How did this insuretech company get US$145m Series C?

Shuidi, a Chinese insuretech company that ‘focuses on’ mutual insurance, has just raised another US$145 million, in its series C round.

This came less than 3 months after its series B led by Tencent, in which Shuidi secured about US$74 million. Gaorong Capital, IDG, and Yuri Milner of DST also participated in Series B.

Business model 

However, mutual insurance is known to not be a profit-making model. So how does Shuidi generate profit?

The platform is known for offering ‘mutual insurance’ where people can crowd fund to support members who fall sick and face big medical bills.

Shuidi and its competitors, including QFund, run similar models, which can be summarised as the following steps:

1. Online crowd funding for patients who could not afford medical bills. People can contribute to the crowd funding effort – enabled by swift and painless WeChat payment and wechat log-in. Inevitably these people are acquired as users of the platform.
2. Individuals who feel insecure about their insurance coverage can opt to enrol into a scheme where each one contributes a small amount to get some coverage – the “mutual insurance”. You also feel good that you are helping others rather than paying the huge overhead and channel costs of commercial insurance. You might even ask your friends, family and colleagues to join – which means the platform will acquire customers at almost zero cost.
3. A portion of these consumers will be offered commercial insurance, underwritten by licensed insurance companies. The commission they earn from that is lucrative – as insurance companies had traditionally relied on agents and banks as distribution channels, which were far more costlier.

There might be a step 4 – after they are comfortable generating leads for insurance companies, companies like Shuidi might acquire their own insurance licence to capture the entire value chain.

Comfortable competitive position 

This series C funding round, led by Boyu Capital (an investment firm run by Alvin Jiang, grandson of former Chinese President Jiang Zemin), will certainly put Shuidi on a more secure path against its mushrooming competitors.

Ant Financial has recently launched similar products through its Alipay platform. It is worth noting that Boyu Capital earlier also invested in Ant Financial.

Of course, there is always regulatory risk out there. In April, China Banking and Insurance Regulatory Commission (CBIRC) issued a notice to regulate the online insurance intermediary market.

However, we think that Shuidi will not really be impacted by the regulations (read above paragraphs for the reason).

It has recently set up an office in Singapore to explore global markets. Beware!