The Hong Kong Startup and Small Business Insurance Guide

Hong Kong, ranked consistently at the top of the Heritage Foundation’s list for Freest Economies and placing in the top 10 for Business Insider’s “Easiest Cities to do Business,” is one of the world’s most vibrant and prosperous locations for start-up companies and small businesses to set up shop. For businesses and companies looking to trade into China, or for organizations that want to access the greater Asia-Pacific region whilst taking advantage of a low-tax base and world class transportation infrastructure, Hong Kong offers a wealth of opportunities matched by few other locations on earth.

Because of the city’s many advantages increasing numbers of businesses are being founded in the SAR each year; some started by expatriates and international investment, but a large majority of which are locally born institutions benefiting from Hong Kong’s increasingly friendly outlook on incubating start-up industries. From IT and High Technology firms, through to the service providers and financial companies that have made Hong Kong world-famous, it is a simple fact that Hong Kong is currently experiencing something of a renaissance when it comes to the number of business calling the city home.

However, despite the attractiveness of Hong Kong in terms of what the city has to offer a small or startup business, there tends to be quite a bit of confusion in regards to the risk-management solutions available to these smaller companies – after all, who wants to think about spending money on a comprehensive high-end medical insurance plan when making next month’s rent is a pressing concern?

For SME’s operating in Hong Kong the good news is that there are an array of insurance options which have been specifically designed to assist startup companies in their formative stages, as well as enable small businesses to protect themselves against major liability suits and payments, helping business owners to concentrate on running their fledgling companies rather than worry about what would happen in the event that something were to go wrong.

So if you’re in business in Hong Kong, or if you have decided to set up a company in Asia’s World City, what should you know about the local corporate insurance options?

Employee’s Compensation Insurance – Its Mandatory

Employee Compensation Insurance, or Worker’s Compensation Insurance as its known elsewhere in the world, is the only type of coverage that a business operating in Hong Kong is required to purchase.

Employee Compensation insurance covers a company against its liability to employees in the event that workers suffer an accident resulting in injury as part of the normal course of their job. Basically, this means that if an employee should slip and fall in the office, or if warehouse staff have a box fall on them, the business will not be liable for paying a compensation claim – any compensation claim resulting from a workplace accident will be covered by the EC Insurance policy.

Standard coverage under an Employee’s Compensation Insurance plan is normally in the region of HK$100,000,000 for any one claim event, and means that businesses and employees are protected against workplace accidents. Without this cover in place, a business could potentially be liable for any financial compensation a worker needs to recover from an accident (including replacing missing wages during the worker’s recovery).

The premium for EC Insurance will normally be calculated based on the total number of employees a company has as well as their job duties and salaries; white collar office workers will generally have a smaller overall premium than warehouse and logistics companies due to the lowered “risk” of accidents occurring on the job. However, white collar workers will typically tend to have higher salaries than their blue collar counterparts which can push the cost of coverage up.

More information on this type of cover can be found by clicking Employee’s Compensation Insurance.

My business doesn’t have EC Insurance; what’s the worst that can happen?

Employee Compensation Insurance is a mandatory purchase according to Labour Department Regulations. In fact, all businesses in Hong Kong, no matter what industry the company may be in, are required to display their Employee Compensation Insurance certificate in a prominent position inside the company’s premises.

This guideline isn’t just meaningless regulatory make-work which can be forgotten by a business; the Labour Department will conduct random spot-checks on companies to ensure that they have the necessary EC insurance protection.

Companies which have been found to lack this type of insurance will be fined by the Labour Department and may come under additional sanctions, including temporary suspension of operations, depending on their industry and the length of time the business has been without employee compensation insurance.

Insurers have declined to offer EC Insurance to my business; what now?

If a business is unable to obtain Employee Compensation insurance through commercial insurance providers then EC insurance coverage can be provided by the Labour Department’s Employee Compensation Insurance Residual Scheme Bureau.

Companies are eligible to receive coverage under the Residual Scheme if they have been denied Employee Compensation Insurance coverage by at least 3 different insurance providers, or if they have been quoted a premium which is in excess of 30 per cent of the market norm.

Generally, only businesses operating in “high-risk” industries, or those with a high claims history under Employee Compensation insurance, will need to take the Residual Scheme option.

Further information can be found at http://www.ecirsb.com.hk/index.html.

Group Health Insurance – it’s an optional benefit

One of the biggest questions CCW Global receives from business owners setting up companies in Hong Kong is “what should I do about medical insurance?”

The good news on this front, at least for bosses who have a background in the USA, is that medical insurance is not a necessary company insurance purchase in Hong Kong – the city has an excellent public healthcare system which will provide low-cost healthcare to all residents.

This means that Health Insurance plans are more of a luxury item which many businesses use to entice superior talent to the organization and heighten employee satisfaction, rather than a must-have necessity in place to protect workers through government regulation (like the Obamacare legislation in America). However, having said this, the best healthcare options in Hong Kong are to be found in the private sector which is the second most expensive medical offering in the world – placing a close second in cost to the States.

