The digital life-insurance joint venture in Hong Kong between Aviva, Tencent and Hillhouse will start by offering a service designed for customers, not distribution agents, says Andries Smit of Aviva Digital.
“Insurance in Hong Kong is high friction,” said Smit, who is managing director for the firm’s global digital factory and Asia digital business, based in Singapore.
He says the “friction” – high costs and complexity – in selling insurance comes from incumbents relying on wholesale channels to reach customers with unnecessarily expensive, over-engineered products.
The joint venture between Aviva, Tencent and Hillhouse Capital is meant to address this by avoiding distribution through agents or financial advisors – a novelty among insurers worldwide. The J.V., still called Aviva Life, is betting on a new business model that focuses on selling straight to policyholders.
“We see customers do want to buy direct,” Smit told DigFin.
Exporting Chinese fintech
The Hong Kong Insurance Authority handed the J.V. today, February 13, with operations expected to start by summer. The participants first announced the deal in January 2016, with Tencent and Hillhouse together taking a 60% stake in Aviva’s Hong Kong life entity.
Shenzhen-based Tencent offers digital distribution customer experience. Hillhouse, a $35 billion private-equity firm based in Beijing, provides a network of portfolio companies in sectors such as healthcare and consumer, and asset-management skills, notably (in this case) in money markets. Aviva brings risk management.
We see customers do want to buy direct
Smit acknowledged DigFin’s question about the risks of partnering with one of China’s internet giants. Now that Tencent has an insurance license from a globally respected financial center, will it need Aviva as it expands to new markets?
“We have to prove our worth,” Smit said, noting that such business risks are present in any J.V. “The biggest risk is to do nothing.” He says the challenge for Aviva will be to learn quickly enough to remain vital to Tencent as it expands to new markets. “That should be our competitive advantage.”
He says Aviva brings something else to the table besides its traditional risk-management capabilities: international experience. Even big partners like Tencent and Hillhouse don’t know exactly how replicable the mainland Chinese fintech experience is. For now, the domestic market has been so big that there hasn’t been pressure on Chinese companies to go abroad. But that will change, making the J.V. in Hong Kong a useful test of how easily Chinese fintech can be exported.
What they excel at compared to anyone else, though, is product development and time to market, Smit says: “They take it to the next level.”
Tencent is one of the most sophisticated internet companies in the world, with services in payment, cyber-security, cloud and artificial intelligence, as well as its famously popular social-media apps, Weixin (WeChat) and QQ.
But Aviva Digital has been working over the past few years to also become a savvy operator. The management under group CEO Mark Wilson decided to hive off Aviva Digital as a separate entity, shielding it from inevitable internal resistance to business transformation. Chris Wei is global CEO of the digital venture.
The vision is customer-based pricing models
First in the U.K. and then in Singapore, the digital version took lessons from insurtech disruptors to dramatically cut time to market for new products, make pricing more attractive, and use data analytics to understand customer behavior.
Aviva Digital has come to appreciate that process in the wake of its own journey in the U.K. It began with quick wins by making its digital front ends easy to navigate, and then in Singapore it began to build a tech layer to integrate these customer touch points to the traditional, legacy back-end systems.
There remains a point when new products hit the complexity of heritage systems. The U.K. business has sought to gradually transform its tech stack. In Singapore, the integration layer has left some old systems intact. In Hong Kong, the firm is trying to build something from scratch. Ultimately the firm wants to create globally scalable offerings.
“It’s not yet the all-singing, all-dancing platform,” Smit said. “But the vision is customer-based pricing models. For us ‘digital’ means ‘retail’, that is, being all about the customer.”
Once the firm began to use data to understand how to design products better, it then needed a tech stack to support this activity, so it’s next move will be to adopt a vendor cloud solution.
Traditionally, when an insurance company considers introducing a new product, it has to recruit a product team, go to the procurement department to secure servers, and negotiate with suppliers. It can be months before anyone actually starts to code a software program. Outsourcing this to a cloud vendor can eliminate this process and enable Aviva to scale up, or down, quickly, and compute pricing and actuarial models for new products within hours.
“This year we will go from proofs of concept in cloud to actual delivery,” Smit said.
That should help Aviva keep pace with its ambitious J.V. partners in Hong Kong. Meanwhile, the new venture is going to attempt to make life insurance in Hong Kong easy to price, simple to understand, and worthwhile for people to buy – which assumes that today insurance is none of the above. “If we can fix those things, then we can expand.”