Mutual Aid Insurance in China

Lately there have been several news articles on mutual aid programs in China, programs which look very similar to a cooperative Takaful structure.

One of the structures is Xiang Hu Bao, a product by Alibaba’s financial arm Ant Financial and Trust Mutual Life covering 100 major illnesses. What makes this product interesting is that premiums are paid in arrears, i.e. when and to the extent actually needed to cover claims. The management fee (Wakalah fee?) is 10% of the amount needed to cover claims. Due to the potential effect of rounding in determining how much each participant needs to pay, there can be a surplus in the fund, which is used to offset claims in the following month. Claims are paid twice a month and participants have the option of making objections to the claims (of other participants). The entire process takes place on the blockchain and in their first 9 days, they had 10 million subscribers and currently have 65 million subscribers. The goal of this structure was to overcome three gaps in insurance currently: the conceptual gap, the trust gap and the supply gap. Currently, insurance policyholders feel like they have ‘lost’ if they do not get to claim, this is the conceptual gap. There is also a lack of trust in insurance companies, which the arrears basis of payment can help overcome, and finally, this structure can be used to penetrate market segments not currently being targeted.

A second structure is from Public Mutual, which opened in 2017. The coverage is for chronic kidney disease patients, in particular those that are mild and stable. In addition to insurance coverage, disease management services are also offered.

With both of these examples, it isn’t clear if benefits are guaranteed, and thereby the extent that a discretionary mutual approach is used. This does point to the potential of a pure discretionary mutual Takaful operation however, exciting times indeed.

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