Strategics help One Inc hit the accelerator

China's car market has been one of the great success stories of recent years. Along with their value as transportation, automobiles have also provided the country's middle class consumers with a real symbol of their improving income and economic status.

Macroeconomic uncertainty and the rise of new transport options like ride hailing apps have put the brakes on that growth to an extent - McKinsey & Company projects new car sales will see compound annual growth of 5% over the next five years, compared to over 12% for the previous five. Nevertheless, China is expected to remain the world's biggest market for new automobiles. And that means the insurance industry, which still mostly relies on older, paper-heavy operating models, is still long overdue a round of modernization if it is to meet ongoing demand.

"For the last few years China has led the world in the number of cars sold. But by contrast, the car insurance business is at a very primitive stage, far from the sophistication that they want to have," says Ta-Lin Hsu, founder and chairman of H&Q Asia Pacific. "Sooner or later that has to change."

H&Q's portfolio company One Inc. is well positioned to take advantage of the industry's eagerness to upgrade. The company produces software-as-a-service (SaaS) products for insurance providers, aimed at helping them move operations to more efficient digital formats and use internet and cloud services. The private equity firm has helped One Inc. build its sales team and perfect its strategy for attracting major insurance firms as customers, and is currently supporting construction of an R&D center in China.

"Through using big data they can help generate models to better predict the size of the premiums, and therefore can give the right pricing for users. That is many years ahead of the current technology in China," Hsu says.

The next stage in One Inc's development is a $20 million fundraise, which includes contributions of $11 million and $4 million, respectively, from the strategic investment arms of insurance giant Axa and US-based insurer Mass Mutual. H&Q was instrumental in introducing both firms to the company - Mass Mutual is one of its LPs - and believes their industry experience will help refine products. They are also potential customers.

"They are major insurance companies, so they can become our customers, and indeed that is the kind of thing that Axa Strategic wants to do," says Hsu. H&Q was initially concerned about the potential conflicts of interest from having two insurance companies as investors in One Inc. but ultimately came to understand that Axa and Mass Mutual do not attempt to exercise influence through their venture arms.

"It's a delicate balance, but we were assured that there's no conflict there, and by the fact that they are compensated purely on financial gain," he explains.

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• Topics
• Greater China
• Financials
• Expansion
• H&Q Asia Pacific
• insurance
• automobiles
• China