ZhongAn Insurance Addresses Imbalance in Health Insurance Market with Strategic Push into Mid-Tier Medical Plans

On February 22, the China Insurance Regulatory Commission (CIRC) released the “2016 Insurance Statistical Data Report.” In terms of premium income across various insurance categories, health insurance continued to register the fastest growth. In 2016, the original premium income from health insurance business amounted to RMB 404.25 billion, a year-on-year increase of 67.71%; claims and benefits paid out in the health insurance sector totaled RMB 100.075 billion, representing a year-on-year increase of 31.17%.

Additional data show that since 2013, the compound annual growth rate (CAGR) of commercial health insurance has remained at 40%. The total market size grew from RMB 86.3 billion in 2012 to RMB 241 billion in 2015. According to Accenture’s forecast, the market size of commercial health insurance is expected to expand to RMB 900 billion by 2020.

However, beneath the optimistic surface, the health insurance sector faces significant bottlenecks. First, while commercial health insurance accounts for nearly 40% or more of the market in developed countries such as the United States, its share in China remains at only around 10%. Moreover, commercial health insurance operations have consistently struggled to achieve profitability. For instance, PICC Health, a specialized health insurer, reported a loss of RMB 135 million in 2015 (following losses of RMB 795 million in 2013 and RMB 1.386 billion in 2014); Ping An Health incurred a loss of RMB 116 million in 2015; and CPIC-Allianz recorded a loss of RMB 56 million.

So, how should the health insurance business transform and move forward in a sustainable manner? On March 2, ZhongAn Insurance, the first internet-based insurance company initiated by Ant Financial, Tencent, and Ping An Insurance, introduced its product upgrade strategy and market layout to VCBeat (WeChat ID: vcbeat) in Shenzhen.

Tan Tengyue, Head of Health Insurance Products at ZhongAn Health, previously served as the Actuarial Director for Life and Health Insurance at a well-known international reinsurance company. He is a Fellow of the Society of Actuaries (North America) and has 15 years of experience in the insurance industry. According to data he provided, China’s mid-tier medical insurance market remained virtually nonexistent for a prolonged period. Even as late as 2012, an analysis of premiums in the short-term health insurance market revealed that the high-end medical insurance market was valued at RMB 1 billion, the low-end supplementary medical insurance market at RMB 24 billion, while the mid-tier insurance market amounted to only RMB 100 million.

So, what kind of medical insurance is considered mid-tier medical insurance? The most distinguishing factor is the price. In Tan Yueyue’s view, an annual expenditure of 1,000 to 2,000 yuan on medical insurance is quite representative.

Previously, Cai Jiangnan, Director of the China-Europe Center for Health Management and Policy, stated that while commercial health insurance has received positive acclaim, it has not achieved strong market uptake. He cited views from presidents of Grade A tertiary hospitals, who attributed this discrepancy primarily to insurers’ failure to design products that meet the needs of the general public.

Among the four major types of health insurance—critical illness insurance, medical expense insurance, long-term care insurance, and disability income insurance—critical illness insurance still holds an overwhelmingly dominant share in China’s current market. Medical expense insurance often serves merely as a rider to main policies, typically wealth-management-oriented critical illness insurance. Data shows that out of RMB 364.8 billion in health insurance premiums collected during the first ten months of 2016, more than half came from wealth-management products. Of the remaining premiums, approximately 60% were attributable to fixed-benefit critical illness insurance policies, such as those covering specified serious diseases.

Zhang Weigong, Chairman of Sunshine Insurance Group, has also stated that the market share of long-term care insurance remains below 1%, while disability income loss insurance is still a blank slate. This reflects the continued imbalance in the product structures of major insurers, particularly their failure to address the health status of the population in the context of an aging society.

As the first internet insurance company in China, and based on the characteristics of online channels, it cannot simply adopt the pricing model of traditional insurance agents, which typically involves selling high-priced products with a critical illness policy as the main coverage and medical or accident insurance as riders.

Consequently, ZhongAn Insurance attempted to sell medical insurance as a standalone product. By setting a deductible of RMB 10,000, it successfully significantly reduced the product price, aligning well with the psychological price tolerance of online consumers. According to Tan Tengyue, during the 2016 Double 11 shopping festival, “Zunxiang E-Sheng,” its flagship representative product, saw over 20,000 individuals purchase coverage for themselves and their families, setting a single-day sales record for a single internet health insurance product. With cumulative sales of 112,000 policies on the Alipay Insurance Channel, it remains the best-selling medical insurance product on the platform to date.

Kong Qingkun, Product Manager of Health Insurance at ZhongAn, shared some intriguing insights into consumer behavior. For instance, internet insurance policies are most frequently purchased between 11:00 PM and midnight, with the majority of buyers being male, and 90% of them purchasing two or more policies.

