COVID-19, Inclusive Healthcare, and InsurTech: Evidence from Monthly City-Level Mutual Aid Data
WEI Wei, WANG Xiangnan, JI Yang, BIAN Wenlong
Research Institute, Essence Securities. CO., LTD.; Institute of Finance & Banking, Chinese Academy of Social Sciences; Business School, Sun Yat-Sen University; Sungkyunkwan University
Summary:
The outbreak of the COVID-19 pandemic has posed challenges to medical security and healthcare systems, intensifying the urgency for residents' demand for medical security. In theory, unavoidable risks influence residents' demand for different insurance types. According to risk temperance theory, individuals encountering unavoidable risks also tend to reduce their exposure to irrelevant risks. Studies have demonstrated that Chinese residents experienced a significant increase in healthcare demand during the pandemic. However, traditional commercial insurance, which is an integral component of healthcare, did not experience a proportional increase in sales. In the context of pandemic prevention efforts, the effective provision of inclusive healthcare for residents has become an urgent issue that cannot be overlooked. In recent years, China has witnessed the emergence of a new inclusive healthcare type, known as mutual aid, driven by the rapid development of insurance technology (InsurTech). Mutual aid incorporates InsurTech techniques, such as big data, artificial intelligence, and blockchain, to optimize risk management, underwriting, and claims settlement processes. Thus, it significantly reduces the manual costs associated with medical security and possesses certain inclusive characteristics. Given the impact of the pandemic, mutual aid, with its inclusive traits, may play a more prominent role than traditional commercial insurance. First, mutual aid operates entirely online, leveraging InsurTech, and is thus more resilient to disruptions caused by the pandemic compared with offline institutions. Second, mutual aid offers comparable coverage at lower premiums than traditional commercial insurance, making it particularly suitable for underdeveloped areas and individuals with low income. This expands mutual aid's reach and enables responsive protection for underdeveloped regions. Moreover, based on blockchain technology, mutual aid functions in a decentralized manner, utilizing the retrospective sharing of coverage amounts among participants instead of upfront premium collection. This design also alleviates liquidity pressure on participants' payments and offers advantages amid pandemic-induced economic impacts. Thus, we hypothesize that mutual aid and traditional commercial insurance will exhibit different performance patterns under the influence of the pandemic. Investigating the underlying mechanisms of mutual aid is an important academic endeavor for comprehending the application of InsurTech in China and facilitating the transformation of the traditional insurance industry. Over the past few years, mutual aid has experienced rapid growth in China, reaching a peak membership of 200 million. Despite the regulatory authorities suspending such programs to maintain industry order and manage risks, the role of InsurTech and mutual aid in enhancing medical security in the post-pandemic era remains significant. Using monthly data collected from 100 cities between January 2019 and May 2020, covering the period from one year prior to the pandemic outbreak until the end of its initial wave, this study compares the development of traditional commercial insurance and online mutual aid during the COVID-19 pandemic. The empirical findings are as follows. First, the scale of mutual aid correlates positively with the number of local cumulative cases. Specifically, for every increase of 100 confirmed cases during the sample period, the average number of participants in mutual aid increases by 7,446 and the compensation paid grows by 4.27%. However, traditional insurance exhibits no significant changes in sales. Second, mutual aid plays a more significant role in regions with better digital financial inclusion and among populations with a higher level of social trust. Third, mutual aid has a more pronounced effect on migrants and females who are disproportionately affected during the pandemic. These results have crucial implications for the development of insurance and social security systems. First, this study provides empirical evidence highlighting the positive response of InsurTech during the pandemic, which is highly relevant for policymaking. In particular, in the context of normalized pandemic prevention and control, mutual aid empowered by InsurTech effectively overcomes the limitations of traditional commercial insurance in terms of accessibility and inclusiveness, thus becoming a vital supplement to traditional commercial insurance. Second, this study indicates the necessity for digital transformation in the traditional commercial insurance industry. Although mutual aid has been completely discontinued, the InsurTech mechanism underlying it offers vital insights for reforming traditional commercial insurance. This is the first study to empirically examines how mutual aid functions within China's medical security system and provides specific guidance for healthcare system reform following the discontinuation of mutual aid.
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