Jack Ma Is Selling Cancer Coverage for Pennies a Month in China

Jack Ma, chairman of Alibaba Group Holding Ltd., gestures during a fireside interview at the Viva Technology conference in Paris, France, on Thursday, May 16, 2019. Donald Trump's latest offensive against China's Huawei Technologies Co. puts Europe in an even bigger bind over which side to pick, but France's President Emmanuel Macron is holding the line. Photographer: Marlene Awaad/Bloomberg

Ping An Insurance (Group) Co. employed about 1.4 million people to peddle policies last year. Yet it's Jack Ma's newest online disruptor that is stealing the show –-with 50 workers and visions of serving 300 million customers.

Ma's Ant Financial conglomerate launched healthcare-coverage product Xiang Hu Bao in October and already has about 65 million clients. They pay small monthly fees that are pooled to help cover treatment costs for members stricken by diseases such as cancer, Alzheimer's and even Ebola.

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"No insurance company would service a customer base of this size,'' Yin Ming, a vice president for Ant Financial who oversees Xiang Hu Bao, said in an interview. "They wouldn't attempt it.''

Call it crowdfunding for health care –-an emerging industry in China that itself is becoming crowded. Ant Financial is one of at least 50 companies, including ride hailing giant Didi Chuxing and a startup backed by Tencent Holdings Ltd., upending the conventional health-insurance business by creating what essentially are online collectives.

It's a unique business model that probably only can be pulled off in China. The country's leapfrog into the smartphone age means more than 700 million people can sign up, make monthly payments and even upload medical documents and bills with just a few clicks.

The pervasive use of apps in China also means people are more accustomed to giving internet juggernauts –-with their emporiums of gaming, shopping and banking services — access to the most private aspects of their lives.

The companies generate revenue by keeping a percentage of every payout. Typically, that's 8%.

Technology-enabled insurance, which includes everything from policies sold online to wearable device-linked insurance coverage, could generate premiums of $174 billion by 2020, according to a report by research consultant Oliver Wyman on what it calls "Insuretech.''

"In China, an underdeveloped insurance market enjoying double-digit growth, the disruptions triggered by Insuretech are causing an insurance industry revolution,'' the report said.

China's conventional insurance industry is a fledgling one. The country only started rebuilding the sector in the 1970s, initially through state insurer People's Insurance Co. (Group) of China Ltd., according to a report by Swiss Re. Thanks to rising incomes and a growing awareness of health care, China is set to become the world's largest insurance market by the mid 2030s, Swiss Re estimates.

Insurance Take Off

Yang Jinzhu, who owns a beauty spa in Chengdu, needed just four taps on her smartphone to join Xiang Hu Bao.

"It's not too expensive and it was so easy to sign up, so I thought: Why not?'' said Yang, 40, who also spends about 1,000 yuan a month on commercial insurance. She then persuaded eight other people –-including family members — to do the same.

What gives the upstarts an advantage is their relatively low dependence on human beings. State-backed insurers such as China Life Insurance Co. and PICC rely heavily on employees to sell policies, examine claims and disburse payments.

By comparison, Ant Financial only has about 50 people working on Xiang Hu Bao, which means "mutual protection.'' In addition to its ubiquitous payments app, Ant Financial's artificial-intelligence software is getting better at recognizing claims and medical records after going through tens of millions of receipts. It can also automatically verify chops from more than 10,000 hospitals in China.

"When we realized that we might service hundreds of thousands, if not millions of users, we knew it couldn't all be done manually, and we needed to rely on technology,'' Yin said.

Ant Financial envisions having 300 million members within two years –-the equivalent of one in every five people in China. The demand for health care should be strong as the population ages, the rates of critical illnesses soar and people earning higher incomes seek better quality treatments.

"The immediate impact for traditional insurers is that they could lose the mass-market segment, so pricing could be under pressure,'' said Steven Lam, a Hong Kong-based analyst with Bloomberg Intelligence. "It's a very intriguing model.''

So far, Xiang Hu Bao has reimbursed at least 49 critically ill members, it said.

By comparison, Tencent-backed Waterdrop Inc. has paid out more than 470 million yuan ($68 million) to about 3,500 members via its membership program Waterdrop Mutual. Most of its 70 million-plus users never bought commercial insurance before, said Shen Peng, the founder and chief executive officer.

The Beijing-based startup launched in 2016 with backing from funds including Sinovation Ventures and IDG Capital. It's seeking new financing at a valuation of more than $1 billion, with plans to automate reimbursements and develop blockchain technology, Shen said. It employs about 2,000 people.

Members must be at least 28 days old and no older than 65 years. Beneficiaries can't have a history of critical illness and can't make claims during their first 180 days of membership, and they receive payouts adjusted according to age and ailment.

Unlike Xiang Hu Bao, which requires no payment upfront to join, Waterdrop Mutual wants users to have at least 1 yuan in deposit. That motivates users to read the fine print, Shen said.

"We ask for a token upfront free because it helps us maintain our service," he said, adding that Waterdrop deposits the money in a commercial bank.

While Waterdrop predates Xiang Hu Bao, Ma's effort is gaining momentum. Ant Financial is best known for the PayPal-like Alipay service that underpins Alibaba Group Holding Ltd.'s shopping sites. In recent years, it's been redesigning financial products from money market funds to consumer credit.

Yet the rollout of Xiang Hu Bao didn't go smoothly. The China Banking and Insurance Regulatory Commission said in November that Ant Financial, Waterdrop and rivals couldn't label their services as insurance products.

So Ant Financial tweaked the name to use a different Chinese character and rebranded Xiang Hu Bao as a membership-based supplement to conventional health insurance.

The basic idea is that as more people join, the less they will pay. Members older than 29 days and younger than 40 are entitled to payouts of 300,000 yuan, while people 40 to 59 can receive 100,000 yuan, Ant said.

Every member pays no more than 0.1 yuan –-or 1 U.S. cent -– toward another person's claim. Payments are deducted from users' Alipay accounts. People with a history of critical illnesses aren't eligible to join, and claims won't be paid within the first 90 days of membership.

When a dispute arises, a jury of hundreds of thousands of preapproved users votes on whether to pay out compensation. This month, Ant Financial rolled out a plan for people 60 to 70 to cover them against cancer.

These membership-based health care plans are far from perfect. They could be exposed to adverse selection, where healthier policyholders quit and less healthy members remain in the group, said Kelvin Chu, a Hong Kong-based analyst for UBS Group AG. A lack of options for pricing and payouts is another limitation, he said.

But for now, Ant has won over people like Yang.

"Every little bit helps when you have critical illness," she said. "Even if there's some risk, spending a few yuan right now doesn't seem like a big issue."

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