China’s online insurers struggle despite massive premium
The four state-licensed online insurance brokers in China have all failed to post a profit despite a huge hike in premiums, data from China Insurance Regulatory Commission (CIRC) shows.
The data covers the first three quarters of the financial year and shows that the rise in income from premiums resulted in an additional 134% profit from that part of the business.
In dollar terms, across the four businesses, this represented 6.4bn yuan (£735m, US$965m).
Market ‘eclipsed by the surging popularity’ of online insurers
Business and finance news site Caixin Global saw this huge rise in premium as contrasting with sluggish income growth in the insurance industry, saying performance by traditional insurers “as a whole is eclipsed by the surging popularity of online insurers”.
Not so, countered the South China Morning Post, which pointed out that the four online-only insurers had all failed to post a profit despite this surge in premiums.
The regulator’s “crackdown on aggressive short-term products” promoted by smaller companies and an increase in expenses had contributed to their losses, said the newspaper, while traditional insurers saw a spike in profits alongside with the increase in premiums.
It was contained in the data, said the newspaper, specifically in the earnings and solvency reports issued by companies this month.
Significant losses for all online insurers
The largest online insurer, Hong Kong-listed ZhongAn Online Property & Casualty Insurance, posted a loss of 180m yuan in Q2 and 400m yuan in Q3.
This was accounted for chiefly by an increase in “marketing expenses and regulatory restrictions”, the company said in its solvency report to the regulator, such as the 195m yuan in the first six months to online platforms for “technical and service support”.
Subsidiary of mainland insurance conglomerate Taikang Group, TK.cn Insurance, saw losses grow from 120m yuan in Q2 to 210m yuan in Q3.
Answern P&C Insurance, posted losses of 106m yuan in Q3, up from a loss of 70m yuan in the second quarter, while E An P&C Insurance cut losses to 8.6m yuan in Q3 from its Q2 loss of 25m yuan.
Online insurers ‘at a disadvantage’
Guo Zhenhua, head of the insurance department at Shanghai University of International Business and Economics, told the South China Morning Post that the online insurers were still at a disadvantage in winning large insurance policies for cultural reasons, namely that “offline communication is much more powerful in winning customers’ trust”.
“Moreover,” he added, “online players have to cover big expenses of paying fees to third party platforms, which help them in connecting with the customers.”
Hong Kong-based Huatai Financial Holdings analyst Dayton Wang told the newspaper that the weak link for the online insurers was their distribution networks.
They were paying large sums to third party websites and social media channels, with data for January to August data showing more than 65% of their distribution channels focused on “social network sites like WeChat and third-party websites”.
The range of products that regulators will allow online insurers to sell causes problems, since they are prohibited from selling lucrative vehicle insurance products.
Slightly more esoteric products that cover flight delays or cancellations, for instance,carry a “relatively high loss ratio”, said Wang.
“If it carries a high proportion in the business mix, it could lead to underwriting profit erosion,” he added.