Within the year, following the successful listings of insurance companies such as Youjia Insurance (UBXG. O) and Zhibao Technology (ZBAO. O) on NASDAQ, and the listing of Haier's Zhongmiao Holdings (1471. HK) on the Hong Kong stock market, as well as companies like Shouhui Technology heading for IPOs in Hong Kong, another insurance technology company, Yuanbao Inc., has officially submitted materials for listing on NASDAQ with the ticker symbol YB. O.

The reasons for the enthusiasm of insurance technology companies to go public are varied. Yuanbao, which has been established for less than five years, has seen rapid development in its performance and quickly turned losses into profits. However, it still faces issues such as a low proportion of long-term insurance and complaints about insurance "ploys."

Rapidly Developing Online Insurance Distributor

Yuanbao is an online insurance distributor that provides customized services to insurance consumers through a self-built efficient consumer service full-cycle engine. This includes personalized recommendations, procurement, policy management, claims settlement, and after-sales service.

As of June 30, 2024, the company has over 4,400 models supporting its operations, including more than 700 media models, over 3,000 user models, and about 700 product models.

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The prospectus shows that Yuanbao collaborates with online platforms in China to reach a vast number of internet users, implementing targeted advertisements to attract them to visit the company's website, WeChat official account, and WeChat mini-programs.

Through a digital intelligent employee—a chatbot system that can understand and respond to standard and non-standard inquiries in text and voice formats—Yuanbao conducts precise marketing. This system is adept at recognizing insurance terminology, even in dialect forms. Additionally, it provides consumers with an efficient claims experience through an intelligent claims system.

According to Frost & Sullivan data, in 2023, Yuanbao was the largest independent insurance distributor in China's life, accident, and health insurance (A&H Insurance) market.

Yuanbao primarily offers insurance distribution services and system services to its partner insurance companies. It does not currently generate revenue directly from insurance consumers but considers its partner insurance companies as clients.Cooperative insurance companies issue policies to individual insurance consumers and pay commissions based on a percentage of the premiums collected from the policies. In 2022 and 2023, the insurance products offered on the platform came from 56 and 69 insurance companies, respectively.

Furthermore, Yuan Bao also provides system services to insurance companies and charges service fees, such as technical consulting services, full consumer service cycle engine applications, and smart insurance capability construction. It also earns a small amount of other income by assisting insurance companies in producing promotional videos for insurance products.

In 2022 and 2023, the applicable commission percentage range for short-term insurance products was as follows: medical insurance was 12%-35% and 12%-35%; critical illness insurance was 10%-35% and 30%-35%; other insurance was 27%-30% and 27%-34%.

Yuan Bao's business development is very rapid. In 2022 and 2023, the number of insurance consumers was 4.6031 million and 8.1031 million, respectively. The number of new policies was 6.4676 million and 12.4862 million, respectively. The first-year premiums were 8.55 billion yuan and 17.587 billion yuan, respectively, with growth rates of over 40%.

Therefore, in 2022, 2023, and the first half of 2024 (the "reporting period"), Yuan Bao's revenue was 850 million yuan, 2.045 billion yuan, and 1.529 billion yuan, respectively. The year-over-year growth rates in 2023 and the first half of 2024 were 140.54% and 58.68%, respectively.

The net profit for the same period was 18.752 million yuan, 203 million yuan, and 329 million yuan, respectively. The net profit from continuing operations was -2.35 million yuan, 205 million yuan, and 329 million yuan, respectively.

Among them, the revenue from insurance distribution services was 334 million yuan, 712 million yuan, and 493 million yuan, respectively. The proportion decreased from 39.3% to 34.9% and further decreased to 32.3%. At the same time, the proportion of system service revenue continued to increase.

Yuan Bao's revenue sources are concentrated in a few major customers. In 2022, 2023, and the first half of 2024, the revenue from the top three customers accounted for 69%, 56%, and 61% of total revenue, respectively. The revenue from the largest customer accounted for 43%, 26%, and 29%, respectively.

However, the prospectus shows that the company's arrangements with cooperative insurance companies are usually not exclusive. If the insurance company is dissatisfied with the company's services or finds that the company is ineffective in improving its profitability, it can terminate its relationship with the company. Therefore, the company faces the risk of insufficient stability in cooperation with major customers.

Marketing "routines" still exist.Yuan Bao was established in December 2019 in the Cayman Islands. The founder, Fang Rui, had worked at NetEase for 17 years and served as Vice President and Technical Director. He founded NetEase's e-commerce department and served as its CEO, during which time he continuously incubated many business areas, including online insurance.

The Chief Operating Officer, Li Ying, held various positions at NetEase from 2010 to 2017, including Director of Strategic Cooperation and Vice President of the e-commerce department. Among the current 8 directors and senior executives of Yuan Bao, 5 are from NetEase.

