Huize: Redefining E-commerce Insurance

Thanks to the Internet, the monopolized industry is being challenged by newcomers, and Huize is one of them.
CapitalWatch StaffMar 29,2021,19:03

In China, there are not many Internet companies that have experienced the Internet era, the mobile Internet era, and smart economy era. And of the few that have, they have either become the giants in the industry like BAT, or they have lost their innovative power and disappeared from investors’ radar—or they have gone out of business altogether.

Competition is fierce in every industry in China. If a company wants to stand out in the market, it needs a unique business model and strong in-depth innovation. Huize, which went public in the United States last year, is one such company.


The Confidence to Aim for Long-term Growth

The year 2006 marked the climax of the evolution of the Internet in China.

In 2005, Baidu was listed on the Nasdaq. In less than a day, it became the Nasdaq China star stock with the highest market value of 3.958 billion, and the "Internet economy" began to attract people’s attention.

In 2006, Tencent and Alibaba continued to advance, and the concept of BAT (Baidu, Alibaba and Tencent) was initially formed. Relatively speaking, the former "big brother" Shanda (market value of $2.636 billion) and NetEase (market value of $2.415 billion) were still at the top positions.

In addition, 2006 was a year when e-commerce began increasing in popularity. However, the focus was mostly on physical goods, rather than services, as few people had the prescience to understand the true power and scope of e-commerce. But Huize’s founder Mr. Ma Cunjun did. And so he decided to seize this golden opportunity.

Ma Cunjun chose to build a platform that would allow insurance products to be legally sold on third-party platforms. It was a unique business model far ahead of its time.

How the Internet is Changing the Insurance Market

The reason e-commerce mostly focused on the sale of physical goods like clothing or books is because those are open industries which have a low barrier to entry; they are industries not as subject to dominating monopolies. The insurance market, on the other hand, is a very closed industry with traditional insurance companies have nearly monopolized the entire insurance market. This has both eliminated the motivation for market reform, and suppressed competition from arising.

However, thanks to the Internet, the monopolized industry is being challenged by newcomers, and Huize is one of them.

As an 11 year veteran in the insurance industry, Ma Cunjun searched through all the E-commerce websites he could, concluding after such extensive research that there was not a respected or reputable Internet company selling insurance. Working with Alibaba’s Alipay at that time, he saw the potential of marrying insurance and e-commerce. And so the idea for Huize began.

In 2006, Huize was born under the notion that "Buy insurance is as easy as buying a bottle of water".

However, When Ma started the company, he found that partnering with traditional insurance companies proved more difficult than he had anticipated.

The fact is that most insurance companies in China either refuse to go online or only trust internet giants for online sales. In addition, different insurance companies have different business models and different integration requirements.

At that time, e-commerce platforms only directed traffic to the targeted company. Ma knew that this was not enough. He understood that he had to build an ecosystem that offered many different niches and tailor-made services to all customers. To build a real ecosystem, Ma understood that he must find an insurance company that appreciates his vision and is willing to explore the business together. He reached out to all his contacts and finally he found AIG China.

Though not backed by any Internet giants, Huize survived and thrived because of its unique business model and excellent service.

After nine months of development, Huize launched its first product called “World Travel”, a simple travel insurance product.

After the product went live, it only sold 20,000 yuan in the first month, but this was enough to shock the insurance company, because AIG does not have an independent third-party intermediary in China, and all insurance is based on channels such as airlines and travel agencies. Huize has proved that this online insurance sales model is commercially feasible.

After AIG, Ma Cunjun partnered with Ping An Insurance. It took him another seven months to introduce the second product.

Today, more than 10 years later, Huize has introduced more than 20,000 products into its platform and many other companies have tried to copy Huize’s model.

This was not an easy journey. Ma believes the core strength of Huize is long-termism and strategic resilience.


Courage: Redefine Insurance, Three Important Choices

The competition in the insurance industry is fierce. If a company can win a place under the shadow of Internet giants, it must possess a specific competitive strength over the others. For Huize, it’s their three important choices and the courage to redefine the insurance industry.

Choice 1: it’s superb online services that exceed customer expectations.

Huize offers 24/7 real-person customer service. Even though AI customer service has become the norm, Huize still insists on real human customer service. While this entails higher labor costs, the unique user experience is not lost on customers.

While Huize’s focus on details that other insurance companies overlook brings pressure on the company’s financial statements in the short term, it will ensure user loyalty in the long term.

Why did Ma make such a choice? In fact, it is consistent with Ma Cunjun's understanding of insurance. He believes that the particularity of the insurance industry lies in the fact that the information between the two parties is very asymmetrical. Whether it is pre-sales, in-sales or after-sales (claims), users have a lot of needs to understand products and obtain services; Many users have to call for a consultation even if they only buy a small travel insurance.

