#BeyondFintech Episode 3: Where Does Insurtech Fit into Embedded Finance?

By Sophie Guibaud, Chief Growth Officer at OpenPayd ✨ BAAS & Embedded Finance

Last week, it was my pleasure to speak to Jonathan Larsen, the Chief Innovation Officer at Ping An Group, about where insurtech fits into the embedded finance stack and how insurance providers can remain relevant in a digital customer experience. 

I was joined in this Clubhouse discussion for the Fintech and Payments Club by Florian Graillot, Founding Partner at astoryaVC, and we were able to cover a wide range of topics affecting global insurtech innovation.

If you weren’t able to join the conversation, here are the main topics we covered and the key learnings I took from it.

China shows the way once again

Insurance in China operates against the backdrop of a leading digital finance economy where cash has more or less disappeared. AliPay and WeChat Pay account for over 90% of eCommerce and peer-to-peer payments, with the country as a whole having used digital, mobile and cloud technologies to leapfrog modes of commerce seen elsewhere.

Chinese consumers live their lives through digital platforms like nowhere else and embedded insurance must live within these experiences. At the same time though, Ping An’s business existed long before these customer trends appeared and it has had to navigate the changes they produced. 

The company has gone about merging and integrating traditional products with digital models while also innovating from scratch in a digital-first way. As a result, Ping An Group includes brands like Good Doctor, the largest telemedicine provider in the world with a market cap of $15bn, and Lufax, a personal wealth management and lending platform that started out with 900 branches but is now totally digital. 

It will be interesting to see how things develop as the Chinese regulatory landscape evolves too. The light touch approach of ‘letting all flowers bloom’ has been useful up to now but, as various digital services become more structurally important to the economy, the government is less likely to take a hands off approach.

A cloud strategy that enables innovation

As mentioned, Ping An was around long before the digitisation of eCommerce and payments that Alibaba and Tencent led, and it knew it had to plan for the future as it saw these trends emerge. 

The key decision Ping An made early on was to embrace cloud technology. It was a long and costly process to digitise its core businesses and is one that never stops. It may also make Ping An the largest financial institution in the world to have embraced a full cloud transformation.

It was a fundamental move though, as it allowed the company to re-engineer its processes and technology within its legacy businesses. Now, it is a tech-first company that is thoughtful in the way it applies technology. DevOps is a key part of the company culture, with teams building microservices in a modular way so they can be reused via APIs in a ‘plug and play’ fashion across the Group.

It has been able to build an ecosystem of services around customer activity, while leveraging traditional business models to ensure they also benefit from digital. As a result, Ping An now has 600 million digital users overall.

Innovation that is driven by bold leaders

Incumbent insurers and financial service providers that want to drive digital innovation need bold leaders who have a vision of the customer experience they want to create and the user problems they want to solve.

Peter Ma, the iconic entrepreneur who is the Group’s founder, saw that the digital revolution Alibaba and Tencent were leading represented a revolution in how consumers would run their lives and that it would be a huge challenge for traditional finance. In particular, he saw that digital would transform distribution channels that had been used to categorise finance and insurance products up to that point.

His approach contrasts with that of many leaders within financial services, who often have too much of an administration mindset and not enough of an innovation mindset. Conservative boards with too much focus on regulation or shareholders who only focus on earnings will never be able to react to the potentially existential threats brought about by major shifts in customer behaviour. 

Therefore, these businesses need courageous leaders who are able to react and make changes that fuel sustainable innovation.

Next-gen commitments must be meaningful

As a result of its cloud transformation and tech-first strategy, Ping An has been able to navigate the tension caused when a traditional insurer approaches building new digital business models. 

Typically, this sort of business will see open, digital distribution channels as a threat. Digital can rapidly commotise their business models, reduce the margins they are used to in traditional channels and relegate product providers to the bottom. However, Ping An has been able to set up new digital businesses in parallel to its existing ones without cannibalising what they do. 

If you look across the top 50 largest financial institutions in the world, the number of successful new businesses that have been created is close to zero. That means an entire industry is not reinventing itself successfully. In contrast, Ping An is creating unicorns like ZhongAn, which has a market cap of $10billion, because it is putting capital and effort towards them. 

It is not afraid to go into competition with itself if it sees a 10x opportunity in a market that could grow substantially in the future. It does this by incentivising managers who will be rewarded as stock owners and who are willing to put meaningful amounts of their own money into the business. 

It also accesses third party capital, which in ZhongAn’s case comes from it being a partnership between Ping An, Alibaba and Tencent. Finally, Ping An supports the business without constraining it but is more than willing to take tough action to correct its course or close it entirely, if necessary.

Health insurance provides a big opportunity

As mentioned, Ping An already owns the world’s biggest telemedicine provider in the shape of Good Doctor and health insurance is seen as a huge opportunity.

China has a large ageing population and there is a big focus on health for this reason. The population is experiencing the same issues with chronic diseases related to diabetes, heart issues and obesity as the West. It will not be able to support these growing needs through the traditional offline health system alone.

China currently spends around $700 per capita on health, compared to between $3,000 and $5,000 across Europe and as much as $12,000 in the USA. Building a system that would support this increased need would be unaffordable without technology. Good Doctor is Ping An’s solution, which has been built without reimbursement from the state. 

Health insurance for individuals and corporates also provides one of the biggest opportunities for insurance businesses outside China and is likely to be an area where we see more and more embedded insurance. One example of a successful implementation in the US that gives us a taste of what may come in the future is Amwell, which is allowing corporations to pay for their employees’ by delivering doctor visits at 75% of the usual costs. 

Life insurance remains a challenge

How to sell life insurance digitally, at scale and as a natural extension of other consumer services remains one of the biggest problems the industry is yet to solve. 

For Ping An, this is part of a bigger discussion about how it refocuses all of its financial advisory services to fit into the right context and be more intuitive for customers. It wants to help them think more holistically about life insurance and financial security and to solve these problems within a mobile and digital experience. It is a challenge that all life insurers around the world face, mainly because customers don’t really understand the products. Embedding it within other products, so that it is a service customers can understand in the right context, is one obvious way of doing this. 

At the same time though, life insurers have generally been slow to digitise and this may also be holding them back. Tackling their underlying infrastructure issues is long overdue and also very necessary if they want to be able to deliver attractive customer propositions that ensure they are not displaced by newcomers.

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