The prospectus shows that Shangxing Capital, Northern Light Venture Capital, Qiming Venture Capital, SIG (Sequoia Capital China), Enlightenment Trust, and Franchise Fund LP, founded by former star fund manager Wang Shihong of Gao Yi Capital, have all participated in investments in Yuan Bao, currently holding shares of 17.6%, 11.4%, 8.7%, 7.1%, 6.3%, and 5.4% respectively.

From public information, it appears that Shangxing Capital has been involved in all 4 rounds of financing for Yuan Bao (mainly through Yuan Bao Shu Ke).

The combination of the internet and capital has led to rapid growth in Yuan Bao's performance, but its reputation is a different story.

Previously, Yuan Bao has been repeatedly reported by major media outlets for involvement in "routine insurance", which involves advertising campaigns such as "one yuan insurance" and "free to get" on internet platforms, guiding consumers to insure at a very low first-month price, but in reality, it only spreads the payable premium over the next 11 months, with monthly deductions ranging from tens to hundreds of yuan. Moreover, due to the waiting period for most of the related policies, consumers cannot immediately obtain the corresponding protection after insuring at a low price.

In January 2022, the China Banking and Insurance Regulatory Commission (CBIRC) issued a "Risk Warning on Guarding Against 'Routine' Marketing Behavior", clearly pointing out that in insurance marketing, there are misleading insurance "routine insurance" behaviors with "first month 0 yuan", "free protection" and other slogans, and reminded consumers to be vigilant against such "routine" behaviors that infringe on the financial consumers' right to know, right to choose independently, right to fair trade, and property safety.

During the "3.15" period in 2022, the investigation and reporting by CCTV News on the relevant situation attracted widespread attention. Subsequently, the CBIRC stated that it would conduct an investigation and severely deal with similar situations.

On March 22, 2022, Yuan Bao Insurance Brokerage (Beijing) Co., Ltd., a subsidiary of Yuan Bao Shu Ke's subsidiary, was fined 10,000 yuan and warned by the Shaanxi CBIRC for not carrying out internet insurance brokerage business as stipulated.

However, the "routine" has not stopped.On the Black Cat Complaint platform, there are still consumer complaints about situations similar to the ones mentioned above. As of now, there are approximately 1181 complaints against Yuan Bao, most of which involve users being "insured" without their knowledge and having payments deducted.

Recent complaints frequently involve users accidentally clicking on Yuan Bao's advertisement pop-ups while scanning codes to use shared bicycles, watching short videos, or using square dance apps. They are misled by claims of "just a few cents per month" made by the page or telephone sales staff, leading them to fill in personal information for insurance and activate automatic renewal.

It is worth noting that a significant number of these consumers are elderly, who are "trapped" due to unfamiliarity with the use of smartphones or insurance terms.

The retention rate of active users is relatively low.

In its prospectus, Yuan Bao stated that although the company has been striving to enhance insurance consumers' awareness and recognition of its business and services, and to demonstrate the value and importance of long-term insurance, many insurance consumers on the platform still start with purchasing short-term insurance products.

Insurance can be divided into short-term and long-term policies based on the policy term, with short-term insurance generally lasting less than one year. In the insurance industry, long-term insurance, due to its higher embedded value, can provide more stable cash income and is more significant for the company's long-term stable development. It is also the main focus of development for the vast majority of insurance companies.

However, internet insurance has always been limited by its form and has been confined to short-term insurance.

In 2022, 2023, and the first half of 2024, Yuan Bao's first-year premium income from long-term insurance was 636 million yuan, 699 million yuan, and 688 million yuan, respectively, accounting for only 7.4%, 4.0%, and 0.5% of the insurance distribution service revenue. The proportion of short-term insurance for each period was over 90%.

The number of new long-term insurance policies was 69,000, 75,700, and 11,000, respectively, accounting for 1.1%, 0.6%, and 0.1% of the total number of new policies.

Developing short-term insurance requires continuous investment in customer acquisition. During the reporting period, Yuan Bao's sales and marketing expenses were 657 million yuan, 1.462 billion yuan, and 956 million yuan, respectively. The ratio of sales and marketing expenses to total revenue was 77.2%, 71.5%, and 62.5%, respectively.In it, marketing and promotion expenses accounted for 95.3%, 97.5%, and 96.9% of sales and marketing expenses, respectively.

Most of the marketing and promotion expenses were likely used for buying traffic. The prospectus shows that Yuan Bao signed online promotion cooperation agreements with third-party user traffic channels to acquire potential insurance consumers and achieve precise advertising delivery.

As for the imbalance of long-term insurance, Yuan Bao stated in the prospectus that the company plans to deepen cooperation with cooperative insurance companies, expand the range of insurance offerings, and expand to long-term life insurance, critical illness insurance, and annuities. It is also working on upgrading the entire business process and technical capabilities to achieve efficient and intelligent long-term insurance product sales under the technology authorization model.

In 2022 and 2023, the retention rate of active users on the company's platform was 11.3% and 27.6%, respectively, showing an increase but still relatively low.