India vs China - General Insurance
Trying to compare general insurance companies across various emerging markets and see how the Indian insurance industry may progress. All numbers are approximate.
India in 2021 seems to be where China was in 2005 even though India's current GDP is slightly higher than China's 2005 GDP (USD 2.8 tn vs 2.3 tn). Health GWP seems to be a bigger probably due to no nationwide public health coverage (barring recent efforts by the government). Though it is well-known that premium growth outpaces GDP growth by a factor of 1.5-2.0x, what needs to be seen is the impact on traditional insurance players of online-only insurance companies and insurance aggregators.
Online insurance players entered China at a later stage of its market development than India so the impact of online players may possibly be higher in India given the lower development and penetration of entrenched forces.
Another observation from the Chinese market is that Health insurance grew at a much faster rate compared to P&C, especially after the market grew to a certain size, so theoreteically standalone health insurance companies would be in the investment sweet spot from an investor's perspective.
Evaluation of online threat
The 2 new business models are the online-only insurance players and online insurance aggregators.
- Online-only insurance
The biggest online-only insurance player in China is ZhongAn. It was co-founded in 2013 by the 3 Ma's of Alibaba (Jack), Tencent (Pony) and Ping An (Mingzhe) and offers lifestyle consumption, consumer finance, health, auto and travel insurance. It did around 16.7 bn RMB in gross premium incl. health in 2020, which in terms of market share is less than 1% but it has been growing faster than the market.
The online insurance market is also dominated by traditional insurance and fintech players so it seems to be that the traditional players are at least competitive in terms of price. Online-only players seem to be better in terms of product innovation (example e-comm shipping return which was a success). They are growing faster and expected to grow faster than the market but their current premium market share is still only ~ 5% (185 mn RMB out of a total market size of 3,800 mn RMB).
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| Market by channel |
If we look at ZhongAn's combined ratio it was at 102.5% in 2020 and it trades at a valuation of ~ USD 7.5 bn or ~ 3.3x P/B. It achieved a small net profit of USD 40 mn in 2020. For reference PICC P&C (the division is listed seprately) trades at 0.7x P/B. A possible explanation to its low valuations could be its government owned shareholding structure (it was trading at 2x P/B in mid-2015 so need to see what has changed).
For comparison, Digit Insurance in India has a combined ratio of 106.6% and did around Rs 2,000 cr in net premium and given its latest valuation of USD 1.9 bn, the valuation multiple comes to ~ 13x net premiums (to be fair, even ICICI Lombard, the largest player trades at 6.5x net premium). Now its current market share of 1.2% is higher than ZhongAn and it has reached here in a shorter time period as well (founded in 2016). It is still reporting net losses and reported ~ Rs 125 cr losses in both FY20 and FY21.
- Online insurance aggregators
Moving on to the online insurance aggregators, the biggest player in China is Huize with ~25% GWP market share of Life & Health insurance sold through online insurance aggregators. Interestingly their P&C segment's GWP has halved from 285 mn RMB in 2018 to 132 mn RMB in 2020. On a GWP of ~ 3 bn RMB it earned a brokerage income of ~ 1.2 bn RMB or ~ 40% fees. It is still reporting losses of ~ 20 mn RMB but is valued at only USD 300 mn or ~ 1.5x revenue or ~6.5x GWP.
Of the 5% market share of online insurance, insurance aggregators have an ~ 17% market share (of which Huize has 25% share), which gives them an overall share of <1% in the overall insurance market. By comparison, Policybazaar has a 50% market share of the online insurance space (~ Rs 6000 cr premium by Policybazaar means ~ Rs 12,000 cr is the online insurance space). This would give the online insurance space a market share of ~ 6%, which is 1% higher than China. Policybazaar is already valued at USD 2.5 bn giving it a valuation of 3x GWP. At a revenue of Rs 1,000 cr it is trading at a multiple of ~ 18x revenue. An important point to note is that Policybazaar does not generate revenue from brokerage (it just got insurance brokerage approval from the regulator) but from providing services to insurance companies and telemarketing services.
This can possibly be explained by the fact that Life and P&C/ Health insurance in India is still operated separately thereby not giving the companies an opportunity to create a full ecosystem for the consumer. Secondly, the existing players have not been able to capture the online insurance space that has given the aggregators to become an attractive proposition.
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| Online market by channel |
India
The non-life insurance segment in India includes both P&C and Health insurance and can be categorised as private multi-line , private standalone health, and public sector companies. The public sector companies have been consistently losing GWP market share and their profit share has also been very volatile ranging from -100% of private sector profits to +100%. I have only considered the top 5 private sector companies for analysis as they make up almost the entire private sector profits, though interestingly their premium share is only 28%. Health & Motor constitute ~ 67% of the industry and Health has outpaced P&C as shown in the table below.
The top 5 companies hold ~73% premium market share with People's Insurance Company of China (PICC) (32%), Ping An (24%) and China Pacific Insurance Company (CPIC) (10%) the top 3. These 3 hold more than 100% of the profit share of the industry as well. The top 3 players have retained their market share for more than a decade though Ping An seems to have gained some share from PICC. Ping An is of course well-known for its tech capabilities and for building an ecosystem around its products. For example, the App provides access to doctor consultation and fintech products among others.
PICC and CPIC are government owned whereas Ping An is a private enterprise. All three offer Life and Non-Life (aka P&C) insurance though Health is categorised along with Life unlike in India. About 2/3rd of P&C is Auto insurance.
As can be seen in the table below, GWP growth has outpaced GDP growth, and Health GWP really outpaced P&C GWP over the last decade, which is understandable as focus on health really increases once people reach a certain stage of development.
I have summarised the financial and business metrics for the 3 companies below.
The combined ratios will be further deregulated from this year, which may put pressure on prices. The pricing for Auto premiums is based on a benchmark price and companies offer discounts on this price based on the consumer profile. This discount was increased in 2015 in select areas and will now be implemented nation wide, though companies may save on expnses as using direct channels is being prioritised over using third pary channels.
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