Ant looks to revamp a controversial business without sparking an outcry

Ant’s Xianghubao “mutual aid" service is a type of crowdfunded medical coverage. Signing up is free, and members are entitled to receive lump-sum cash payouts of up to $45,000 in cases of certain critical illnesses or life-threatening injuries. It was built on the premise that there is safety in numbers: Members have been contributing the equivalent of less than a penny toward each claim.

Ant is in talks with Chinese authorities about turning Xianghubao (“mutual treasure") into a regulated business, according to people familiar with the matter. Shutting it down isn’t an option, the people said, because regulators worry that would spark social unrest among the many ordinary citizens who rely on the service—and have already funded others’ payouts.

Xianghubao is likely to be turned into a commercial product that falls under the purview of the country’s banking and insurance regulator, the people said. Ant is considering working with a licensed insurance company to convert the service into a regulated insurance plan, according to one of the people familiar with the talks. The discussions continue and no decision has been made, the people added.

Ant used to aggressively market Xianghubao, which has yet to turn a profit. At its peak last year users numbered close to 106 million, but the figure has declined steadily since the government called off Ant’s initial public offering in November—raising concerns that a smaller number of people could be left to fund payouts to others.

Ant, controlled by billionaire Jack Ma, operates Alipay, a mobile-payments and lifestyle app with more than one billion users in China. Xianghubao, originally called “mutual insurance," was launched within the app in the fall of 2018 as an insurance product. Regulators quickly told Ant and its insurance-company partner that it didn’t comply with regulations.

Ant’s workaround was to relaunch the product as a mutual-aid service, slightly renamed—replacing the Chinese character for “insurance" with a homophone that means “treasure." Within months, it had tens of millions of subscribers. Xianghubao fell into a regulatory gray area, partly because Chinese regulators weren’t particularly eager to oversee it, people familiar with the matter said.

The company saw the service as a way to deepen Alipay’s penetration among demographics dominated by rival WeChat Pay, such as people living in less affluent parts of China, the elderly and the less educated. Ant also believed it would increase insurance awareness among the general public, benefiting Alipay’s insurance business, which mainly sells policies from other insurance companies, people familiar with the matter said.

After Beijing scuttled Ant’s blockbuster IPO, the central bank ordered Ant to return to its origins as a payments company and stop its “regulatory arbitrage." Ant recently said it would apply to become a financial-holding company overseen by the central bank, with all its financial activities fully regulated.

Over the past year, China’s banking and insurance regulator has flagged the financial and social risks proliferating mutual-aid services created for users and the providers of the service. Several internet technology companies recently exited the mutual-aid business. A former executive who ran Ant’s insurance business, which included Xianghubao, left the company in January.

Millions of users have already contributed substantial funds to other users, and expect similar compensation if they suffer a covered condition. If Ant doesn’t live up to that promise or forces Xianghubao’s members to pay a lot of money to ensure future coverage, that could spark complaints and social instability.

According to Ant, 116,950 members of its mutual-aid service have received a total of $2.6 billion in the past two-plus years.

If Ant were to collaborate with a licensed insurer, that could be similar to a path taken by a company called Waterdrop, which recently ended a mutual-aid service after five years. It arranged for former subscribers to have a year of free critical-illness coverage from a commercial insurer. To retain coverage after that, they will have to pay premiums.

Some Chinese insurers have been rolling out more affordable health-insurance products, under the guidance of local governments, seeking to improve and complement China’s public health-insurance system. In April, the Shanghai government introduced a policy jointly underwritten by nine insurers. For an annual premium of just 115 yuan, the equivalent of $17.80, the one-year policy provides up to 2.3 million yuan, the equivalent of $355,000, for a number of critical illnesses. The policy can be purchased via Alipay.

Ant, for its part, had to expend resources verifying numerous claims before making payouts and billing Alipay users for them. In the past two months, claims were being filed at a rate of more than 4,000 every two weeks, according to Ant’s data. Some Xianghubao users complained on Chinese social media that they have waited months for Ant to check their claims before making payouts to them.

This story has been published from a wire agency feed without modifications to the text.