Alibaba’s financial arm Ant Financial recently launched a mutual insurance product named “Xianghubao (相互保)” through a partnership with insurer Trust Mutual Life, which has obtained a license two years ago to operate the business in China.
Following the concept of mutual insurance, what Ant Financial’s Xianghubao offers is quite simple: a group of policyholders comes together to share risks and expense of insurance policies. In this case, during the case of a contingent event when one falls ill, the sick party can receive the entire lump sum payment, while the cost is borne by other group members collectively. According to Ant Financial, these shared payments will be capped at a maximum of RMB 0.1 (US$ 0.01) per case per user, making it affordable for low-income individuals to get insured.
In a society, the low/moderate income individuals who are most in need of financial protections are often left out as they cannot afford the high premium costs of traditional insurance policies. And this new form of shared insurance is here to bridge the gap, by using the risk/expense share approach to insure more people.
While this type of shared insurance began as early as 2016 in China with dozens of players back then, the fad didn’t last long.
Many policyholders quit in a year at that time due mostly to 1) insufficient size (size of the policyholders poll is critical to sustainability, the more the merrier); 2) lack of transparency; and 3) insurance frauds, all these issues rendered the business model unprofitable.
In this regard, Ant Financial has a sizable customer base and adequate technology to surmount the aforementioned issues. For instance, it could use big data and blockchain technology to ensure better risk controls.
KRASIA Comment: Ant Financial’s mutual insurance product offering is set to disrupt how the traditional insurance sector works, with its large customer base, advanced big data/blockchain technologies, and an unconventional concept, it could reduce some of the insurance premium costs and make insurance products way more affordable than they are today. On the other hand, the company also need to avoid the pitfalls its predecessors fell into, by making good use of its technologies, providing a transparent claim process, as well as designing a viable policy.