As insurance is a necessary element of risk management in China, businesses may find the best way to manage their risks is through an insurance broker. Insurance brokers work to understand all the needs in terms of insurable risks of a company, and then design the best insurance program among all the options in the insurance market. This is what you should know when talking to an insurance broker in China, including what questions they will ask and what fees an insurance broker charges.

What questions do insurance brokers ask clients?

The first stage is what we call the discovery phase where we aim to understand the situation of the company. An insurance broker in China will as the following six questions:

1. What is your company doing?

What kind of product are you manufacturing and what the production process is.

Your insurance broker needs to understand the nature of the product, as product liability risks are related to the nature of the product. For instance, there are more risks for companies in the automotive and pharmaceutical industries

2. What is your production process?

We need to know what are the risks involved, and if it is dangerous. For example, are you doing painting, molding or plastic injection, or are you doing chemical production?

3. How do you organize your operations?

How do you organize your operation: understanding the risks under your control?

Where are your products sold? How many employees do you have and how are they organized? What is the split by occupation? Do you have shareholders? Do you own the premises where you are operating?

This is to understand the risk and the construct of your clients. In this case it involves how you serve business. Are a manufacturer, and if so, what role do you play in manufacturing the product? ‘Manufacturing’ can mean many things, is your business just doing the design part and sub-contracting the production to another party? Or are you a trading company? Depending on your role in manufacturing, in the case of damage or accident to your supplier, you can be liable as well.

4. Do you have employees and what do they do?

Do you employee manual or office workers? Each has their own risks, but in China, the employer is liable for any injuries done to people on the job. Therefore, an insurance broker will need to know what risks you face as employer.

5. Do you have shareholders and do you have some liability against them? 

If you have shareholders, you must have liability against them. Therefore, we must know whether it is a public listed company or not. If it is listed, where is it listed? In China, the USA, Hong Kong etc.

If it is not listed, then we need to know how many shareholders there are. What is the content of shareholders agreement usually fixing the duty of each party? Usually the risk is for the legal representatives appointed by the board of to implement decision made by them.

Risks include, forecast of the business properly made, financial accounts accurate, and any liability related to contract sign with third party, salary, bank, etc.

6. Where, globally, are your products sold?

Are the products sold only in China, or are they manufactured and sold to the US and Europe? And what is the percentage of sales in each country? For instance, if you have a lot of sales in the US, it can be an issue to buy product liability insurance.

That is basically the questions insurance brokers in China will ask first to understand the situation prior to moving forward with finding an appropriate insurance package.

What is the cost of an insurance broker’s service in China?

A common price practice in the broking industry is to be remunerated by commission by the insurance company. The commission rate is usually between 15-20%, but can be up to 25% depending on the conditions between the insurance company and the insurance broker. Sometimes insurance brokers do some work on behalf of the insurance company like drafting the policy, drafting endorsements, and making calculations of the premium. In these cases, we can charge more because we have more added values.

However, in some cases a broker can be remunerated by fees. For instance, this would apply for some international cases with a high premium or also for medical insurance (for group medical insurance with a large number of people covered). 

Additionally, an insurance broker may negotiate fees paid by the client. They will hand the client a quotation of work rates, but they may charge additional fees. It is usually a negotiation with the client and is a balance between the workload and the related fees.