Just 31 years after it was founded in China’s southern city of Shenzhen, Ping An Insurance (Group) Co. has grown into the world’s second-largest insurer by market value after Berkshire Hathaway Inc.—more valuable than Allianz SE and AIA Group Ltd. combined. A financial supermarket that offers insurance, asset management, banking, and trust services, Ping An (which roughly translates to “safe and well”) added a focus on technology in the wake of the financial crisis.
Now it has five groups of internet platforms, which it calls ecosystems, focused on finance, property, automotive, health care, and services for the “smart city.”
More than 576 million users and 100 Chinese cities are connected to at least one of those ecosystems. One of the businesses, Ping An Healthcare and Technology Co., which runs the health-care portal Good Doctor, has already listed separately.
Shanghai Lujiazui International Financial Asset Exchange Co., the unit that manages the finance website Lu.com, postponed a planned public offering in 2016 when the government cracked down on peer-to-peer lending.
Ping An has started licensing technology to peers at home and abroad. Below are excerpts from Bloomberg Markets‘ September interviews about the company’s strategy, conducted separately with two of Ping An’s co-chief executive officers, Jessica Tan and Lee Yuan Siong. (Lee will be leaving at the end of January to become AIA Group CEO and president on June 1.)
BLOOMBERG MARKETS: How will technology change Ping An in the next decade?
JESSICA TAN: For technology, we have a three-step path. The first is to enable finance with technology, using technology to very aggressively innovate our business model from sales to risk control and operations, which we’ve been doing in the past 11 years. The second step is to use technology to enable the ecosystems, targeting either consumers or businesses and the government. Then it’s the ecosystems nurturing finance when they’ve reached a certain size, but that takes some time. That’s started, especially in terms of new-client acquisition, as it’s an area where we started out early. But the real benefits here have yet to show themselves.
In 10 years, we’ll just become a “technology-plus-finance” company. We’re already starting to show that. Technology’s contribution to revenue remains small to the company now, even though it’s already a big number—38.4 billion yuan [$5.4 billion] in revenue in the first half of this year from the 11 tech companies. But when we do better at the second and third steps, the contribution from technology will become bigger and bigger.
BM: How does Ping An’s tech measure up with that of competitors around the world?
JT: We now have 32,000 researchers, a combined 101,000 tech staff at the 11 tech units, more than 20,000 patents—96% are invention patents—and eight research institutes. In terms of input, our technology strength is unparalleled among financial institutions.
Even compared to globally leading technology companies, we’re often even stronger in the area of finance. Some of our technologies are rarely seen or even impossible to find among financial institutions globally. Ping An OneConnect’s [fintech and cloud computing] products domestically are being used by 618 banks, 84 insurance companies, and nearly 3,000 other non-banking financial institutions. In seven overseas markets, there are about 27 financial institutions using them, and most of them are relatively large financial institutions. So I believe we’re very competitive here.
BM: What is the response to Ping An’s technology in the rest of Asia?
JT: There’s a lot more demand than we expected. When OneConnect set up its overseas office [in Singapore] about one year ago, we thought a small office would do. Now it has more than 200 full-time employees [in Singapore, Indonesia, and Thailand].
At present, demand is particularly strong in three areas. One is SME [small and midsize enterprise] financing, which is a very hot topic at home and abroad. Our advantage here is that we have the technology to truly aggregate many data to create risk profiles of small and medium-sized businesses. And since we’re a financial company ourselves, financial companies believe our model can work. And even if you don’t trust me, I can do it myself with my own money.
The second one is personal finance, another area with very, very strong demand. The third area is efficiency improvement. Asia, in many places, still depends on people for sales, but we have a lot of sales management tools.
We’ve done this ourselves. I can improve the productivity of 1.4 million agents; we absolutely can improve it for your people. As long as financial institutions want to do it, we’re a very good partner.
Many people are worried that we’re competing with the local financial institutions, because Ping An has a reputation domestically of being strong. I would say, “Look, I’m just an enabler.”
BM: How many potential unicorns are there in the company’s incubator, and what do they do?
JT: It’s hard to say. Whether it’s 11 or any other number is not important. What’s more important is we do our job around those five areas [finance, health, auto, property, and the smart city]. For finance, Lufax and OneConnect are the main ones. One serves clients directly and the other enables the entire market. I guess there won’t be new ones. OneConnect will have more modules, while Lufax will become more and more efficient, with its wealth management robot popularizing wealth management services.