For issues like Maternity or Cancer treatment, the best care and doctors operate within the private sector at hospitals like the Sanatorium, Adventist, or Matilda, and despite the relative low cost of the public system, private healthcare offerings in Hong Kong will carry a hefty price tag – meaning that individuals are going to have to carry the burden of covering their costs out of pocket if they choose to go the private route for their medical treatment.

For more information please click Hong Kong’s healthcare system.

What coverage is available under Hong Kong health Insurance plans?

Corporate health insurance plans, for companies that are offering this type of benefit to employees, can normally be structured to meet the specific requirements of an organization. In fact, it can be possible to provide different classes of employees with different levels of protection – senior management, for example, could be provided with higher levels of coverage than entry level employees.

In terms of the specific benefits available, corporate health insurance in Hong Kong can offer coverage for:

• Inpatient Treatment
• Outpatient Treatment
• Maternity
• Families and Dependents
• Alternative Therapies and Traditional Chinese Medicine
• Vaccinations
• Emergency Evacuation
• Dental Treatment
• Pre-existing medical conditions
• And many more

Depending on the exact needs of your organization, it can be possible to tailor bespoke coverage that provides the company with unique medical insurance protection.

International or Local Protection – flexibility for all employees.

If a business has opted to provide employees with health insurance protection then there are myriad options available within Hong Kong’s insurance market for group coverage; with the ability for plans to be tailored to meet the exact coverage needs of a specific company.

With International Health Insurance products employees are able to receive global medical protection for both themselves and their families under a single policy – ensuring that workers are covered no matter where they may go, whether for business or pleasure. While the coverage limits associated with International Health plans are generally extremely high, and there are a range of flexible coverage benefits on offer, it is important to understand that the premiums associated with International Health Insurance products are normally quite high, often in excess of US$ 2,000 per employee.

However, Hong Kong is able to offer a number of domestic health insurance options which will provide lower levels of medical protection within Hong Kong’s borders and can be obtained in the region of HK$ 2,500 and upwards per person per year. The servicing on domestic health insurance plans are generally lower than those on International policies, and the premiums tend to be experience rated – meaning that you can usually expect a drastic increase if a claim has been made in the previous policy year.

More information on both these health insurance policy types can be found by clicking Local and International Health Insurance.

Professional Indemnity Insurance – at the risk of giving advice…

With Hong Kong quickly becoming Asia’s startup capital, and with the city playing host to a booming service based economy, many companies succeed off the back of advice that they are providing to customers.

From stockbrokers advising on which stocks to buy, insurance brokers suggesting specific products, due diligence suppliers doing background checks, architects submitting building designs, therapists counselling clients, and even law firms offering legal solutions to specific problems, Hong Kong companies stake their reputations on their knowledge and ability to provide correct answers.

However if, for one reason or another, the advice given to a client turns out to be wrong then the impact to a business (especially a startup or SME) can be catastrophic. A single negligence law suit can mean that a company has to shut up shop while dealing with the potential financial burden of legal fees and compensation, and an unfavorable verdict on that front can force a company out of business for good.

Professional Indemnity is a type of insurance policy which covers businesses against any errors or omissions they may make and is designed to protect companies against negligence claims, legal defense, and subsequent law suits stemming from wrongful advice or services provided to customers.

For more information on this type of insurance please click Professional Indemnity Insurance in Hong Kong.

Professional Indemnity is not mandatory, but can be very beneficial

For a large majority of Hong Kong companies there is no legal regulation stating that the business must possess a Professional Indemnity insurance plan. As such, it is normally up to a business owner as to whether they will require indemnity coverage. Having said this, however, it is important to note that certain regulated industries will have regulations around professional indemnity insurance coverage.

Insurance companies (including providers, agents, and brokers) are required to hold professional indemnity cover, as are businesses regulated by Hong Kong’s Securities and Exchange Commission (stock brokers, investment banks and the like). But for Tech Companies, Relocation business, and Fitness providers there is no requirement to purchase a Professional Indemnity coverage – meaning that it is possible to cut down on an expense that would normally seem extremely unnecessary.

In some cases it is becoming more common that clients will require a business to possess professional indemnity insurance as part of their business contact. If, for example, a company is providing due diligence information to major banking institutions on the political exposure of account holders lands a big contract with an international bank then the bank will typically require the company to purchase indemnity insurance for the completion of the contract.

In this instance it is possible to obtain the PI insurance after the requirement has come into force, but getting coverage confirmed before such a requirement has been placed on the company can streamline the process and enable the organization to get a head start on competing bids for the contract.

Without Professional Indemnity Insurance what is the worst that can happen?

Let’s face it, law suits don’t happen every day and if a company is providing high quality services or advice then it may not have much to worry about.

But in the event that a business does find itself on the wrong end of a legal battle being presented by a consumer the costs of mounting a proper legal defense, as well as any resulting compensation settlements, can be disastrous – exceeding HK$ 100,000 and up. For small and startup businesses this can mean the difference between another successful month of operations and having to stop operating entirely.

