ONE JOB INTERVIEW at Ping An is a strange experience. To become an agent for the world’s largest insurance group by market capitalization, candidates must answer questions from an intelligent machine. As they respond, their voice, choice of words, and gestures are checked for the qualities of the most productive salespeople. After collecting data from millions of such interviews, the company believes in its artificial intelligence (AI) System can quickly pluck talents and sort out the boys. It works as measured by the company’s agent productivity scores.
Just as the recruiting tool offers a glimpse into the future of hiring, Ping An itself may offer glimpse into the future of finance. The tool is just one of the thousands of applications created by the group’s engineering army. They support a wide range of services, from insurance and banking to health care and education, which were used by nearly 600 million people this year alone. No other traditional financial services company in the world can match Ping An’s ability to develop and deploy technology on such a scale.
The company founded by Peter Ma began life as a small unit in a state-owned company in Shenzhen, selling chief insurance against employee compensation claims. It was finally spun off in 1988. By the mid-2000s, it had become one of the largest life and property insurers in China, attracting investment from HSBC, a bench. Today, worth 1.5 trillion yuan ($ 236 billion; see Figure 1), it has redefined itself as a technology conglomerate around an insurance company. It is now the largest investor in HSBC..
Three things distinguish the Ping An operating model from that of a standard insurer: its comprehensive service platform; its approach to hundreds of millions of users and customers; and, what underpins it, its technological capabilities. Take the number of subsidiaries first. The company sells life and health insurance, which accounted for 67% of net income for the first three quarters of the year. It offers health care through Good Doctor, its digital medicine group (see items). Customers can park their money at Ping An’s bank or invest it through Lufax, the wealth advisory agency listed in New York on October 30th. You can buy a car or sign up for educational services and then fund the payments through Ping An’s consumer credit department.
The sheer breadth of services it offers enables Ping An to treat customers more like a social media company than an insurer – the second unique thing about its business model. Unusually for a financial institution, Ping An views the majority of the people who buy its products as users rather than customers. You can buy a health service from Good Doctor or a car from Autohome, its car purchase app, which adds to the company’s data pool but remains outside of the core customer base. “You don’t have to jump through hoops. All you have to do is download our app,” says Jessica Tan, one of the group’s three co-managing directors. Users become customers only when they hold a financial product in one of the company’s core units, such as an insurance policy .
Ping An has enabled hundreds of millions of people to dip their toes into the product offering, creating a pool of users who can be targeted to sell more sophisticated products. More than 578 million people used the platform in the first nine months of the year (see Figure 2). Around 214 million were customers who had contractual agreements with the company. The rest were considered users. In the first half of the year, around 35% of the 18 million new customers were obtained from users. As the company gained more users, that percentage has increased steadily over the past few years.
Ping An also gets better at the lucrative business of “cross-selling” or selling more products from other parts of the group to customers, increasing income without the cost of acquiring new customers. The proportion of private customers who have contracts with more than one subsidiary rose from around 19% in 2015 to around 37% in June. According to Bain, a consulting firm, that puts Ping An around 20 percentage points above the average cross-selling rate for insurers in Asia.
None of this would be possible without Ping An’s technological prowess – the third and by far the most important component of its success. AI enables, for example, cross-selling pitching to customers when they are most useful. “The final sale is done by an agent, but the system develops the recommendation,” says Henrik Naujoks of Bain. “And it’s done at the right time.”
Large banks and insurers often sponsor “fintech incubators” that develop new technologies or buy applications that can be patched to their core businesses. HSBCFor example, Identitii, an Australian fintech company, developed a tool for digital payments this year. For regulatory reasons, however, such experiments are usually separated from the financial institution.
In contrast, Ping An has fully internalized these operations, apparently without fear of regulatory backlash. The group has a 110,000-strong technology development team that is larger than the commercial banks of any but the largest banks, including 3,000 academics. In the first half of the year alone, 4,625 technology patents were registered. The tools developed within the group’s technology unit are often used company-wide. This includes credit risk models that use large amounts of data to make quick credit decisions in the consumer finance division of Ping An, Puhui. Similar data processing can track a customer’s driving habits based on movements recorded on a cell phone sensor and rate the car insurance company accordingly. More accurate pricing on both fronts saves the company money.
When large financial firms develop systems in-house, they jealously protect them from competitors. Mr. Ma turned that thought on its head by turning Ping An’s technology division into a sales unit and profit center. When the company developed its own cloud computing technology to host its banking and insurance systems, it eventually turned the technology into products that now serve 630 banks and 100 insurers across China – a “software-as-a-service” Banking model is often compared to what Amazon Web Services did for hosting websites.
Ping An’s lending algorithms made it possible to borrow 47.4 billion yuan from competing banks in the first half of the year. This unit, renamed OneConnect, went public last year. Another, called Smart City, builds and operates internal systems for hospitals. Local governments in 118 cities are buying management technology from Ping An.
The technology business, which includes the sale of cloud computing services, generated just 4.5% of net income in the first nine months of 2020. The transition from financial institution to fintech, however, means turning technology into a profit center, says Leonard Li at Oliver Wyman, a consulting firm. This technology makes a profit in the first place, rather than increasing the cost base, which makes Ping An unusual.
Could elements of the model be adopted elsewhere? Many of the individual technologies developed by Ping An will soon be used by western insurers. Some are already talking about how to become “the Ping An of Europe”. However, wholesaling fintech will be more difficult (and likely to be more difficult in China as well) in countries with stricter big data regulations. American and European customers may also be more reluctant than China to buy insurance, health care, and wealth management from one company.
In the meantime, Ping An’s approach is being put to the test. When covid-19 first launched in January, the company was a year in the process of restructuring its life insurance business. This includes improving the number of over 1 million agents who remain the main channel for insurance sales in China. The country’s insurers not only fight among themselves for talent, but also against newcomers. “We also compete with the technology companies,” says Jason Yao, another co-employeeCEO. Companies with proprietary financial technologies such as Ant Group have brought competing insurance offerings to market.
The AIThe powerful recruiting and training tool was one of Ping An’s top solutions. It seemed to work in 2019, when the value of new business per agent in the company’s life insurance line rose a healthy 16.4% year over year. The meter dropped almost as much in the first half of 2020. Analysts say its rivals in China fared even worse. However, according to a consultant, there is a risk that the effectiveness of some of Ping An’s technical solutions may have been overestimated due to the rapid growth of the insurance industry in China at the time. A prolonged downturn could show that some of its technology is less effective than initially thought.
Another threat comes from leadership changes. In part, these reflect Ping An’s position at the technical frontier, which has led rivals to snoop at its executives. Ericson Chan, Managing Director of Ping An Technology, was poached by Zurich, another insurer, in September. Lee Yuan Siong, General Manager of Ping An Insurance, took over the management of AIA, a Hong Kong-based insurer, this year. The loss of the couple was a blow to the group. More could follow.
Questions also depend on the future of Mr. Ma, who is 65 years old this year. In July, he stepped down as Group Chief Executive, prompting industry watchers to anticipate an early retirement. But he is still chairman and there is no talk of succession planning yet. If Mr. Ma left, some fear that Ping An’s rapid ascent would quickly come to an end. “There is only one person who drives innovation,” says one consultant. With all the use of machines, Ping An is still subject to the key man risk. ■
This article appeared in the Finance & Economics section of the print edition under the heading “Metamorphosis”