China’s banking and insurance watchdog is stepping up scrutiny of the nation’s insurance technology platforms, widening a regulatory dragnet that has roiled global investors.
The regulator has ordered companies and local agencies to curb improper marketing and pricing practices, and step up user privacy protection, according to a notice seen by Bloomberg News. It encouraged companies to address these issues voluntarily and said those that failed to comply would face “severe punishment.”
The sweeping order goes beyond the targeted action that’s hit a few listed online platforms including Waterdrop Inc. and
The latest move will stymie growth in an industry that had been expected to grow to
“In recent years, online insurance has moved into a fast lane. At the same time, transgressions have been rampant,” according to the notice, which cited offenses including some internet platforms illegally operating in insurance, mispricing risks or illicitly using client information. It called for “immediate rectification and regulation.”
U.S.-listed insurance platform Huize Holding Ltd. fell 5%, the most in two weeks, after Bloomberg reported the notice. Insurance agency and platform Fanhua Inc. dropped nearly 6%. Ride-hailing service Didi Global Inc., which operates a fledgling financial services
Regulatory overhang
Investors across China’s online space will need to brace for further ructions after a year in which technology darlings from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. and Didi have been hit by a blizzard of regulatory action. The State Council on Wednesday
Just a year ago, insurance seemed ripe for disruption as startups vowed to transform traditional practices with technology. Regulators have since moved to shutter some operations including mutual aid healthcare platforms operated by Waterdrop and Ant Group Co. A draft circular in January may potentially bar companies from selling certain insurance products if enacted.
The overhang presents multiple challenges for Waterdrop, which was one of a few Chinese fintechs to have pulled off an initial public offering this year. The company has warned it “may not be able to achieve or maintain profitability or positive cash flow in the future” after incurring net losses and negative cash flow each year since its inception in 2016. It lost $101 million last year after generating operating revenue of $464 million.
Investors and companies have poured an estimated 45 billion yuan ($7 billion) into insurance technology,
What Bloomberg intelligence says
China’s crackdown on marketing, pricing and fees for online insurance products should be good for industry leaders such as ZhongAn in the long term we believe. Better consumer protection supports more-sustainable industry development and competition on service quality and product innovation rather than via pricing and misleading ads.- Steven Lam, analyst.
By the end of 2020, more than 140 insurance companies in China had started online insurance businesses, with total premiums of 298 billion yuan for the year, or 6% of the industry total, a CBIRC official said in a speech in May.