Honestly, there was a huge internal dispute at Huize about the customer service expenditure. Many employees believe that it is in line with the nature of the Internet for customer service to become self-service. Even giants such as JD.com and Alibaba, are promoting AI service and saving telephone customer service as a last resort.

Huize stand apart by putting the customer first. Ma Cunjun’s knows that it is difficult to sell insurance, and even more difficult to choose what insurance product and what company to buy it from. If the user wants to call, it shows they trust Huize and if the trust is satisfied this time, the user is likely to become long-term user; if the trust is broken, Huize will most likely lose the customer.

Another more magical story is that in March 2013, A Huize customer Mr. Gu decided to travel to the Taklimakan Desert. Before departure, he purchased AIG's "Travel in China" domestic travel insurance plan through Huize.com, which included emergency rescue insurance. After walking into the desert alone for three days, he found that the compass and the water bag was broken. When he realized that he was unable to make it, he dialed the customer service hotline of Huize.com.

When the customer service received Mr. Gu’s call for help, the agent immediately called the AIG rescue agency, but the insurance company was unable to arrange search and rescue due to the large rescue area. At that time, Huize’s cash flow was tight, but the client's life was at risk. Ma Cunjun decided to take the initiative to bear the rescue fee and rescue Mr. Gu. Huize immediately contacted the local police and mobilized several people familiar with the terrain. A group of more than 50 people launched a search and rescue operation. In total, 22 motor vehicles were dispatched. After 25 hours of search and rescue, Mr. Gu was finally found.

To some extent, this approach has gone beyond the scope of "courage" and is almost "paranoid." However, customers love intermediary platforms that have such a spirit of "always putting clients first.” Huize has filled the gap between the insurance company and the insured customer. A nice gesture can attract long-term user trust. This is the logic behind this seemingly incredible approach.

Choice 2: From travel insurance to long-term insurance

With excellent customer service, Huize has done well selling travel insurance but Ma wanted to do more. He wanted to introduce long-term insurance into the platform. The long-term insurance payment period is 20 or even 30 years, which means users will need Huize’s service for 20-30 years.

But at that time, almost everyone told Ma that long-term insurance is always a people business. Only simple and standardized products can be sold on the Internet, and it is impossible to sell long-term insurance without agents.

But Ma Cunjun knew better. And so Huize decided to pull all its resources to bring long-term insurance into the platform, especially the long-term critical illness insurance sales.

In fact, Ma Cunjun's goal is to build Huize into an "entry-level insurance platform company for everyone."

In 2015, Ma Cunjun made drastic reforms, suspending all other business of the company and focusing all his energy on executing a long-term insurance strategy.

In 2015, Huize and China Life Insurance formally launched electronic invoice and it took another two years to launch the back-end claims service portal. After launch, Huize had become the first insurance intermediary company to establish a complete online customer acquisition, transaction and service system for long-term insurance in the Chinese market.

As the post-85s and post-90s young people gradually become the main consumer of the insurance market, these newly-grown consumer groups have a higher degree of acceptance of Internet insurance. The formation of the user group and the improvement of the online insurance system have made Huize finally usher in its harvest period.

According to the data released by Huize, in 2017, 2018, and 2019, the company's long-term life insurance and health insurance commission income continued to increase, about 50%, 70% and 90%, respectively. In 2020, revenue from long-term insurance contributes more than 90% of its total income. The latest unaudited report shows that Huize’s the total insurance premiums for the fourth quarter of 2020 was about 1 billion yuan, an increase of 55.7% year-on-year; total revenue increased 47.1% year-on-year, to at least 380 million yuan.

"In the past, people in life insurance all over the world believed that life insurance must be sold only by salespersons. The platform cannot sell life insurance and long-term insurance. We just took time to prove that the platform can not only sell, but do much better." Ma Cunjun said.

With all the success, Ma Cunjun is still not satisfied. He believes that to create a real long-term insurance suitable for Internet sales, the existing insurance prodcusts still have too many shortcomings. "We want to completely and thoroughly optimize the long-term critical illness insurance products".

What gives Ma Cunjun hope is the value of the Huize’s core users- the new, younger generation. He said: “In 2018, we received a call from a 25-year-old user to consult annuity insurance. We are happy to see that young users have grown up quickly. The new middle class has grown up and maintained an unprecedented rational understanding of insurance. They have already sensed the pressure of life and family. They know how to use financial tools and dare to consume. For that, I see an exciting future for Huize!"

Embracing the Era of Insurtech in the Smart Economy

The yar 2020 was a year fraught with challenges, a year of high uncertainty and a key year for Chinese companies to develop technological innovations to meet the changing times. Planning ahead. Huize has already achieved digital 2.0 transformation before 2020.

