Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

While China's fintech boom continues unabated, another fast-growing phenomenon has gone almost unnoticed -- so-called insuretech, the latest industry to be spawned by the intersection of online finance and the world's biggest army of internet shoppers.

Even as Chinese regulators scrutinize sales of high-risk, high-return universal life products and frown on offbeat contracts that protect against Beijing smog or even overtime work, they have allowed small-scale exotic insurance policies linked to online shopping to flourish.

These "ecosystem-oriented innovative products," as the Oliver Wyman consultancy calls them, include flight-delay insurance for e-tickets (policies typically will fund the cost of a meal); personal and property protection for customers ordering services at home such as an on-demand manicure; or return shipping cover for products bought online. 

Creative Insurance
China's online insurance market is set to surge in coming years, with the biggest increase in innovative products catering to online shoppers
Source: Oliver Wyman
Note: The tech-enabled upgrade segment includes pricing options based on technology, such as health insurance policies linked to wearable devices; ecosystem-oriented innovation includes shipping-return insurance and flight-delay insurance.

Return shipping is the top product for Zhongan Online P&C Insurance Co. -- perhaps unsurprisingly, as the company is backed by an affiliate of Alibaba Group Holding Ltd. and Tencent Holdings Ltd., the country's two biggest internet companies. Zhongan is considering listing in mainland China after scrapping plans for an overseas IPO last month amid lukewarm investor interest.

Unlike Amazon.com Inc. customers, whose shipping is covered when they return a purchase, buyers on Alibaba's platforms must foot the bill themselves, or use insurance. That's worthwhile in a country where clothing makes up the largest part of the e-commerce market, which was on track to reach almost $900 billion in 2016, according to eMarketer.

The average cost of shipping in China is about 12 yuan ($1.70), or one-fifth of the 60-yuan average transaction value of an item of clothing on Alibaba's Taobao marketplace. To insure against the expense of returns costs less than half a yuan.

Many Happy Returns
Zhongan's gross written premiums
Sources: CIRC, company websites, Oliver Wyman analysis

The challenge for Zhongan and its smaller online-only peers, such as answern.com, that are making names for themselves in these products will be building scale and increasing premiums. 

Cover Me
Gross written premiums at Zhongan remain well above its newer online-only insurance peers
Sources: Oliver Wyman analysis, China Insurance Regulatory Commission, company websites

That means expanding in areas like health and auto insurance, as Zhongan is now doing, where regulation is much tighter but premiums are a lot bigger. While exotic products can be offered after registration with the China Insurance Regulatory Commission, auto insurance, for example, requires provincial approval. 

Some of China's hottest insurers may find that life in the regulatory spotlight imperils their growth rates.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net