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Non-profit Insurance in Hong Kong

Published on: 15 September 2020 by Michael Lamb

At CCW Global when we have talked about business insurance in Hong Kong, we have traditionally focused on for-profit companies. However, Hong Kong has many businesses operating in the nonprofit sector, and these organizations may not be effectively managing the various risks they face every day.

What is a non-profit company?

Setting up a nonprofit company in Hong Kong is relatively easy, and for the most part a nonprofit company is treated the same as a for-profit company. Nonprofit organizations can be incorporated as a Hong Kong Limited Company, where the company is limited by shares or limited by guarantee.

In Hong Kong Limited companies make up the bulk of businesses, and the reason for this is that incorporating as a limited company protects, to some extent, the owners, directors, and workers of that company from their personal financial responsibility towards the organization.

The only real distinctions as to what makes a non-profit vs a for-profit company is whether there is any profit realized by the business. Many people may mistakenly think of nonprofit organizations as only being charities. And yes, while most charities are generally nonprofit organizations, not all non-profit organizations are charities.

As such, there are a surprising number of nonprofit entities around Hong Kong, and they can include the following types of organizations:

  • Social, Sports, and Recreation Clubs
  • Schools and Teacher Unions
  • Homeowner Associations
  • Youth Groups and Associations
  • Professional Associations and Unions
  • Business Chambers
  • Churches and Religious Organizations
  • Charities and Foundations

Different types of nonprofit organizations have different roles and outcomes; not all are providing outreach. Some, like Homeowners Associations only benefit their members – these are known as Mutual Benefit Non-Profit Corporations, but they often face the same risks and liability exposures as nonprofits which provide a benefit to the public at large.

At the end of the day, the only thing that really defines a nonprofit organization with one which is for-profit is the simple question or whether they take home any profits at the end of the year. Nonprofit entities will always reinvest their revenue, provide services, offer community outreach, or provide some other program which sees the organization without any year-on-year profit.

What risks do nonprofit companies face?

Nonprofit companies in Hong Kong face the same risks as for-profit companies. Depending on what the entity does then their exposure to risk may be broader or more restricted, but the fundamental concerns facing businesses in Hong Kong also apply to nonprofit organizations.

Nonprofits and Employee’s Compensation Insurance

Under law, if a Hong Kong nonprofit company employs any person to do any job, irrespective of whether the company is realizing a profit, then the nonprofit must obtain Employee’s Compensation Insurance on their workers.

This is fairly straight forward for most businesses. When an employee starts work, they are added to the company’s Employee’s Compensation Insurance policy. However, there is an interesting twist when we enter the non-profit world, because many of these organizations will rely on volunteers.

By virtue of the fact that volunteers are not being compensated for their time and work, and employee’s compensation insurance is predicated on the fact that a worker is being paid, nonprofit organizations do not generally need, nor are they able, to obtain employees’ compensation insurance for their volunteers.

This poses a fairly big exposure concern to nonprofit organizations that rely on volunteer participation. In contrast to a school, for example, where teachers are paid and able to be placed on an existing EC insurance policy, any volunteer event held by a charity which donates clothes to the homeless would have significant liability issues were a volunteer to be injured.

Nonprofits need third party general liability cover.

A great way to solve the liability issue posed by volunteers helping a nonprofit is with the purchase of a comprehensive third-party liability insurance policy. It should be noted that some third-party liability plans exclude volunteers from coverage, but many event insurance products will allow for the liability protection of volunteers for specific events or drives.

Also known as public liability, third party liability protects the policyholder against their liability at law towards third party injury, death, or destruction of property.

A homeowner’s association should absolutely consider a public liability insurance policy as their profits will typically be reinvested via the sinking fund toward upkeep and maintenance of the community. Any construction work, whether it is a simple paint job, or more involved construction, always carries some risk of accident or injury towards a member of the general public. A Public Liability insurance policy would protect their HOA finances should the activities of the association injure a third party.

Additionally, any nonprofit which regularly has members of the public enter its premises should consider the purchase of a public liability insurance plan. Whether this is the individuals you are helping, or people helping you, it is always a good idea to take precautions against having to pay large amounts of compensation to someone because they have been injured on you property.

