Pay-One-Get-Ten? The Viability and Model of China's Emerging Tech Transfer Insurance

A new concept that emerged in response to the wave of translating scientific and technological achievements into practical applications.

Insurance for Loss of Costs in the Conversion of Scientific and Technological Achievements(hereinafter referred to as the "Technology Transfer Insurance") is designed for technology enterprises that have registered and filed their technological achievement transformation projects with government departments. During the insurance period, if a technological achievement transformation project is officially determined to have failed by the relevant science and technology administrative authorities or institutions, and the technology enterprise commits not to continue the same technological achievement transformation project, the insurer shall indemnify the technology enterprise for the related cost losses incurred during the project's research and development process.

This concept has only recently emerged in China. Fu Jun (a pseudonym), the executive in charge of sci-tech transformation insurance at an insurance company, told Chengguo Bureau that the company officially launched the project in 2020 and issued the nation’s first dual-coverage policy combining “R&D Expense Loss Insurance for Sci-Tech Projects” and “Expense Loss Insurance for Sci-Tech Achievement Transformation,” positioning itself as one of the pioneers in China’s insurance industry. Although the project is still in its early stages of promotion, it has already established collaborations with multiple universities and innovative companies.

In the field of technological achievement commercialization, which is characterized by high investment requirements, strong unpredictability, and significant market risks, insurance companies have entered the arena, aiming to serve as a financial backbone for innovation and transformation. So, is technology transfer insurance merely a business spawned by policy incentives, or does it provide genuine risk protection?

Amidst the loud calls for innovation commercialization in China, professors are launching startups and capital is chasing investment hotspots. However, most financial institutions entering this space support innovative companies primarily through equity investments, neglecting to provide them with risk-mitigating financial services.

This has given rise to technology transfer insurance. Article 36 of the Law of the People's Republic of China on Promoting the Transformation of Scientific and Technological Achievements stipulates that the State encourages insurance institutions to develop insurance products tailored to the characteristics of technology transfer, thereby providing insurance services for such activities.

The underlying meaning is,Develop a category of insurance products related to the commercialization of scientific and technological achievements, without being constrained by formalities.。

At that time, insurance products for the commercialization of scientific and technological achievements already included clinical trial insurance and R&D expense loss insurance for technology-based enterprises. The insurance market was focusing primarily on the R&D phase, having not yet recognized the need for risk coverage during the commercialization phase.

The first to act was the New Technology Sub-branch of China United Property Insurance Company (CUPIC) in Ningbo. In July 2017, the Science and Technology Bureau of Ningbo National High-tech Zone, in collaboration with CUPIC’s Ningbo New Technology Sub-branch, launched an innovative insurance product—Insurance for Losses Arising from Failures in Scientific and Technological Achievement Transformation. This was the first insurance product in China to provide risk coverage for the transfer and commercialization of scientific and technological achievements. Under the terms of the contract, if a new product, process, or material developed by a sci-tech enterprise is determined to have failed in its transformation, the insurer shall be responsible for compensation.

For sci-tech innovation enterprises, the greatest risk they face is the inherent risk of technological innovation itself. Transferring such risks to commercial insurance companies specializing in risk management, thereby mitigating potential losses arising from these uncertainties, represents a mature and sophisticated risk management strategy.

Subsequently, several local governments began to prioritize technology transfer insurance. In October 2021, the Hubei Provincial Department of Science and Technology officially issued the Implementation Plan for the Construction of the East Lake Science and Technology Insurance Innovation Demonstration Zone, stating that it would actively develop innovative insurance products such as insurance for cost losses in scientific and technological achievement transformation, thereby providing risk protection for the transfer and commercialization of scientific and technological achievements. In 2022, the Henan Provincial Department of Science and Technology, in collaboration with PICC Property and Casualty Company Limited, customized and developed an insurance product for cost losses in scientific and technological achievement transformation specifically for “open competition-based project selection” initiatives.

It is worth noting that the Henan Provincial Department of Science and Technology has stated that subsidies will be provided to each technology enterprise based on 30% of the actual insurance premiums paid, with an annual cap of RMB 200,000 per enterprise. By allocating substantial financial resources, the government aims to encourage sci-tech innovation enterprises to purchase technology transfer insurance, thereby mitigating commercialization risks.

Not only are tech companies subsidized, but the government also provides substantial support to insurance firms. Fu Jun told Chengguo Bureau that part of the funding for technology transfer insurance comes from government premium subsidies for approved technological achievements. This also means that,Technology Transfer Insurance is a government-backed insurance product.

