(Picture source: Visual China)
On June 20th, at the 2024 Lujiazui Forum's "Digital Financial Innovation and Governance" plenary session, Zhao Peng, the President of the People's Insurance Group of China, mentioned in his speech that insurance institutions are doing a lot in digital finance. To summarize, we need to grasp the "three points": the origin of digital finance development, the key point of digital insurance innovation, and the difficulty of digital finance governance.
Specifically, the first point is to grasp the origin of digital finance development, better play the functional role of finance, and improve the quality and level of services for the real economy. Zhao Peng proposed that adhering to the fundamental purpose of serving the real economy with financial services is one of the basic principles of China's characteristic financial development path. Digital finance is first and foremost finance and must serve and obey the development of the economic and social sectors, with the objective of serving the real economy as the starting point and foothold for development.
On the one hand, consolidate and expand the advantages of the digital economy with innovative digital finance. The digital economy is currently booming. According to research by the China Institute of Information and Communications, the aggregate value of the digital economies of 51 countries measured in 2022 was US$41.4 trillion, which accounted for 46% of these countries' GDP. China's digital economy is the second largest in the world, with a total size of RMB 50.2 trillion, accounting for 41.5% of GDP. Therefore, it is urgent to develop digital finance business models that match the digital economy.
"As for the supply side of insurance, it is necessary to give full play to the functions of the insurance industry as an economic stabilizer and social stabilizer, and provide effective insurance protection for the development of the digital economy." For example, innovatively developing new insurance formats such as shared economy insurance and digital asset insurance can protect the new risk demands of digital economy enterprises, upgrade and optimize insurance products such as enterprise property insurance and liability insurance, and safeguard the digital transformation of traditional industries. Furthermore, increasing the development of digital consumption scene insurance, which is characterized by decentralization and fragmentation, can protect the digital consumer services that the public encounters every day.
"On the other hand, use digital insurance services to prevent risks brought by new technology applications. The rapid development and widespread application of new technologies have also brought about security risks such as data security, cybersecurity, and technology outsourcing." Zhao Peng pointed out that, for example, digital enterprise cloud platforms and self-driving car operating systems are vulnerable to cyber attacks, threatening people's property and personal safety. Digital insurance, represented by cybersecurity insurance, can integrate resources from multiple channels and cooperate to prevent new technological risks. It is an effective market-driven risk management and protection tool.
Second, grasp the key points of digital insurance innovation, optimize the insurance business model, and use technology to enhance operational and risk control capabilities. Digital technology is fundamentally changing the production modes of traditional economies, placing higher demands on the business models of the insurance industry.
"We attach great importance to the digital foundation of risk reduction services, taking the reduction of overall economic and social risks through technology as the top priority of digital transformation. We actively practice the new business model of 'insurance + service + technology' in order to use new technology to reduce risks. It shifts from traditional simple post-disaster compensation to pre-disaster prevention and early warning, rapid response during a disaster, and accurate claims processing after the disaster. For example, this year, many southern provinces have experienced extreme weather events, including heavy rain, landslides, and floods. However, the results of solid risk reduction services have already been demonstrated. Take PICC Property and Casualty Co. Ltd. Hunan Branch as an example. Compared with corresponding disasters in 2008, the loss from this disaster has been reduced by more than 40%."
"Third, grasp the difficulty of digital finance governance, balance efficiency and fairness, and allow all groups to share the good life brought by technology." Zhao Peng further explained, "While digital finance brings development opportunities, it also inevitably brings challenges. The most prominent among them, with regard to insurance, is how to ensure fairness."
The traditional principle of insurance operations is the law of large numbers, and insurance pricing is a mass-based fair pricing that embodies the essence of risk sharing of 'everyone for me, and I for everyone'. However, as we enter the digital age, with the popularity of the internet of things, the development of big data, and the application of artificial intelligence, insurance companies' risk identification capabilities have taken a qualitative leap and can adopt more accurate and personalized pricing, thereby achieving 'a thousand faces, a thousand risks' personalized pricing. For example, with car insurance, precise pricing is done for each car. The brand and price are the same, but the insurance premium is different. This is conducive to improving the efficiency of insurance operations, thus increasing the coverage of insurance.
However, the negative side also needs attention. Zhao Peng warned that based on personalized insurance pricing using big data and artificial intelligence, some vulnerable groups such as the elderly and the disabled may be charged excessively high premiums and may not be able to transfer risks through insurance, thus creating new risks of exclusion.
"This requires us to better grasp the relationship between digital financial innovation and governance," Zhao Peng said. We need to fully utilize digital technology to improve service efficiency and prevent improper application of technology from affecting social fairness. Especially to avoid discrimination in big data and algorithms, resulting in vulnerable groups being unable to meet their financial needs due to financial exclusion. A better combination in this area is digital inclusive finance, adhering to the principle of good finance, using digital technology to provide affordable, more efficient, and safer financial services to the masses. While promoting the effective allocation of financial resources, it can also ensure social fairness. (Blue Whale News Shi Yu shiyu@lanjinger.com)"