The market of insurance products to cover risks related to the $718 billion e-commerce sector in China is all set to grow, says Willis Towers Watson. In its third quarter InsurTech briefing, the advisory firm outlined the potential in free-return insurance, which helps retailers to increase sales by providing additional security to consumers via free shipping for product returns. Some free-return policies allow buyers with good credit to receive refunds immediately, instead of when returned items are received by merchants. These new e-commerce insurance products were spearheaded by Alibaba’s Taobao, which partnered with Chinese insurer Huatai P&C in 2013 to introduce the first free-return shipping insurance product in China. It used data from Taobao’s historical e-commerce transactions to develop a pricing model. Alibaba then created Zhong An, China’s first online-only insurance company, which now distributes free-return insurance through Taobao along with Huatai P&C. Product innovation, as exemplified by improvements to traditional term life insurance and the introduction of free‑return insurance in China, is a direct result of technology advancements facilitating lower cost design, underwriting, administration and distribution of new insurance products. In terms of innovation, China’s life insurance market now mostly uses automated underwriting systems, which has dramatically reduced costs. China’s life insurance market is currently dominated by hybrid products, which combine savings and limited life protection. The property and casualty insurance domain consists mainly of personal auto products. Both are considered expensive and lacking product variation. Insurers are now starting to move away from expensive and inefficient traditional bancassurance and agency distribution channels to partner with tech giants to sell insurance products through existing e-commerce or internet search platforms, the report noted. In fact, armed with all the data from online transactions, technology companies want to make a place for themselves in the evolving insurance value chain and create new products in the traditional insurance space as well. Selina Hu, executive director at Willis Towers Watson Securities said: ‘Technology advancements now enable smaller players to compete with established ones by offering all kinds of new products through new distribution models.’ Tech giants are employing alternative strategies, including partnerships with incumbents, to enter the insurance industry and monetize the data, such as Yunfeng Financial’s acquisition of MassMutual Asia and Tencent’s purchase of Aviva Hong Kong. Another strategy is to establish ground-up insurers by using data and tech capabilities, as in the case of Alibaba and Zhong An. They can also build technology-enabled distribution platforms that compare insurance products and services in partnership with insurers. ‘At Willis Re, insurtech fits into our strategy to build relationships with leading start-ups, and then match their technology with the needs of clients; the objective being to nurture new lines of business and also cut inefficiencies,’ said Mark Morley, managing director and head of Willis Re for Asia. ‘Typically, we link insurtech start-ups with (mobile) carriers with strong bank and retailer networks. In the US and EU, we’re now into double figures for successful introductions between companies and carriers. We are now focusing on Asia as well.’
Insurance for Chinese e-commerce companies is being earmarked as a sector which could experience rapid growth, according to Willis Towers Watson. There's an increasing opportunity to provide coverage for goods being returned to online marketplaces like Alibaba, the firm noted. Increasingly online sales platforms in China are offering consumers free-return policies, while also issuing instant refunds if the customers has a good enough credit score or rating. Retailers can potentially boost sales by acquiring insurance for e-commerce shipping returns due to the ability to increase the number of goods they can offer free returns on.