provide these types of insurance products to the average person at cost-effective prices will be able to support the fundamental policies of the state and meet the needs of the population. This will be the key to commercial success.
However, selling insurance products requires more than simply showing what you have and waiting for customers to come to you. Instead, insurance companies need consultative sales services and to provide a platform for users. I think new channels will emerge to replace existing ones. There are plenty of innovative attempts; none have gone mainstream yet, but I think the light at the end of the tunnel is just around the bend. I believe the future online insurance market will be dominated by digital and intelligent O2O [online-to-offline] sales channels and services, and the accompanying products must be cost effective.
We know that commissions and management costs account for a fairly large share of the cost of traditional insurance products, which get passed on to customers. Many Chinese nationals purchase insurance overseas. In addition to other reasons, they think they can get better coverage for less.
Therefore, the first priority of traditional insurers is to make insurance products more cost effective. Both insurance platforms and insurers must lower their channel costs. This can be achieved by using the internet and a scenario-based approach, with the cost savings passed on to consumers. This is product optimization.
Second, the products should be scenario based and tailored so that users enjoy an easier and more convenient purchase experience. Third, for long-term policies such as pension annuities, long-term assurance, whole-life insurance, and other high-value policies, an O2O platform should go beyond simply hiring offline sales representatives and relying on them to drive sales. I think there is still a lot of market space for approaches that prioritize service professionalism, but this is probably targeted more toward medium- to high-net-worth users and sales of more complicated insurance products. To start, we need an O2O channel, where traffic leads are from online sources and users take the initiative to purchase. Self-service is the first step. After a user becomes more interested in a product and communicates his or her needs, an online adviser may step in to address any insurance and financial questions the user may have. This may come from WeChat Work or even from offline account managers.
Therefore, we must move toward specializing in financial and insurance products. The next step
is to become more intelligence oriented. We usually talk about technology driving sales efficiency, but in insurance, the opposite is true. It’s from online to offline, not vice versa. Of course, this is all conjecture. Who will succeed in the future? I think we all must work hard together.
The key to success is to have cost-effective products that provide value to as many people as possible. Finally, I would like to remark that the insurance business is characterized by long-term operation and aims to provide guarantees for customers. We need to return to the essence of insurance, adhere to the long-term development, carry out business in a down-to-earth manner, and serve our customers wholeheartedly. Only by not forgetting why we started can we achieve sustainable, healthy development and create value for our customers and for society.
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