The Zhong An IPO in China could be the Netscape moment for InsurTech

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InsurTech sprang from obscurity. We first started covering InsurTech in March 2015. Here, for the record, is our first post (basically saying that not much was visible yet, but “watch this space”).

Since then we have covered InsurTech every Thursday for what will soon be two years and witnessed a Cambrian explosion of innovation and funding. Just click on the InsurTech Category to see them all or subscribe to get our posts every day by email. 

By contrast, the disruptive Fintech ventures that challenge the incumbent banks originated in the wake of the Global Financial Crisis around 2008. So by December 2014, around 6 years later, we had our first major Fintech IPO for Lending Club which we called the Netscape moment for Fintech. Yes, Lending Club stumbled badly in 2016 and gave the whole Fintech sector a black eye, but it seems to be in recovery now.

The question is, what will be the Netscape moment for InsurTech?

This post argues that it will be the Zhong An IPO in China. We don’t have a date for this yet, only teasing PR, but read this to get a briefing before the circus starts.

Zhong An 101

Zhong An is a pure play full stack regulated InsurTech venture. Think of it like a challenger Insurance – digital first.

Zhong An was created by three established Chinese companies:

  • Alibaba (the A in BAT)
  • TenCent (the T in BAT)
  • Ping An (Insurance company)

They raised over $900m in a single round, so won’t lack for cash to execute their plans.

Zhong An first got traction from return-delivery insurance for buyers on Taobao.com (Alibaba online marketplace) but has now moved into most Insurance categories such as Auto and Health.

Zhong An sells direct, not via traditional insurance agents.

Flirting with IPO locations

A year ago, Zhong An was doing PR about a US IPO.

Then we read reports about an IPO in Hong Kong.

Now the PR indicates a listing in mainland China. This makes sense for three reasons:

  • IPO is a branding event and Zhong An wants to reach mainland Chinese consumers.
  • Smart money in US can invest in China and does not need a US listing.
  • They won’t want to compete with a US IPO for Ant Financial (owned by Alibaba, which is Zhong An’s largest shareholder with a 16% stake.)

There is no date set and the revenue numbers being shown are as follows (using 6.88 as the exchange rate of USD/CNY):

2015: $331m

2016: $596m to $827m

Some commentators see the move to a mainland China listing as backing away from selling to US consumers. I doubt that was a big factor in their plans as the market opportunity in China is so massive – with few legacy incumbents and big growth in middle class needing insurance. One assumes that the war of words with the new Trump administration and how that would affect US consumers and investors was a consideration, but focus on a huge home market was probably a bigger consideration. A move into Africa is probably next on their rollout as it has similar characteristics to China – few legacy incumbents, big growth in middle class – and Chinese firms are very active in Africa.

Return Shipping Insurance

Return shipping insurance for e-commerce is the top product for Zhong An – not surprising given their Alibaba and Tencent backers. Amazon covers shipping insurance directly in USA, but this is unbundled in China, leaving room for Zhong An to enter as an independent insurer. That is a big deal because clothing (which has a lot of returns) is the largest part of the $900 billion Chinese e-commerce market. Given the low product cost, the cost of shipping in China is about 20% of average transaction value.

Zhong An is now expanding into more highly regulated markets for higher priced items such as auto insurance.

Blockchain incubator & consortium

Zhong An is moving forward with both Blockchain and AI via an incubator and a Technology subsidiary as per this report.

Zhong An is also a member of the The Lujiazui Blockchain Finance Development Alliance that was founded in Lujiazui, Shanghai’s financial hub, in October 2016. It sounds like a mix between R3CEV and B3i. Reports indicate that they are using Ethereum. Without legacy processes, Zhong An may leapfrog the West in Blockchain adoption to reduce Settlement Latency.

Western Insurance going digital in Hong Kong

We have seen companies like Yahoo and Uber leave China and keep a minority position. That was a very profitable deal for Yahoo.

Western Insurance maybe doing the same deal. Reports are that UK based insurance group Aviva has signed a deal to sell stakes in its 160-year-old Hong Kong operation to Tencent, the Chinese internet company, and Hillhouse, a private equity firm.

The Hong Kong market is mature in comparison to mainland China, with big incumbents such as Prudential and AIA and an established network of agents. The idea is to attack this mature market as a digital disrupter, bypassing the agent network.

This indicates a market share war that is hotting up and an InsurTech space that is growing up fast.

No doubt Aviva will translate lessons learned in Hong Kongto  its core UK market.

The Zhong An progress to IPO will be worth watching for anybody in the InsurTech business.

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