Insuring Your Business Risks
China is a risky place to do business, and the risk is more than the possibility of losing capital in a failed market entry — or someone knocking off your product and selling it for a fraction greater than your cost. Just think about the physical risks to your business in China: typhoon, flood, earthquake.
The earthquake risk alone is enough to make you shake in your boots. Northeast China’s Tangshan earthquake of 1976, which registered 8.2 on the Richter scale, leveled the city and killed about 250,000 people. The government rebuilt the entire city.
You can’t prevent natural disasters, but you can make sure your company’s finances don’t end up in ruins. The Chinese market has opened up to foreign insurers in recent years. You can now choose from a good selection of companies and products to help your company with its insurance needs. This section goes over some of your options.
Controlling the insurance program
Chinese companies commonly want to control the insurance program instead of allowing you to take an active role, especially in joint ventures. But your company’s insurance arrangements are too important to leave to someone else to manage. And you never know whether the Chinese people you’re dealing with want control of the program because they have some financial interest in mind.
Make sure your company controls the insurance program — even if it may come in at a potentially higher cost. The Chinese tend to look at insurance as an expense instead of focusing on the real benefits insurance can deliver.
Getting insurance advice
Some of the largest insurance brokers in the world now have a presence in China. The large commercial brokers are good resources for risk management and insurance services for larger firms. For small- and medium-sized firms operating in China, be sure to contact your insurance agent or broker back home for assistance. Your professional insurance advisor can review your business risks in China and help you develop the right risk and insurance management program. Such a program usually includes periodic inspections or surveys of your physical premises in China.
Knowing your choices of companies
More and more insurance companies are now licensed to do business in China. As a result, competition has heated up, and more companies are trying to differentiate themselves from competitors by creating more insurance products for the local market. The result is that the insurance market in China is becoming increasingly sophisticated, which is good news for companies looking to protect their China operations.
Many foreign companies have entered the Chinese market over the last ten years or so, mostly from Europe and North America. You can find Japanese companies in the China market as well as a handful of insurance companies from elsewhere.
Some companies tend to stick with insurance companies from their home country, although you can choose from plenty of other good companies that have a track record of fair dealings. Most foreign insurance companies in China have global brands and strong reputations.
Reputable Chinese companies are in the market, too. Some foreign companies are quite satisfied with the products and services that Chinese insurance companies provide. Chinese companies can be competitive on price — if not cheaper — than foreign insurance companies operating there. At the end of the day, your professional insurance advisor can guide your company on the pros and cons of dealing with specific insurance companies in China. For more info, see the previous section titled “Getting insurance advice.”
Looking at basic types of insurance
In this section, you find a handy list of the types of insurance available to small- to medium-sized firms in China. This list isn’t exhaustive by any means. You should know that not all insurance companies carry the same products. And of course, you should consult your professional insurance advisor on all matters related to your company’s insurance program in China.
Property insurance
Property insurance includes the following:
| ✓ | So-called All Risks property insurance coverage for your plant, office, or warehouse: It covers building, machinery, stock, and so on. (Of course, exclusions are in every insurance policy!) |
| ✓ | Business interruption or consequential loss insurance: This insurance covers your company for loss of profits caused by business interruption as a result of fire or other type of peril. |
| ✓ | Money insurance: Money insurance includes coverage for a loss of cash due to, say, a burglary. |
Liability insurance
General liability insurance protects your company from losses involving your premises as well as your operations in China. Other liability policies may be available:
| ✓ | Product liability: Protects your company from awards for injuries resulting from products you sell or manufacture |
| ✓ | Employers’ liability: Covers liabilities to employees for work-related injuries |
| ✓ | Directors’ and officers’ liability: Protects executives of your company for any personal liability while performing their jobs |
Like most countries, China’s laws require certain insurance. One such policy is third-party automotive liability insurance. Be sure to consult your professional insurance advisor to ensure compliance with China’s insurance laws.
Transportation risks
Transportation risks coverage protects your goods in transit by sea and air. A separate policy can be arranged to cover your local transits by truck in and around where you do business in China.
Sourcing risks
Even if your China activities are limited to sourcing from China, you’re potentially exposed to real business risks in China. What would happen if your sourcing partner’s plant were to burn to the ground tomorrow? Could your company recover from a disaster like this? Is your sourcing partner insured at all? If so, what’s in it, if anything, for you? If your company does its sourcing from China, you need to take a close look at the way you manage your business risks in China.
A little-known or -understood type of insurance called contingency business interruption can protect your company from an interruption in the business of your supplier. It may be able to help your company protect your profit or revenue caused by certain events outside of your company’s control.
Specialty insurance
More-sophisticated types of insurance coverage may also be available to your company. These types may include political risk, trade credit to protect your receivables, supply chain coverage against potential disruption, and more. The availability of these products to your firm really depends on the size of your company. Many of these more-specialized coverages have minimum premiums that may be out of reach for small companies. Talk to your professional insurance advisor for details.
Companies also offer many kinds of specialty insurance for manufacturers. Construction insurance is available to protect your building while it’s being built. Machinery breakdown insurance covers boilers, production machinery, and so on.
Many insurance companies provide small- to medium-sized firms with bundled products for property, liability, local transit, money, and so on under a so-called package policy.