"The definition of failure in the transformation of scientific and technological achievements refers to cases where an enterprise's scientific and technological achievements are determined as failed by relevant science and technology authorities or institutions, and the insured promises and guarantees that they will not continue to carry out or transfer, nor authorize a third party to carry out the same project after the failure is confirmed. This constitutes the failure of a research and development project."

Taken in isolation, this statement remains too general. A friend who focuses on the commercialization of scientific and technological achievements stated,The greatest challenge in technology transfer insurance lies in the lack of unified and convincing criteria for determining the failure of scientific and technological achievement transformation projects.

“At present, relevant government departments have not yet issued such documents and standards. ‘Evaluation standards are similar to laws and regulations and inherently exhibit a certain degree of lag. Especially now, it is difficult for competent government authorities to have established, mature evaluation standards for the rapidly emerging sci-tech innovation projects and new industries,’ Fu Jun told Chengguo Bureau.”

In Fu Jun’s view, the “failure” of scientific and technological achievement transformation in a general sense should refer to situations where the yield rate during the transformation phase falls below expectations and mandatory national standards, making further transformation objectively unfeasible. To better safeguard and encourage the transformation of scientific and technological achievements, the definition and application of “failure” can be expanded to include the following two scenarios: First, during the transformation phase, similar products or superior alternatives from competitors enter the market ahead of schedule, resulting in revenues falling short of expectations or even incurring losses, thereby rendering further transformation unnecessary. Second, during the transformation process, market demand for the product shrinks significantly, or the expected revenue fails to cover the transformation costs.

In contrast, the criteria set by the science and technology administrative authorities are simpler. According to an informed source, the determination is primarily based on the expected objectives outlined in the project plan for achieving technological achievements transformation. If the expected objectives are met, it is considered a success; otherwise, it is deemed a failure.

"The criteria for determining suspension have also caused hesitation among many people."Without a unified standard, this initiative cannot be widely promoted..” said a friend who focuses on the transformation of scientific and technological achievements. In the future, the criteria for determining the failure of scientific and technological achievement transformation should have their own characteristics: evaluating whether the transformation is successful from multiple perspectives such as national standards, market share, and third-party evaluations. Additionally, the system for recognizing scientific and technological achievement transformation should be standardized, industry standards for third-party evaluation agencies should be regulated, requirements for qualifications and professional levels should be clarified, and conflicts of interest should be avoided.

Beyond whether the commercialization of research outcomes “can be deemed a failure,” policyholders are more concerned aboutWhether Insurance Companies “Accept” the Determination Results。

Fu Jun frankly stated that at his company, any legally valid documentation—whether it be certification results from science and technology authorities, universities, or third-party appraisal institutions—is accepted as valid proof. He believes that insurance companies’ reasonable, lawful, and compliant handling of claims is the first step toward winning over sci-tech innovation companies.

According to the operational logic of insurance companies, compensation paid to claimants is funded by premiums collected from policyholders who have not filed claims. “For any single insurance product, the concept of ‘limited liability’ does not apply.”When the combined ratio of technology transfer insurance exceeds 100%, the compensation funds for this insurance type will be covered by premiums from other insurance products.“Fu Jun stated that in the insurance service project for technology transfer, which supports technological innovation, insurance companies also face significant risks:

The risks associated with the research, development, and commercialization of scientific and technological achievements are often difficult to quantify. It remains challenging to design and commercialize products that offer reasonable coverage while ensuring stable profitability. For instance, Taiping Technology Insurance Co., Ltd., despite launching a relatively comprehensive portfolio of insurance products for technology transfer, has accumulated losses of RMB 320 million over its four years of operation.

To mitigate risk, the insurance company raised the premium rate for this project to 8%–10%, which is higher than that of other insurance products.More importantly, it is crucial to expand the fundamental coverage of technology transfer insurance at the earliest possible stage.

Intensifying publicity efforts is the best approach to ensure that more technology companies and university technology transfer offices become aware of technology transfer insurance. A professor who has already started a business told Chengguo Bureau that he had heard of the concept of technology transfer insurance, though he could not recall exactly where or remember the details clearly. Nevertheless, he viewed it as a positive development that would allow scientists to embark on entrepreneurial ventures without worries.

Now, Kezhuanxian is eagerly anticipating a resounding “victory.”

The times are changing rapidly. Fu Jun stated that by the end of next year, the company should have some highly demonstrative cases. What worries him most at present is the lack of a typical case to prove the value and role of insurance companies in the stage of technological achievement transformation. “For example, if a sci-tech innovation company pays a premium of one million yuan, and we ultimately pay out ten million yuan in compensation, I believe many companies and institutions would trust us.”