Sometimes special insurance is needed

For many nonprofit organizations their entire business model is built around donations and charitable events. Gala balls, fundraising drives, food banking, a clothes drive, pet walks, and more are all great examples of special events which would normally fall outside the remit of a public liability insurance policy – especially if a nonprofit organization is renting outside space to hold their event.

A nonprofit event of the types illustrated above also carry additional risks over the problem of being liable for someone injuring themselves. If you’re doing a fundraising initiative, you’re likely going to have a fair deal of cash-on-hand, or cheques, which could be disastrous for the organization if lost or stolen. Additionally, if one of your attendees damages any property at the location of your fundraising gala (perhaps because the open bar was slightly too good), a standard public liability coverage solution isn’t really going to apply.

Fortunately, there are a number of Event Insurance products available for just this type of situation. Event insurance is extremely customizable and can be taken out on an annual or single event basis, giving nonprofits which focus on events for their fundraising activities a level of security above and beyond some of the more “standard” forms of business insurance protection.

At the end of the day Nonprofits are businesses

When all is said and done, despite the fact that they don’t make a profit, nonprofit companies are still companies – offering all the same products and services as for-profit companies. For example, let’s say you are a food manufacturing company that is owned by a actor/racecar driver and you donate 100% of your after tax profits to charity.

You are technically, a non-profit company. However, you still have Employee’s Compensation Cover to consider, as well as the really big problem of product liability. After all, what happens if a customer gets sick after eating your tomato sauce? You’re liable for the customer’s sickness, and you’re likely going to have to issue a recall on the batch of product which caused the sickness. You’re still donating your profits to charity, but the financial exposure on something like this would severely impact the revenue and operational capability of your downstream charities were it to occur.

So, for this type of business, Product Liability Insurance is probably a very good idea.

A youth sports team, or school, on the other hand would be considered to provided “advice.” For the sports team this is via the training program, and for the school it is as simple as teachers offering their lessons. Whether this is for an established entity, like a single ESF location, or it’s a tuition centre offering advice to a local community, there is the risk of errors being made in lessons.

For any nonprofit which offers advice the possibility of errors being made, as with for-profit businesses, always exists. Depending on the scope of the advice being given, and the value of the service being provided, claims could potentially be made (whether malicious or benign in nature) that these services have included errors, or fundamental omissions which have significantly harmed the claimant.

Simply fighting such a claim is an enormous financial burden in and of itself, never mind being found liable under such a claim. Without proper risk management this scenario is disastrous for any company, including nonprofit entities. Fortunately, Professional Indemnity Insurance exists for precisely such a situation, and should actually be a core consideration within the risk management toolset of any nonprofit organization wishing to properly secure themselves against critical risks.

Non-Profit Insurance Consultations in Hong Kong

“Nonprofit” is such a wide and all-encompassing term that it is impossible to cover every single type of business risk faced by non-profit entities in an article such as this one. Some nonprofits don’t have a physical office, so they wouldn’t need Office Contents Protection, while others may only need this type of coverage.

Some nonprofits may depend on a single critical employee and may need to take out Keyman Life Insurance, while another may not have a single employee under contract.

There are so many variables and considerations to make when looking at the non-profit world that it can be tough to navigate your options without any assistance. Fortunately, the expert Hong Kong Insurance Brokers at CCW Global are happy to offer you advice, completely free of charge, on the options and risk management solutions which may work best for your organization.

Contact us today to arrange a completely risk-free, no-obligation consolation to see if there are any Hong Kong Insurance products which may be right for you.

 

 

 



Author: Michael Lamb

Michael Lamb is an insurance industry professional with many years of experience within the Hong Kong Insurance market. Focusing on APAC coverage issues, Michael is able to provide extensive analysis and insight to a range of pressing topics. Previously, Michael provided insurance broker Globalsurance.com with their most highly valued articles and was a key influence in the development of all the content on Pacificprime.com, Michael has a passion for insurance matched by few others in the region.

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