The father-in-law began feeling flu symptoms on December 28. Four weeks later, he was dead.
“A middle-aged Beijinger with the flu”, the tragic, blow-by-blow account of his decline, began trending as soon as it was posted on social media in February last year. In highlighting the byzantine, extractive nature of China’s creaking health system, the story — bylined Li Ke — has helped fuel demand for critical illness cover in a country where insurance rates are still low.
Take-up is now being driven by expansion into the sector of China’s technology giants, who have begun by disrupting the traditional insurance market but may end up encouraging it.
The total value of paid health insurance premiums rose 33 per cent in the first five months of this year to Rmb327bn ($47.5bn), making health insurance by far the fastest growing segment of China’s insurance industry. Cover against illness is the main driver, accounting for 65 per cent of premiums last year, up from 57 per cent in 2017.
High levels of household savings in China reflect concerns about the inadequacies of the country’s social safety net. An FT Confidential Research survey of 1,000 urban Chinese consumers in June found that healthcare costs were the third-biggest economic concern among middle and lower-income urban households, far ahead of issues such as job security and the US-China trade war.
Despite the shortcomings of the state’s healthcare offering and the rise in household income, insurance penetration in China is still relatively low. The industry boomed in 2015 and 2016 when a new crop of private insurers ran amok with sales of investment products disguised as life policies. In the subsequent government crackdown, the chief regulator was detained, the companies had their wings clipped and the industry was told to get back to the business of insuring.
This appears to be happening as demand for legitimate health insurance products grows, fuelled by the spread of information — accurate and otherwise — on the internet.
A search for “incidence of cancer” on Baidu, the country’s biggest search engine, first returns “China’s cancer incidence and death rates are number one worldwide”. In the FT Confidential Research survey, 62 per cent of respondents said they believed China was a top 10 country for cancer rates, with 12 per cent saying it was number one, whereas it is actually number 53, according to the Institute of Health Metrics and Evaluation at the University of Washington.
The story of Li Ke’s father-in-law was impactful in its accounting of the negotiations required to navigate a medical system where personal connections matter most and almost every procedure has a price.
The survey also asked consumers about their familiarity with some of the most widely shared recent stories on the Chinese internet, from a domestic violence case involving actor Jiang Jinfu to the discussion surrounding last year’s hit movie Dying To Survive to the story of the father-in-law. Although the latter was the story respondents were least familiar with, those who did say they were familiar or very familiar with it were also most likely to buy critical illness insurance.
Rush for cover
The internet is shaping the insurance market on the supply side as well, with online channels accounting for an increasing chunk of distribution. Online health insurance premiums hit Rmb12.3bn last year, more than 10 times the amount in 2015, according to the Insurance Association of China.
Among survey respondents, 30 per cent said they already had some critical illness cover, while 45 per cent of those who said they had not bought any said they were likely or very likely to do so. Among high-income respondents, 62 per cent of those who were not yet insured said they were likely or very likely to get coverage. But our survey also found that 45 per cent of respondents overall said they would buy online, compared with just 24 per cent of those who had already bought cover.
This points to the end of the traditional insurance distribution model, with just 16 per cent of uninsured respondents saying they planned to buy critical illness insurance from a sales person, compared with 46 per cent of insured buyers who said they had bought from sales people.
Ripe for disruption?
Although the big state-owned insurers China Life, Ping An and Pacific dominate the market for critical illness insurance, they face the challenge of the country’s big technology firms, which see a model ripe for disruption. Xiang Hu Bao, a mutual insurance scheme launched by Ant Financial, the financial services subsidiary of tech group Alibaba, has signed up nearly 80m users since its launch in November.
Users are invited to join based on their Alibaba-derived credit score and contribute to payouts on diagnosis of 100 types of critical illness of as much as Rmb300,000. Around 500 claims have already been paid.
This is not the only mutual protection product in China’s fast-evolving internet economy, but it is the biggest. Xiang Hu Bao is distributed on the Alipay payment app, which has more than 1bn users worldwide, with around 200,000 joining the scheme each day. Within two years, Ant wants 300m signed up.
Traditional insurers have bridled at the launch of this new, potentially disruptive service — an early iteration fell foul of regulators — but Xiang Hu Bao is less of a threat to the traditional insurance model than it looks.
The scheme has limitations compared with a traditional critical illness product. Users are only able to subscribe for a year at a time, and the maximum payout is small relative to the cost of treating critical illnesses such as cancer.
Ant Financial is happy for the customer funds and usage data, while Xiang Hu Bao highlights the benefits of coverage, encouraging members to buy traditional products from the Alipay platform.
In the FT Confidential Research survey, a third of Xiang Hu Bao participants said they were very likely to buy critical illness insurance over the next six months — including 55 per cent of respondents living in first-tier cities — versus just 22 per cent of those not participating. Furthermore, Ant was cited by uninsured respondents as the third most likely channel that they would buy critical illness from.
— Frank Zhang, Director of Consumer Research, FT Confidential Research
scoutAsia is a corporate data and news service from Nikkei and the FT, providing in-depth information about more than 660,000 companies across more than 20 countries in east Asia, south Asia and Asean. This exclusive scoutAsia Research content has been produced by FT Confidential Research.