However, China still lags behind western countries when it comes to the maturity of the commercial insurance industry and it still faces several challenges to insure the world’s largest population against serious illness.

China has dozens of online mutual aid platforms, with the three biggest players each having more than 10 million members. Apart from Xiang Hu Bao, Waterdrop Mutual and Easy Mutual – both backed by gaming giant Tencent Holdings – had garnered 14 million and 15 million members respectively by the end of March, according to an industry white paper published by Ant Group last month.

Waterdrop was founded in 2016 by Shen Peng, who six years earlier had joined Meituan straight out of university as the start-up’s tenth employee. He rose to be head of Meituan’s core food delivery business but had developed an interest in health insurance since childhood when he was raised in a residential community for staff of the People's Insurance Company of China (PICC).

“In 2015, I was aware that China's insurance industry mainly served middle and higher class families. What China lacked was inclusive insurance to cover blue-collar workers and other middle or low-income groups,” the 33-year-old Shen said. “While internet services are available to so many people, I think using the internet as a way to develop inclusive insurance is a promising and meaningful thing.”

With a total of 310 million premium users across all platforms by the end of last year, Waterdrop now has three major business sectors: online mutual aid platform Waterdrop Mutual, insurance sales platform Waterdrop Insurance Mall and Waterdrop Crowdfunding, where poor people with critical illnesses can post their medical records online and ask for donations. So far, the mutual aid platform has helped more than 10,000 members with over 1.5 billion yuan in medical expenses claimed.

Shen said that while mutual help plans are cost-effective for users, the challenge from a business perspective was to find multiple profit streams to allow rapid growth. “The company has different businesses and we can import traffic among different sectors … we are using profitable businesses to feed these unprofitable businesses,” he said.

In fact, Waterdrop Insurance Mall is the company’s only profitable business so far. Losses for Waterdrop Mutual and Waterdrop Crowdfunding can be as high as several hundred million yuan per year, but the insurance mall’s annualised premiums per month have surpassed 1 billion yuan, making the whole company profitable over the past two months, according to Shen.

Beijing resident Li Xiaotong, 33, found Water Mutual two years ago via Waterdrop Crowdfunding, where she donated money to help the sick relative of a friend. From there, she got to know about Waterdrop Mutual and joined two mutual aid plans focusing on cancer.

“I never thought about [buying] commercial insurance because my income [is low],” Li, who works as a civil servant, said. “But for online mutual aid platforms, the money each participant needs to pay is very low.”

She paid just over 100 yuan in the past two years to get a total of 400,000 yuan from her two plans after being diagnosed with breast cancer in 2018.

“The money is absolutely enough for surgery and other expenses including examinations during the rehabilitation process,” Li said. “It’s a great help because if we just rely on our salaries we will be under huge [economic] pressure.”

Since the 2003 Sars outbreak, health care in China has become a leading national concern. Often highlighted by the popular phrase, kan-bing-nan, kan-bing-gui (seeking care is difficult and expensive), health care costs can be devastating.

Mutual aid platforms are popular among China’s low- and middle-income households in rural areas, where there is often a lack of quality hospitals and affordable medical care. For Xiang Hu Bao, 60 per cent of users are from third or even lower-tier cities and 70 per cent of them earn less than 100,000 yuan a year, while on Waterdrop Mutual, 75 per cent of users come from third or even lower-tier cities.

These platforms are also cooperating with traditional insurance companies. Waterdrop Insurance Mall works with more than 60 insurance companies – including China Life, China Taiping, Ping An, Taikang Life, PICC and Aixin Life – and has more than 80 insurance products. Waterdrop earns around 30 per cent commission from traditional insurance products sold on its platform.

“For insurance companies, if we are expanding our business, the difficulty is we need to know where our [potential] clients are and their characteristics,” said Li Yu, deputy general manager of Beijing-based Aixin Life Insurance. “In this regard, Waterdrop has made it very clear with broad categories and various labels for its users.”

Aixin Life, which has worked with Waterdrop since the end of last year, has two products on Insurance Mall – an annuity product and Children’s Critical Illness Insurance, the latter being a customised product based on big data from Waterdrop.