Companies that focus on the concept of "insurtech" created a small wave in the U.S. capital markets. Including Huize, a number of insurtech companies have completed IPOs, such as Select Quote, Lemonade, GoHealth, MediaAlpha, Root, Duck Creek Technologies, Palantir, etc.

Among them, Lemonade is a benchmarking company that Huize has been focused on for a long time. In the past, American consumers needed professional insurance brokers to buy insurance, and insurance brokers would make recommendations. This model has two problems: troublesome and costly.

LMND has made insurance products into a C2M model, that is, users can complete personalized customization through the website or App based on their needs. Users can choose the combination of insurance services and protections themselves, creating an insuracne product tailor-made for their needs. The system will calculate the price automatically, and the user can make payment online.

Cunjun Ma believes greatly in this model. He thinks the model represents the trend of the insurance industry.

The Three Stages of Huize’s Successful Path

The first stage was all about technology and the digitization of Huize—precision marketing that is based on big data for and business optimization.

Ma said, “As a pioneer in China’s Internet insurance service industry, Huize has accumulated a large amount of customer data and transaction data in the past. Although the total amount of data cannot be compared with BAT, the high-quality data that we have accumulated covers various fields. These high-quality data, which come from data experts with rich insurance experience, have made a significant contribution to the improvement of our product design capabilities and operational efficiency. These data can help us design more products that meet customer needs."

The Second stage was the intermediate stage of digitalization, which includes providing better scenarios and demand coupling through digital insights, providing better services and more SKUs.

Ma believes that the insurance products in the future must be more tightly integrated with scenarios and services.

He said, “We have to understand the scene correctly. I always believe that it is not only e-commerce consumption, travel and ticket purchases that are the scenes."

In fact, from the perspective of an insurance company, the best situation is to "sell the insurance to a user who has low risk or is not aware of the risk at all, and then pray that he/she will not in danger to make a profit."

But Ma believes that this concept has violated the essence of insurance. Ma stated, "insurance is helping users to transfer risks, manage risks, and reduce risks." He continued, "through advanced technology, the company can help users Identify risks objectively and connect to users as soon as possible"

To achieve this is the third stage of Huize, which is the future of the company.

Ma believes that digitization is the foundation of insurance technology, and the interconnection is important as well. He said, "In the future, when you decide how to travel, the system will value the actions and list the risks. Smart appliances, wearable devices, genetic testing and other technologies will digitize all behaviors, and the data will be richer. "

For users, the progress of insurance technology means that the asymmetry of informatization will be leveled. “Even in the late night, when you feel very stressed, through the intelligent underwriting system of Huize, you can check whether the uric acid level of today's physical examination has reached the level that affects the insurance...The intelligent terminal not only empowers our employees but also empowers our users," Ma added.


Luck: Finding direction in constant trial and error

We talked about Huize’s confidence and courage and now let’s talk about luck.

Going public in 2020 is an important and timely decision for Huize. With more and more giants pouring into this market, timely listing in order to raise capital from the secondary market is an important and successful decision.

But we must also realize that in the short term, Huize is indeed undervalued.

Huize has 52 million shares outstanding and a stock price of $8.72 per share. It has a P/E ratio of 73, which does not seem to be low. However, it should be noted that high-quality U.S. stocks with such rapid growth such as Huize tend to have extremely high P/E ratios, often hundreds or even thousands of times.

In some way, the value of stocks is not determined by rational factors. In many cases, the main factor that determines stock prices is market sentiment, not its fundamentals.
Give an example that we are all familiar with. Baidu's revenue capability is very strong, but due to doubts about its AI business prospects, it has been severely underestimated, and its market value is hovering below 50 billion. However, in 2020, AI becomes extremely popular among the capital market and its commercialization prospects become promising. Although the AI sector only contributes less than 20% of Baidu's revenue, its stock price has risen 220% in just six months. It’s market cap reaches $100 billion. And this is just the beginning.

I believe Huize has the same favorable prospects as Baidu in the insurance industry.

In my opinion, the most important problem may be that Huize has been too low-key for a long time. From the Baidu Index and WeChat Index, the keyword “Huize” is less popular than other Chinese stocks.

Of course, I am not saying that the future of Huize relies on marketing or some dramatic events. What I want to say is that the true value of Huize lies in our strong domestic market and the growing insurance industry Huize is in. We live in this great era that technology-enabled innovation is the major spur to our country’s economic growth. Digital 2.0 has completely changed traditional industries. Any kinds of opportunities and miracles can happen. The key lies in whether you can capture that opportunity, and more importantly, whether you are prepared to be a long-termist rather than an opportunist. Obviously, Huize belongs to the former - an endurance player who is always well-prepared and stays focused.

The above translated article was orginally posed on https://new.qq.com/rain/a/20210223A0B90W00

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