Is China winning the Insurtech Race

The funding gap between the US and China has become much smaller over the years: Whereas US insurtechs have raised EUR 5.8bn in total in 2018, total funding in China amounts to EUR 4.1bn – more than four times the European figure. The Chinese figure is even more amazing against the backdrop of the size of the Chinese insurtech landscape: Only 7% of the insurtech companies analyzed are located in China, but 55% are in the U.S. and 38% in Europe.

 

The past growth of China’s insurance market was simply amazing: During the last decade, since the financial crisis, insurance premiums almost quadrupled. China’s insurance market is already the second biggest in the world. By the end of the next decade, the Chinese insurance market is set to become the world’s biggest in terms of premiums. 


Traditional distribution channels still form the backbone of China’s insurance industry, especially in the personal insurance sector, where agencies and banks take up more than 90% of the distribution market. But internet distribution channels are growing in recent years and technology is being deployed at a massive scale to build highly automated insurance platforms. China has the potential to become the key player in insurtech.

 

Size clearly matters. But innovation matters more. China has emerged as one of the most innovative and competitive economies over the last few years. Factors such as the mobile infrastructure, data availability, 5G, the affinity for technology and regulations create a supportive environment for the growth of new industries.

 

The huge size of the Chinese market enables companies to scale easily and has strengthened Chinese “self-dependent” innovation. This marks a shift from producing Chinese versions of Silicon Valley companies to creating new business models. These developments culminated in large-scale ecosystems, offering customers services that encompass various aspects of life, including financial services and insurance. Supporting this shift is the huge amount of money that is being poured into Chinese technology companies.


Insurtech is a case in point. The funding gap between the US and China has become much smaller over the years: Whereas US insurtechs have raised EUR 5.8bn in total in 2018, total funding in China amounts to EUR 4.1bn – more than four times the European figure. The Chinese figure is even more amazing against the backdrop of the size of the Chinese insurtech landscape: Only 7% of the insurtech companies analyzed are located in China, but 55% are in the U.S. and 38% in Europe.

 

As a consequence, average funding per company is much higher in China than elsewhere: EUR 113m compared to EUR 20m in the U.S. and a meagre EUR 5.2m in Europe. These numbers, however, should be taken with a pinch of salt as they are distorted by mega funding rounds. Nonetheless, the numbers confirm the picture of the Chinese insurtech scene being highly concentrated and richly funded.


Investments have shifted from a disperse, wide-net strategy to a focused, centralized strategy. In 2015, only four companies received funding over EUR 88m or USD 100m and by the end of 2018, there were more than 13 companies receiving that amount or more. A market consensus is gradually being formed: investors now have a better idea as to where the industry is heading. This overall trend is beneficial not only for insurtech startups but also for foreign investors as China accelerates the opening of its financial market.


China will be essential to the insurance world in a platform economy. The Chinese consumer is a godsend for insurtech companies, and tech-intensive distribution channels and products will experience exponential growth. Global insurance giants can tap into the booming Chinese insurance x tech space. More strategic partnerships and co-investments between Chinese and foreign insurance actors are expected going forward as they look like win-win opportunities.. 
 


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