Mutual Risk Sharing and Fintech: The Case of Xiang Hu Bao

Unlike standard insurance where an intermediary–the insurance company–collects premiums and pays reimbursements for the enrollees, mutual risk sharing directly shares losses among participants. Meaning ‘mutual aid’ in Chinese, Xiang Hu Bao (XHB) was the largest online mutual risk sharing platform operated by Alibaba’s Ant Financial to facilitate risk sharing of critical illness exposures. XHB provided restricted coverage to aged individuals, potentially leading to separating equilibrium, à la Rothschild-Stiglitz, where low-risk individuals join mutual aid programs while high-risk individuals purchase insurance. Using XHB’s enrollment and claim data, our analysis corroborates this argument and justifies the role of Fintech and advantageous selection in explaining cost advantages of mutual risk sharing.