Strategy Note /

China’s digital insurance opportunity

  • Insurance premiums in China could grow by 13% pa as penetration and density converge to developed market levels

  • Health and life insurance should rise in importance. Third-party and online distribution channels will win market share

  • We profile Ant Group’s insurtech offering, plus Waterdrop, Zhong An and WeSure; all sit in the sweet spot for growth

China’s digital insurance opportunity
Rahul Shah
Rahul Shah

Head of Corporate & Thematic Research

Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Tellimer Research
10 June 2021
Published byTellimer Research

China is the world’s second-largest insurance market by premiums but still lags most developed markets for insurance penetration and density. Double-digit % premium growth is probable, with health and life insurance likely to be the fastest-growing segment, helped by rising overall healthcare expenditure and a shift from out-of-pocket payment towards insurance coverage.

From a distribution perspective, there are two key trends. First, third-party distributors are likely to grow their market share. Second, more sales are likely to be made through digital channels.

Entities that sit in the product/distribution sweet spot include Ant Group, Waterdrop, Zhong An and WeSure. Key risks include the regulatory crackdown on distribution-only platforms and efforts to curtail the market dominance of leading tech groups in China.

Key drivers of the digital insurance industry

We estimate that digital insurers account for just 6% of the overall fintech ecosystem in China (by number of firms). Given the attractive top-down sector growth trends we have highlighted, it is possible that this proportion could increase in the future.

Based on our global emerging markets survey of digital insurance firms, the top value they believe they offer their customers is personalised service. They regard management expertise and first-mover advantage as key drivers of their success. Strategic priorities include strengthening their senior management teams and expanding their reach to new customer segments; while chatbots, easier customer onboarding and blockchain are key areas of innovation.

Strategic priorities

China’s insurance density could double by 2025

China is the second-largest market globally for insurance premiums, at RMB4.3bn in 2019. However, insurance penetration and density are still lower than in most developed markets. China’s insurance penetration is expected to rise by over 50% by 2025, while insurance density should more than double over the same period.

Insurance penetration in China lags developed markets

Life and health insurance is the fastest-growing segment

In 2020, life and health insurance represented 74% of the total insurance market in China (by premiums); this proportion is expected to rise to 78% by 2024, with premiums growing at an annual rate of 14.5% versus 8% pa for property and casualty premiums.

Health insurance is likely to grow faster than life insurance. For example, the government has introduced a series of measures since 2014 to support the growth and development of the health insurance sector. The CIRBC has set a total health insurance premium target of RMB2tn (versus RMB707bn in 2019), representing 19% CAGR.

China insurance premiums by product

Healthcare expenditure is forecast to grow by 10% pa

Total healthcare expenditure in China reached RMB7.0tn in 2019 (ie cUS$1.0tn, versus US$3.8tn in the US). The market is expected to grow by 10% pa to reach RMB11.4tn in 2024. Key growth drivers include an ageing population (the proportion of the population aged 60+ is projected to rise from 17% in 2020 to 30% by 2040), growing personal disposable income, rising demand for quality medical services and reform of the medical security system.

China healthcare expenditure

Per capita, healthcare expenditure in China is just one-tenth of the US level

Healthcare expenditure in China was 7.2% of GDP in 2019, versus 12.0% in the US. Healthcare expenditure per capita was US$738 in China versus US$7832 in the US. Convergence in both these metrics is likely over the coming years as China’s per capita wealth increases and good healthcare becomes a more attainable goal.

Healthcare insurance penetration is very low

The bulk (67%) of healthcare expenditure was paid for out of pocket, with 29% covered by social medical insurance and just 3% by commercial insurance. In contrast, in the US, only 19% of healthcare expenditure was paid out of pocket, with the remainder covered by government schemes or commercial insurance. Even in 2025, iResearch expects 61% of healthcare costs to be covered out-of-pocket. The growth runway for health insurance is therefore very long.

According to iResearch, 52% of total healthcare expenditure was on in-patient healthcare, 32% on purchases of drug and medical equipment, and 15% on out-patient services.

Third-party channels should experience the fastest growth

Affiliated insurance agents are currently the main distribution channel for life and health insurance premiums in China (generating 58% of all premiums), followed by bancassurance (31%). Looking ahead, third-party agents are expected to experience the fastest growth in sales, followed by insurers’ direct channels.

China insurance premiums by distribution channel

Novel business models are subject to regulatory uncertainty

Online distribution models should experience superior growth (iResearch forecasts direct online sales to grow 21% pa and third-party online sales to rise by 59% pa to 2024). But they are also subject to heightened regulatory risk, particularly the third-party model. We have already seen that the regulator is not in favour of distribution models where the seller does not take on meaningful underwriting risk. The regulator is also trying to reduce the influence of the major tech conglomerates (like Tencent and Alibaba); businesses associated with such entities may face increased scrutiny. Waterdrop’s poor post-IPO performance provides a salutary lesson for investors.

Key online insurance players

We have previously profiled Ant Group’s insurance operations, Waterdrop and ZhongAn. Here, we briefly profile another key player in online insurance, WeSure.


WeSure is a Tencent-owned digital insurance platform launched in 2018. It acts as a third-party platform and works with well-known insurance companies to provide users with high-quality insurance products. WeSure benefits from the large customer base of Tencent’s WeChat and had 100mn registered users and 40mn active users (ie having an active insurance policy) in July 2020. The customer base is young, with 80% of users less than 40 years of age. The company offers a convenient solution to this young customer group that allows them to make insurance purchases, enquiries and claims directly on the platform.

WeSure has innovated in two key areas to make insurance distribution more effective. First, its AI-based platform hand-picks insurance products and tailors offerings based on individual needs. Second, the company uses social media to attract and retain customers; around one-third of sales are generated from social media referrals, c3x higher than the industry average.

Apart from distribution, the company has also made investments in streamlining the claim-handling process; c79% of the claims handled via WeSure’s platforms are processed within a day.