The reason we now have 11 tech units is a management decision. It’s actually very hard for a company as big as we are to keep innovating and stay nimble. We encourage the use of small teams to try things out while coordinating among themselves with clear positions for everyone.
BM: How much more can the insurance business do to achieve cost savings, efficiency improvements, and other value creation from technology?
LEE YUAN SIONG: Using new technology to empower our business is a never-ending journey. We started earlier than others, have done more, and gone further, but that doesn’t mean we’re already close to the end. What we need to do is to always keep ahead of peers—moving faster and further, with them chasing behind us.
In terms of specific indicators, our life insurance business, including internal management, is already 93% online and paperless. We can hit 100% within a year, but being online and paperless is no end to the application of technology. The four main business lines of property insurance are about 90% online and paperless and could also achieve 100% within a year.
After moving online, you can accumulate massive data as every step leaves a data trail. Then you can digitalize, with data guiding your decisions for business operations, management to services, sales, and risk control. The third step is using AI to make judgments and decisions. We’ve seen clearly the benefits, and we’re just taking action to realize them in every aspect of the business.
We’re pushing the group as well as the business units to, within 18 to 36 months, achieve full digitalization—with data driving management decisions at every step. We’ve been employing artificial intelligence in various scenarios for intelligent management, such as in auto claims settlement, pricing of property insurance, as well as the interviews of agents.
The value can be seen in many ways, from enhanced customer satisfaction to better risk management and higher efficiency. Our auto insurance combined ratio is 3 percentage points lower than the industry’s, which is a long-term and direct impact. The nonperforming ratio of our loans is also very low.
BM: You’ve said Ping An is undervalued because investors are underestimating the value of your technology. Could there be risks that investors are seeing but you aren’t?
LYS: We’ve been building an integrated financial-services model, which is different from the universal banking seen abroad and has achieved very good results. From the growth in the number of clients and profit per client, you can see it’s actually a very successful model. We’ve been telling the capital market to see our potential value in the growth of our clients and per-client profit. That’s starting to be accepted by the market.
The ecosystems are an upgrade of our entire technology segment. That includes the listings of the units, the tech products, which create direct value. Besides that, when the ecosystems enable our integrated financial services, it creates additional value and should add a premium to the valuation of our integrated financial services.
Almost one-third of our new clients come from the ecosystems, and that’s why our client number keeps rising, to 196 million. Profit per client keeps rising and the number of products per client keeps increasing, too.
The ecosystems are not yet included in the valuation models in the capital market. The value of the integrated finance is partly reflected—so the value of the core business isn’t fully reflected, either. So every segment has room. As to how much room, I won’t give guidance. It’s up to the capital market to assess.
BM: How will autonomous driving affect auto insurance?
LYS: It will have a relatively big impact on the current business conditions of auto insurance, which we must admit. How it’s going to change depends on, firstly, the advance of technology, and secondly, how the legal environment adapts to autonomous driving: how to assign responsibility when accidents occur—who’s responsible and how big is the responsibility. It’s going to change auto insurance, but it’s also going to bring opportunities, such as liability insurance.
BM: How does Ping An compete with online insurance offerings from tech companies?
LYS: Indeed, a lot of interpersonal communications and transactions are now taking place online, and that’s why we are moving onto the internet. We have massive offline forces and networks, but we’ve already moved online.
Our life insurance Jin Guan Jia [or “golden housekeeper”] app has 220 million users. The property insurance unit’s Ping An Auto Owner app has more than 70 million users, and even the small health insurance unit has 10 million app users, and Lufax has more than 40 million users. So while we have huge offline forces, we’re actually very much internet-based already, with communication and interaction between clients and our agents, service staff, and managers taking place online highly efficiently.
We focus on finance and health, and have deeper understanding about client needs in those two domains than pure e-commerce, social, or news-oriented internet platforms do. With our huge internet presence, our offline service networks are actually an advantage.
We’re changing every year. When younger generations born after 1990 and 2000 become the main consumers, financial institutions need to understand how to interact and communicate in ways they like. So we’re prepared for the competition. There was simply no other option.
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