The company has long been overlooked by the market.
We've all heard terms like traditional insurance companies and third-party insurance agents – but there may be less awareness about insurance intermediaries, or aggregators. However, sometimes having a middleman can save consumers a large sum of time – just take Amazon (AMZN:NASDAQ) as an example – and if this party happens to boast some expertise, even better.
The same is true when it comes to the online insurance industry. Put simply, an insurance intermediary (or aggregator) acts as a middleman with a business interest precisely located between companies and their customers. A good intermediary can help a company reach customers that it would not otherwise have the opportunity to serve.
Huize is one of the best examples of such a firm but has shown a mixed performance in a tough field.
Founded in 2006 and headquartered in Shenzhen, China, Huize Holding Limited (HUIZ:NASDAQ) – more commonly known as Huize – is a licensed digital insurance product and service platform in China, specializing in offering long-term life and health insurance products. In partnership with 75 insurance companies as of Q1 2021, Huize offers more than 1,300 products and one-stop insurance solutions, from risk assessment and online consultations to product recommendations and claims assistance services.
Huize received a great deal of attention in recent years. It was ranked fourth in the Hurun China Digital Insurance Agencies 2020 list, being the only one among the top 5 without any tech giant's backing – for instance, WeSure, Waterdrop and Qingsongbao belong to Tencent's ecosystem, while Ant Technology operates AntSure. This might mean that Huize is not as exposed to antitrust and other regulatory risks. Some other big names on the Hurun list include JD.com, Suning and Trip.com Group.
However, Huize's stock performance doesn't show equivalent strength. On September 9, Huize announced its unaudited financial results for H1 2021; on that day, its share price dropped by 11.2% to USD 2.62. The loss continued to the date as of press time. As of November 11, 2021, Huize was priced at USD 1.76 per share, nearly 75% down YTD.
Both operating online 'B2B2C' insurance intermediary businesses, Huize and SelectQuote (SLQT:NYSE) share several similarities. Below we compare them across two key dimensions.
In H1 2021, Huize reported a whopping 97.1% year-on-year increase of its operating revenue, soaring from CNY 483.7 million to CNY 953.6 million (USD 147.7 million). Meanwhile, mainly due to the expansion of marketing channels to acquire user traffic, Huize's operating costs in H1 2021 almost tripled compared to the same period in 2020. For the insurance segment, with 60.3 million cumulative insured clients as of June 30, 2021, the gross written premium (GWP) facilitated via Huize increased by 72.7% to CNY 2.06 billion (USD 319.1 million) from CNY 1.19 billion in the first half of 2020, with renewals accounting for 42.1%, and first-year-premium (FYP) accounts for the remainder. Ronald Tam, CFO of Huize, ambitiously expressed that, with the top-line growth and continued leadership in the market, the company is expected to achieve the full year 2021 revenue of CNY 1.7 billion. Despite that, some analysts are not optimistic about Huize, warning it is 'at high risk of performing badly' given its inferior profitability compared with the whole financial sector.
Huize's global peer SelectQuote eclipses the Chinese company to some extent. Pioneering the one-stop insurance platform since 1985, SelectQuote is the first direct-to-consumer (DTC) life insurance exchange distribution platform in the United States. It is well positioned to capitalize on the accelerating trend of digital transformation across the insurance distribution landscape and hence becomes one of the most competitive insurance brokers within the industry. Recently trading at USD 13.29, SelectQuote is valued at approximately USD 2.4 billion.
When it comes to revenue per share (TTM), SelectQuote's USD 5.76 seems to lag far from Huize, although the former has an over-five-time-larger P/S ratio of 1.93, as of November 12, 2021.
Products and Services
The core competence for an insurance intermediary is widely considered to be the service quality, and Huize knows it for sure. Targeting the younger tech-savvy generation, Huize leverages its technologies to provide a wide range of creative as well as comprehensive insurance products, maintaining an average insurance retention ratio at above 95%. As of June 30, 2021, there are more than 800 products on sale, while 55.1% of the total GWP is contributed by products co-developed by Huize and its 88 insurance partners. Indebted to large amounts of customer and transaction data plus with the strong actuarial capability, Huize has created some outstanding products, for example, critical illness insurance 'Darwin Five.' Besides, Huize launched 'Xiaoma Lipei' in 2019 for better and instant claiming assistance.
SelectQuote is not as competitive from the perspective of products and insurance partners – around 40 products with over 50 of the nation's leading insurance carriers – its agent force is one of the pillars that underpin the company's success. As of June 30, 2021, SelectQuote reported a total of 1,356 core agents and approximately 3,000 additional flex agents employees during the 2021 annual enrollment period (AEP). These highly-trained, skilled agents are devoted to providing a consultative needs analysis for every consumer with personalized advice and guidance from policy research to enrollment. It is a key differentiator in the insurance intermediary market as clients tend to prefer or require more personalized attention to navigate increasingly complex and ever-changing coverage options. In 2021, SelectQuote further expanded its business with the launch of Population Health, a free membership healthcare program focusing on improving consumers' health literacy, and the acquisition of SelectRx, a full-service technology-driven medication management pharmacy, to consolidate its business competency.
Currently, the P/S ratio for Huize is at the trough – only 0.36 as of the press time – far below its peers as well as the industry average. Given its high-growth financial performance, we have reasons to believe that if Huize can maintain the current trend in technology development and profitability, revaluation is right on the way. Although there is literally no risk on the underwriting side, changes in China's insurance regulatory regime also warrant further attention.