Waterdrop Inc, or Shuidi, probably the most notable insuretech company from China, went public at NYSE on Friday.
On its debut day, the price dropped by almost 20%, with regulatory concerns the main reason for investors’ lack of confidence.
We have written about Waterdrop’s business model about 2 years ago, when the company received a US$145 million C round funding, just 3 months after its US$74 million B round.
We also wrote about the doubts surrounding the company a few months afterwards. Our stance was, the criticism was weak and unfounded.
While there are many fancy commentaries around Waterdrop’s business, we should not forget that essentially it started with acquiring massive amount of customers at very low or zero cost. Its de facto online mutual insurance scheme played a major part in this.
However, that business is under doubt now – as not only Waterdrop, but also Ant and other companies, stopped doing it after regulatory concerns. In away, wecould find similarities between this and fintech lending in China, as our friend Hu Tianjian, an internet finance veteran in china, pointed out in his commentary.
We argued that GoBear, the financial market place for Southeast Asia, was neither viable nor sustainable by the same logic.
Insurance distribution business
A bigger concern, however, is not about mutual insurance per se. With or without mutual insurance, the customer acquisition costs is going, and will continue to go, up.
Its current business model is essential insurance distribution – earning the difference between its acquisition cost versus that which insurance companies are willing to pay.
How can the company secure a sustainable business model is the focus of the management after IPO. That includes making sure its acquisition cost continues to be lower than that of insurance company, even if it eventually becomes an insurance company itself.
Co-founder Yang Guang was right to point out that profit is not a priority. We all remember the lessons of (one very profitable) Jianpu Technology:
