Selling insurance online on "Double 11": a chance to boost premiums?
Benn He, Client Manager of Life & Health Beijing, Swiss Re
Once again this year on November 11, internet users were able to indulge in an online shopping spree.
In an era where the consumer experience accounts for so much, it is great to see how the "Double 11" online shopping festival ticks all the right boxes: a wide variety of products at mind-boggling discounts.
One e-commerce sales platform was reported to sell Rmb50 billion on “Double 11”! This demonstrates that it can be a win-win situation: customers feeling pampered like kings and spoilt for choice, and e-retailers reaping bumper profits.
Last year, out of nowhere, insurance products joined the shopping frenzy. Some insurance companies launched special products to be sold online and drew a lot of eyeballs by offering "high yields" on new insurance products. They achieved the unusual feat of people "queuing" online to purchase insurance. Soon, records were being shattered: in just a few minutes premiums exceeded Rmb100mn and within three days Rmb1bn worth of policies had been sold! The "Double 11" experience would suggest that a new model had been found for selling insurance products. But it did not happen again this year. We ought to consider the long-term implications of the “Double 11” model on the insurance industry.
First, consider the universal life insurance products sold at the "Double 11" online shopping festival. Universal life insurance products are not traditional insurance products. Rather, they combine investment with insurance and offer not only returns but also protection via universal accounts. Universal life insurance products have unique advantages since universal accounts are transparent, flexible and steady. But the universal life insurance products sold on "Double 11" cover only against a limited number of risks and have few restrictions on policyholders quitting their insurance schemes, so policyholders are not expected to keep their covers for long. What makes such products attractive is the yield they offer on short-term wealth management. On the other hand, since such insurance products are simple in form, competition tends to focus on only a few aspects. Insurers sell products by engaging in a "price war", with the level of "yield" being their only selling point. Such online products are unlikely to bring in value for insurance companies since they are so easy to copy.
Second, what has insurance contributed to the development of online sale channels? Yes, insurance companies were promoted online, but virtually no platforms have been built by the insurers themselves. The success of the “Double 11” model depended entirely on third-party e-commerce sales platforms and their client base. And so, insurance products sold on “Double 11” brought glory to the e-commerce platforms and their simple and convenient sales channels. Behind that front-end simplicity, mainstream domestic e-commerce platforms have built a complex and highly efficient support system, covering operations management, customer service, network technology, logistics and, in some cases, even a home delivery team. It is these hard efforts behind the e-commerce platforms that have helped them offer a better shopping experience to customers and boost their sales. As a result, the main beneficiaries of the “Double 11” model were the e-commerce platforms – by helping them rake in decent sales expenses or by padding the growth of their financial platforms. While hailing the innovative practice of selling insurance products online, insurers should consider the supporting infrastructure behind it and invest in building their own platforms.
Insurance products have always been difficult to sell, so hard-working insurance agents can take heart from the fact that the grand online sales of insurance products on "Double 11" laid bare the vast untapped demand for insurance. Insurance agents make unceasing efforts to sell policies while preaching the wisdom of insuring against risks. (Little wonder that in overseas markets they were for a time dubbed "missionaries".) Other sales channels too, such as group insurance and telemarketing, include the notion of insuring against risks. Bancassurance, though special, similarly highlights the insurance and protection features of insurance products by comparing them with other wealth management products when selling policies. In contrast, insurance products sold on "Double 11" only emphasize their "high yields", and fuel speculative demand in the wealth management market. No one really thinks that they are buying insurance. Imagine a customer having gone through all of life's risks and holding such a wealth management-focused insurance policy: one could lament life's twists and turns, but it would be hard to recognize from that type of product what the functions and importance of insurance are.
“Innovation” therefore seems less apt a description of “Double 11” insurance products than “adventure”. In the big game of things, rosy sales alone are not the way forward for an insurance company that underwrites risk. Admittedly, in this internet age, anything traditional will be challenged. However, while encouraging innovations, we must remain fully aware of the regulations and operational risks of life insurance.
A large number of people will quit their insurance schemes soon after "Double 11", putting pressures on the sustainable development and cash management of the insurance companies. Customers' expectations for high yields will lead to investment risks. All this has challenged life insurers' concept of stable operations.
Taking a look at selling insurance products online on "Double 11", we can see how difficult it is to run life insurance companies in a rational manner. The impulse to increase premiums reflects a rashness on the part of life insurers. Quite a few insurance companies are struggling to transform these days, in an attempt to cope with the pressure caused by the vast amount of bancassurance business they engaged in earlier. Selling insurance products online on "Double 11" may serve as a strategy to help boost premiums. But such practice adopts an extensive development model and while freeing insurance companies of one burden, only saddle them with another burden.
Therefore, the experiment of selling insurance products on "Double 11" is anything but innovative in terms of developing a business model for insurers. But it gives us insurers an opportunity to reflect on the development of online insurance sales. In my view, selling insurance online presently only serves as a technical means, helpful to make traditional sales models more efficient. As such, we should combine online platforms with traditional sales models, we should provide technical support through various sales channels and we should grasp the characteristics of customer demand in the internet era. In doing so, we will create new space to grow the life insurance industry.
Published December 2014