Waterdrop CFO Confident in the Growth Potential of Tech Based Insurance Industry

Chinese online insurance company Waterdrop Inc. delivered its financial report for the first quarter of 2021, marking its first earnings release as a public company.

By Friday, the company was trading at $7 per share, compared to $12 at the time of its IPO. As of today, Waterdrop is trading at $6.54, the lowest level since its debut on the New York stock market on May 7.

According to the unaudited results, the company saw a 35.1% year-on-year increase in net operating revenue to reach 883.4 million yuan ($134.8 million), along with an operating loss amounting to 460.6 million yuan ($70.3 million), as compared to 111.1 million yuan ($17.2 million) for the same period in 2020.

Of the company’s revenue, commission from selling insurance underwritten by insurance carriers comprised a significant proportion, among other services. The report confirmed this by showing that the total amount of first-year premiums (“FYP”) generated through the Waterdrop Insurance Marketplace reached 4,469 million yuan ($682.1 million).

Waterdrop’s paying insurance customers reached 21.9 million as of March 31 this year. The company’s most popular and far-reaching channel, Waterdrop Medical Crowdfunding attracted approximately 360 million people to donate an aggregate of over 40 billion yuan ($6.2 billion) to around 1.9 million patients. The report says that the company charges zero service fees and generates no revenue from its crowdfunding platform.

SEE ALSO: Waterdrop Makes NYSE Debut, Aims to become China’s UnitedHealth Group in 10 Years

CFO of Waterdrop Inc. Shi Kangping met with Pandaily on Friday to explain some of the results that were made public and to provide insight into the company’s future development direction.

Q: What would you say about Waterdrop’s Q1 results?

A: I think our developments are within expectations. Under the current backdrop of only approximately 16% industry growth, Waterdrop has achieved a growth way above that, thanks to welcoming policies and the government’s plan to enrich multi-level medical paying mechanisms that give commercial insurance and critical illness crowdfunding their place in the market.

Q: What are some of the main driving forces for Waterdrop’s development?

A: Apart from policy support, the main driving forces are a rise in people’s income and the push for urbanization, which together made demand for medical services – including development of new medicines and health insurance – higher.

Another driving force is our unique, highly efficient mode of operation and use of technology. One of Waterdrop’s strongest advantages is that we reach customers directly through the Internet, which enables us to better understand consumer needs while reducing customer acquisition costs and increasing the scale of impact.

Q: Technological research and development costs are shown to have had a year-on-year increase of over 20%. What are some of Waterdrop’s main aspirations regarding these efforts currently and in the future?

A: One important direction is smart marketing, with which technology has helped us build mass user profiles. Another is smart customer service: we are now capable of handling daily customer service requests from around 116,000 persons, covering 86.9% of conversational inquiries. Our smart claim settlement system has also reached 99.7% accuracy. We have used technologies such as natural language processing to build bots capable of customer interactions. AI technologies have also help us construct users’ behavioral data, calculate risks and perfect product designs.

Q: The report mentions an estimated year-on-year increase of 50% for first-year premiums for the second quarter. What elements is this prediction based on?

A: We based that off of actual growth rates from April and May as well as past paradigms and our evaluations of the market currently. It is, of course, subject to change, so we will watch out for variations of the situation and make adjustments accordingly.

Q: We see that Waterdrop is still operating at a loss currently, and the gap has widened as compared to last year. How do you interpret this result and what are some of Waterdrop’s future plans concerning profits?

A: Waterdrop is a young company with only five years of history, including just three for our medial insurance services. So for a startup-stage company like us, profit is not the most important index, or our primary focus. The losses come mostly from an increase in marketing and developing costs concerning technological advancements. Our primary focus at the moment is to increase market scale and build on our impact, so we will continue to invest big amounts in gaining new customers this year.

Q: Waterdrop has aimed to become the Chinese United Health Group and expand further into the “Big Health” industry to achieve a state of diversified income. What are some of your plans regarding this goal?

A: Our future development direction concerning this goal consists of Waterdrop Health, which provides basic health management services to healthy people in combination with existing insurance products, as well as our medical treatment service targeting patients with illness. We have constructed the basic functions and service patterns for an “internet hospital,” built communities, and are testing out its business value on a small scale. We are continuing to seek partners, such as mainstream pharmaceutical and health management service providers, to widen the scale of our reach.

Q: What are some of the differences between the medical insurance industry in China and the US, and what are the differences between Waterdrop and United Health Group?

A: I think Chinese medical insurance coverage still presents a huge gap to fill. There are major differences in medical payment systems between the two countries, so talking about insurance only is not enough – the outgoing compensation from commercial medical insurance only makes up 3% of the market so far in China, and this represents a pretty far distance from the strength of the US system, which is centered around private health insurance.

We are also at different developing stages in terms of health insurance. The Chinese market has seen flourishing on both supply and demand sides, with more people able and willing to obtain suitable insurance.

The third difference is in terms of market structure, with which developed countries have already made efforts to construct a health service infrastructure. Waterdrop was founded under China’s current market situations and has strived to serve as a driving force in all of the aforementioned aspects to push for market development.

Q: Does the internet insurance mode exist at all in the US?

A: There are many internet-related insurance companies in the US but Waterdrop does not operate like them. We have a unique double-platform mode consisting of Waterdrop Crowdfunding and Waterdrop Insurance, which is hard to find in the US.

Q: You mentioned that China still has a Blue Ocean market where consumer needs are not fully met, and that technologies such as AI can help provide services to users in this respect – how did you come to this conclusion?

A: First of all, from the market perspective, the number of people who have the awareness to buy insurance in China still cannot compare to countries like the US, so there are a lot of potential users there. More importantly, regarding the Blue Ocean market, I was referring to the industry of internet-based insurance. Many domestic insurance giants still rely heavily on agency teams on the ground, performing traditional operations. Waterdrop, as an Internet technology company, has created newer operational methods that deviate from this pattern, and we hope to continue pushing the industry forward with our innovative attitudes and impact.