Welcome to the dozens of new subscribers since last edition! Feedback and suggestions are very welcome, especially from the new folks.
I’m writing an occasional blurb about something I learned that’s broadly tech-related. If you have thoughts, I'd love to hear from you, and I'll paraphrase the best responses in the next newsletter. My goal is to start conversations with people thinking about similar topics through different lenses. If you know anyone who would be interested in the discussion, please do forward this along, send them to the archive, or have them subscribe here.
What I learned about: Chinese insurtech 🇨🇳🔏
A few editions ago, I wrote about the delta in average time from founding to unicorn in China (4 years) compared to the US (7 years). One such example: ZhongAn, a Chinese insurtech company founded in 2013 by industry veterans, raised at an $8B valuation two years later. They turned heads after selling 5.8B policies to 460M customers in 3 years, and rolling out unique products like “heat insurance” (paid out when temperatures exceed 37º), and “binge drinking insurance” (paid out for alcohol-related medical issues). Coupled with a quickly expanding Chinese insurance market, ZhongAn made for an investor darling. It has since deflated post-IPO – claims ratio higher than expected, expensive channel partnerships, and maybe a distracting blockchain strategy – but offers some good lessons on Chinese insurtech nonetheless, which is evidently far ahead of the US:
JVs and the value of playing inside baseball: ZhongAn has a unique founding story, started as a JV between the “three Ma’s”: Ma Mingzhe of Ping An Insurance, Jack Ma of Alibaba, and Pony Ma of Tencent. This means very little insurtech competition given nobody wants to mess with the giants. You don’t see this type of startup collaboration from Google, Facebook, Amazon, and Apple, despite a massive distribution advantage. Chinese tech incumbents seem much more attuned to the coopetition mindset. In insurance specifically, JVs solve the distribution challenges that many US insurtech startups face.
Creative distribution strategies mean creative products: Insurtech companies often struggle because online insurance distribution is expensive: insurance SEO is a textbook case study of a perfectly competitive market. This means insurtech customer acquisition is often even more expensive than incumbents using broker / agent models, particularly given startups’ limited brand awareness. ZhongAn’s integrations with large Chinese tech players solve this challenge, and lead to entirely different insurance products compared to what incumbents can offer. Their most popular products are upsold via other companies’ checkout flows: shipping return insurance sold via Alibaba, flight cancellation insurance sold via Ctrip, cracked screen insurance sold via Xiaomi. The unit economics for low-LTV plans only work if they’re seamlessly integrated with existing digital distribution channels. These partnerships aren’t fully ironed out yet, and may be too expensive at 36.5% of net written premiums, but still point to an under-explored strategy in the US.
Normalcy around data sharing means better pricing: More data sharing in exchange for better insurance pricing isn’t a tradeoff the Western world is often willing to make, but Chinese insurance companies have been able to capitalize on personal data much more efficiently. For example, Taikang Insurance integrates with healthcare CRM systems to optimize claims management, and Ping An Insurance uses facial recognition to prevent fraudulent claims and increase insurance agent efficiency. We've seen the beginning of data-driven insurance with Metromile and Root Car Insurance in the US, but there is a lot of room for expansion.
See these links if you want to read more about:
ZhongAn performance stats: claims ratios, cap table, channel partnership fees
Chinese insurtech: biggest players, penetration of insurance products by country
Distribution of startups in China by geography, sector, founders, investors
What I’m reading 📚
Hong Kong is opening up its banking market to increase competition.
Thoughtful article by Adamant Capital on valuing BTC (haven’t seen a good new approach in a while).
WSJ details the lack of financial coverage in rural America given the operating costs for local branches.
NYT on 2019 IPOs: “Thousands of New Millionaires Are About to Eat San Francisco Alive”
Long-form article by Eugene Wei on online social capital.
The oil boom in America that nobody in SV talks about.
Scott Belsky’s predictions for the future. Don’t agree with all of these but I like the idea of doing 5 to 10-year predictions.
What subscribers said about the last edition (checking & savings accounts):
Joe shared Sofi Money, a consumer banking option that offers “the convenience of checking and savings morphed into one hybrid account”. This seems to be the closest thing to what I suggested in the last email of blending checking and savings accounts, and gets around the standard checking / savings dichotomy by using a “cash management account”.
Adam shared a good resource for finding high-interest savings accounts, where some players get creative to drive up APY.