Beijing-based online mutual aid platform Qingsong Huzhu stopped operations on Wednesday, Economic Observer reported, citing users of the service. Before the shutdown, the site registered 17 million users at the end of May last year, second only to Ant Group’s Xiang Hu Bao with about 100 million members.
Mutual aid platforms enable participants with a low budget to get basic health coverage. In return, they share medical costs with other members in the case of critical illness. An initial membership fee of just RMB 10 (USD 1.5) already entitles users to a payout of RMB 300,000 (USD 45,835), while a regular insurance company would charge around RMB 1,000 (USD 150), depending on age.
Qingsong Huzhu’s parent Qingsong Group counts Tencent and IDG among its investors. The Economic Observer report said that the company was shutting down to comply with regulations and that they will launch a better product in the future. Qingsong also operates a crowdfunding platform for ill people to raise money for medical treatment.
In September, the China Banking and Insurance Regulatory Commission (CBIRC) pointed out that there is actually no specific governmental body regulating the sector, Securities Times reported, as these sites are not insurance companies.
Online mutual aid platforms have a fundamental problem in its business model as they are collecting money to cover instant needs and don’t keep funds to run a sustainable business, a source with knowledge of the sector told KrASIA. “They don’t have actuaries to predict how many claims they could receive in a given timeframe, so the risk is very high,” he added. Qingsong Huzhu’s problems could be related to excessive operational costs and concerns over sufficient liquidity.
Just before the shutdown, users started to complain about a RMB 3,000 “investigation fee” to verify the claim and a slow response from the platform. In January, Meituan closed its own mutual aid platform as it considered it too far away from its core food-delivery business, according to Economic Observer.