ZhongAn Insurance has positioned its “Zunxiang Yisheng” product as the first insurance policy for young people, making significant efforts to optimize its cost-effectiveness. It is reported that, under equivalent coverage limits, its premium is more than 10 percentage points lower than those of comparable products. Since its launch last August, “Zunxiang Yisheng” has become the product with the largest market share in the mid-end medical insurance sector, while ZhongAn Insurance has set an ambitious target of reaching 100 million customers.

In late February 2017, ZhongAn Insurance upgraded its “Zunxiang E-Sheng” product. Compared with the 2016 version, the new Zunxiang E-Sheng not only increased the sum insured and expanded coverage benefits, but also introduced, for the first time, a zero-deductible commitment for cancer patients, thereby enhancing policyholders’ ability to mitigate medium-to-large medical risks. Due to regulatory licensing constraints, the policy term is limited to one year; however, ZhongAn guarantees renewability up to age 80.

Achieving a zero deductible for patients with malignant tumors means that insured individuals who are diagnosed with malignant tumors for the first time and receive treatment in a hospital will no longer be subject to any deductible for all medical expenses incurred from the date of diagnosis through the remainder of the current policy year and subsequent policy years. In addition, the new version of “Zunxiang Yisheng” has increased the general medical insurance benefit from RMB 1 million to RMB 3 million, and the malignant tumor medical insurance benefit from RMB 3 million to RMB 6 million. Meanwhile, the coverage now includes outpatient emergency services and outpatient surgical procedures occurring within seven days prior to and thirty days following hospitalization.

Previously, Liu Haijiao, head of the Health Insurance Division at ZhongAn Insurance, addressed the profitability challenges in the health insurance sector. She stated that, due to the unique nature of internet sales channels, ZhongAn’s early customers—or those more receptive to its offerings—were predominantly concentrated in technology companies. This demographic, characterized by a younger average age and favorable loss ratios, constituted a “congenital” advantage that facilitated the smooth launch and profitability of ZhongAn’s health insurance business.

From the perspective of ZhongAn Insurance’s own team, they are not only an insurance company but also a technology company. Dr. Gao Wenxue, who is currently responsible for precision medicine products at ZhongAn, stated that they place great emphasis on technology.

Before joining ZhongAn, Gao Wenxue conducted genetic research at academic and other research institutions, later worked for a foreign enterprise, then moved to a private company specializing in gene sequencing, and also served at Ruijin Hospital.

“ZhongAn represents a relatively new field for me. Although I had no prior understanding of the insurance industry, I resolutely joined the company. My hope is to integrate high-quality medical solutions with insurance products, thereby delivering tangible benefits to the general public. In the healthcare sector, in addition to focusing on overall health and biotechnology, we are prioritizing two key areas: genomics and stem cells,” stated Gao Wenxue.

Currently, ZhongAn Insurance places particular emphasis on the integration of insurance and technology, focusing on preventive insurance initiatives, or more specifically, offering bundled products that combine “coverage + medical services.”

For example, ZhongAn offers a product called “Zhiyinbao,” which targets cervical cancer. As is well known, cervical cancer is the only cancer worldwide with a clearly identifiable cause and established preventive measures. ZhongAn’s product provides convenient at-home testing, essentially combining HPV infection screening with cervical cancer insurance coverage. By assessing disease risk through an HPV screening test, it enables early prevention, while the accompanying insurance coverage ensures peace of mind. Reportedly, the testing company partnering with ZhongAn is one of the largest providers of HPV screening in China, having screened 16 million individuals and collaborated with over 1,000 hospitals.

Beyond mid-tier medical insurance, ZhongAn also offers other health products, such as critical illness insurance and long-term care insurance, as well as numerous niche products, including cosmetic surgery insurance, dental insurance, and genetic testing insurance.

Tan Tengyue stated that ZhongAn Insurance will also launch products targeting individuals with pre-existing health conditions this year, such as insurance plans for those with hypertension or diabetes, aiming to achieve intelligent and personalized underwriting in the future. Currently, many internet-based insurance products, including those offered by ZhongAn, require applicants to answer several closed-ended questions—either “Yes” or “No.” If an applicant answers “Yes” to any of these questions, they are typically ineligible for coverage.

However, in ZhongAn’s future insurance underwriting process, open-ended questions will be posed. If the insured is a smoker, the system will proceed to ask follow-up questions such as how many packs of cigarettes they smoke per day and for how long they have been smoking. Based on these responses, the system will then determine whether the individual meets the underwriting criteria. Previously, these tasks were performed manually; going forward, ZhongAn aims to achieve intelligent, automated underwriting through its online platform.