How much car insurance do you really need?

With summer drawing to a close this is, traditionally, the time of year when Hong Kong welcomes new arrivals. While much of everyday life in our city is in a state of flux, families and individuals are still arriving in our city and are still going to need to get around.

Although Hong Kong has an exceptional public transport system many people choose to own cars, as this makes life as a whole much more convenient. But car insurance in Hong Kong may be slightly different than the cover you received back home, especially if you’re coming from North America.

So, with that in mind, here is the CCW Global 2020 guide to Hong Kong Car Insurance.

Car Insurance is Regulated

There are only two types of insurance which are compulsory purchases, as mandated by the government of HKSAR. The first is Employee’s Compensation coverage, the second is Car Insurance.

The fact that there are only two types of insurance which are mandatory, and car insurance is one of them, displays the importance of this type of coverage – Car Insurance is, in fact, so important that you will be unable to register a vehicle to drive on public roads without it.

So, what exactly do you need to satisfy government regulations towards your car insurance and license your vehicle for operation in Hong Kong?

Minimum car insurance coverage requirements

The minimum amount of coverage that you must possess in order to legally drive a vehicle in Hong Kong is as follows:

• Third Party Death or Bodily Injury: HK$ 100,000,000
• Damage to Third Party Property: HK$ 2,000,000

You may have guessed the name of this type of insurance from the coverage required. Commonly referred to as “Third Party Car Insurance” or “Third Party Only Car Insurance” your legal requirement under Hong Kong law for car insurance will provide coverage should you be found legally liable for any accident which results in damage to a third party’s person or property.

What is third party liability?

As the government mandates that all drivers on Hong Kong’s roads must be covered by, at least, third-party car insurance, understanding exactly what a third-party is becomes fairly critical for defining how a car insurance policy operates, and what benefits you are able to derive from your coverage.

Insurance always involves a policyholder, someone who has applied for and been accepted on a contract of insurance. As such, the “owner” of the policy is the First Party – they’re paying for the policy, they took out the cover, they’re pretty much the most important person for the contract, so we’ll give them priority as the First Party.

The policyholder cannot exist in a bubble, though, and has obviously contracted to take insurance out from some other entity. Whether this is an underwrite, re-underwriter, cover holder, syndicate, provident union, someone is covering the risk associated with the contract of insurance – this will be our Second Party.

For most types of insurance, the risk is directly between the policyholder and the insurer (health insurance, the second party covers the risks of medical costs generated by the first party). With car insurance, however, the policy does not directly benefit the insured individual – remember the benefits needed to satisfy the government regulations on Car Insurance do not refer to the First Party, or the Second Party, but instead state that the benefit is with reference to a Third Party.

A Third Party is the entity receiving the benefit of the insurance; if the owner of the policy (the First Party) is found legally liable for an accident then the insurance (the Second Party) will provide a settlement to the entity which has suffered damage as a result of the accident (the Third Party).

Which Gives us Third Party Car Insurance Cover

So, understanding what a “Third Party” is, exactly, gives us an understanding of how Third-party only car policies operate. This is to say that policyholders owning a third-party car insurance plan in Hong Kong are covered for their financial responsibility (also known as their liability) at law in respect to any other individuals that they may physically hurt, or kill, or any property they damage which they do not own.

For example, under a Third-Party car insurance policy if you were to get into an accident which damaged a retaining wall for an apartment block, you would be responsible for fixing the wall or providing compensation to the owners of the apartment (or their management company). The insurance would not compensate you, the owner of the car, against any damage to your vehicle or any injuries or losses which you may suffer.

Remember, you are the first party – the policyholder. As the car insurance only covers third-parties, as the first party, the policyholder is unable to receive any benefit under this type of policy.

Can Car Insurance Provide More Cover?

Car Insurance plans can actually provide more protection that the coverage available through a standard third-party only policy. Insurance which goes beyond the regulatory minimum Third-Party protection is normally referred to as “Comprehensive” car insurance plans.

In Hong Kong comprehensive car insurance will protect the policyholder against loss or damage to their vehicle, up to its current market value. For most comprehensive policies it does not matter if another party is involved in accidentally damaging your vehicle, or whether it is stolen or only partially damaged, the policy is designed to offer a robust coverage solution for one of the most expensive tools a person will ever own in their life.

This is not to say that Comprehensive Car insurance is straight forward in Hong Kong, and the complexity of the product (as well as understanding exactly how claims are handled and what you are covered for) in addition to its increased cost is one of the reasons that many people will shy away from this form of car insurance protection.

Comprehensive Only Fixes What You Have

While a comprehensive car insurance will cover you against accidental damage or a total write off to your vehicle, it is not as simple as simply getting a new car for the same price as the old car should you suffer a total loss.

It is an unfortunate truth that a car loses value as soon as it is driven away from the dealership, or a private owner takes ownership. This is less true in Hong Kong than other places due to the strong second hand car market that has evolved as a by product of the 100 percent sales tax that is placed on the purchase of new vehicles. However, depreciation is still a fact of life.

In the case of comprehensive car insurance, claims are based on the depreciation of the vehicle with the understanding that the policyholder cannot see any “betterment” in a claims scenario. As part of this, when applying for a comprehensive car insurance policy in Hong Kong you will need to specify the value of the vehicle you are trying to insure – much like in a Home Contents insurance situation.

Under-insuring or over-insuring your vehicle when valuing it can have consequences to your ability to claim and the benefits you will receive under the policy.

What Car Insurance Should You Take?

There are positives and negatives to both Third Party Only and Comprehensive Car insurance products. For starters, Comprehensive policies tend to be far more expensive than Third Party car insurance plans simply due to the expanded coverage they offer.

However, if you are buying an older second hand car then paying the higher premium for your coverage may not be worth it – especially if you are only planning on staying in Hong Kong for a short period of time. On the flip side, Third Party car insurance does not actually protect you should you require repairs to your vehicle, and you are depending on the quality of the insurance held driver responsible for a car accident should you need repairs.

Car insurance is a complicated subject; more complicated than it may first appear. Outside of the simple question of coverage levels you’re receiving under your policy are the issues of Named vs Unnamed Drivers, “Accidents” in parking garages, whether you are a new or experienced driver, and even your age can have a fundamental impact on the type of car insurance that may best fit your specific needs.

Fortunately CCW Global has a number of expert Car Insurance Brokers with many years of experience helping drivers in Hong Kong find the most comprehensive yet affordable coverage solutions possible. Contact us to arrange a free consultation with one of our brokers today and find out what Hong Kong car insurance plan works for you.