China’s online insurers, led by ZhongAn, see losses mount despite surge in premiums
Online distribution costs to social networks such as WeChat and Ant Financial prove to be a drag
China’s four licensed online only insurers have been unable to post a profit despite a 134 per cent jump in premium income to 6.4 billion yuan (US$965 million) in the first three quarters of the year, according to data from the China Insurance Regulatory Commission (CIRC) on Thursday.
The regulator’s crackdown on aggressive short-term products promoted by smaller companies and an increase in expenses have contributed to their losses, while traditional insurers have seen their profits surge along with the increase in premiums, the earnings and solvency reports issued by companies this month showed.
Hong Kong-listed ZhongAn Online Property & Casualty Insurance, the biggest of the four online insurers, posted a loss of 400 million yuan in the third quarter amid an increase in marketing expenses and regulatory restrictions, according to their solvency report filed to the regulator in late October. It follows a 180 million yuan loss in the second quarter.
According to its interim report, ZhongAn paid about 195.6 million yuan in the first six months to online platforms including Ant Financial, Tencent and online travel agency Ctrip for “technical and service support”.
TK.cn Insurance, a unit of mainland insurance conglomerate Taikang Group, saw losses expand from 120 million yuan in the second quarter to 210 million yuan in the third quarter.
Answern P&C Insurance, a smaller competitor, said losses jumped to 106 million yuan in the third quarter, up from a loss of 69.9 million yuan in the second quarter.
Meanwhile, E An P&C Insurance narrowed its losses to 8.6 million yuan in the third quarter from 25.1 million yuan loss in the second quarter.
“Online insurers still are at a disadvantage in winning large insurance policies as offline communication is much more powerful in winning customers’ trust,” said Guo Zhenhua, head of the insurance department at Shanghai University of International Business and Economics. “Moreover, online players have to cover big expenses of paying fees to third party platforms, which help them in connecting with the customers.”
Dayton Wang, analyst with Huatai Financial Holdings in Hong Kong, said the companies need to work on their distribution network. He said that the January to August data showed that “more than 65 per cent of the online insurers’ distribution channels focused on social network sites like WeChat and third-party websites”.
The product mix is another weak link, Wang said, as online insurers mainly sell non-auto products because of regulatory restrictions.
“Some products [that cover] flight delays or cancellations have a relatively high loss ratio. If it carries a high proportion in the business mix, it could lead to underwriting profit erosion,” he added.