The bottom line is that companies are probably going to be ok without professional indemnity insurance coverage in Hong Kong (unless they are operating in an industry where such coverage is required) – but it could be a big risk going without the protection in the event that something goes seriously wrong.

Key Man and Group Life Insurance –protecting in talent investment

When starting up a company the business normally doesn’t have much in the way of assets to protect; operating out of a serviced or virtual office means that there is no actual office to protect, the printer and fax machines are normally going to be rented, and startups generally don’t have expensive corporate art collections.

However, small businesses and startup companies are nothing without their employees; and in many cases losing a key member of staff to illness, injury, or death can severely hamper a company’s ability to do business – to such an extent that the loss of a vital employee could even force a premature closure of the company.

Key Man and Group Life Insurance coverage can be vital protection to fledgling organizations whose success depends on small but active workforces. While this type of insurance is not mandatory in Hong Kong it can be a good idea for more established SME’s to think about including this coverage in their Y2 and Y3 operating budgets to protect against worst case scenarios.

What is Key Man Insurance and how does it work?

Key Man, or Key Person Insurance will provide a monetary settlement to a company in the event that a critical member of staff is injured, becomes seriously ill, or dies unexpectedly.

The settlement provided to the organization can help the company cover any loss of profits, sales shortfalls, business interruption expenses, credit shortfalls or the impact of loss-of-confidence from financial institutions, as well as enabling the company to finance the recruitment of a replacement employee.

It is important to note that Key Person Insurance is taken out by a company on its employees, and that the company will be the beneficiary of the policy and not the employee’s dependents. Because of this, Key Person insurance can be viewed as a form of business interruption coverage, protecting a company against any interruptions caused by the departure of a critical employee from death, illness, or injury.

Will businesses suffer because they don’t have Key Man Insurance on a vital employee? If something happens to that individual then the answer is likely, yes. However, even having said this, the decision to purchase such coverage is completely up to the business in question and by no means should Key Man protection be viewed as a mandatory purchase.

More information can be found by clicking Key Man Life Insurance.

What is Group Life Insurance and why does it matter?

In contrast to Key Man Insurance, Group Life Insurance is provided by an employer to its employees, with the employees (or their dependents) being the beneficiary of the policy. This means that if a worker becomes critically ill or injured, or if they die, then the policy will provide a monetary settlement to that individual’s dependents.

Group Life Insurance plans can be wholly paid for by a company, providing the coverage to employees free of charge, or can be run on an opt-in basis where employees contribute to the cost of their own life insurance coverage. In either event, the existence of such a policy in a company’s employee benefits offering can provide vital peace-of-mind to the worker as they know that their family will receive vital financial assistance should anything happen.

In Hong Kong Group Life Insurance plans are not very common, so this is another class of insurance which can be viewed as a luxury. However, there have been situations where the existence of a group life insurance plan has sweetened the deal for small businesses looking to recruit top level talent – with the employee choosing to take a role at the company which offered such coverage over the organization which did not.

Looking at the big picture, are businesses going to suffer because they don’t offer group life insurance in Hong Kong? The simple answer is; probably not.

More information can be found by clicking Group Life Insurance.

"Office" Insurance Packages – safeguarding a business’ assets

The easiest way for startup companies and small businesses to protect themselves in Hong Kong is often through an Office Contents or Business Insurance package. Calling this type of package “office contents insurance” is actually a bit of a misnomer as these policies are able to supply a wide umbrella of protection – enabling SME’s to tick their risk management boxes in one easy to understand plan.

While the majority of cover offered under an office insurance package is not mandatory from a regulatory perspective, these plans can include Employee Compensation insurance as part of the protection offered – enabling SME’s to access cost effective and streamlined protection in a single policy.

More information can be found by clicking Office Package Insurance.

Contents on Office Contents Insurance – the basics.

At the core of an office contents insurance package is, unsurprisingly, an office’s contents. Covering trade samples, computers, portable office equipment (including PDAs and mobile devices), documents, artwork, wine and spirits, and even employee’s personal possessions, an Office Contents insurance plan is designed to protect a business against the loss, theft, or damage of its physical assets.

This may not be necessary for starups operating out of serviced or virtual offices, but for smaller businesses with their own premises thinking about purchasing Office Contents insurance can provide vital protection in the event that the few physical assets owned by the company suffer a loss.

While Hong Kong is generally a very safe city for business, accidents can happen – in no small part due to simple human error. Forgetting to lock the door, or leaving a light on overnight can, in a worst case scenario, lead to a burglary or a fire; and while its not common, dealing with the fall out of these types of incidents can lead to a significant financial impact which can be tough to overcome for companies being operated on extremely tight budgets.

EC Insurance, Public Liability Insurance, Business Interruption, and More!

The major benefit of an office contents insurance plan can be found in the extended coverage offered under this type of policy. As previously stated, in Hong Kong and office contents plan can normally enable a company to obtain Employee Compensation cover (which is mandatory for all businesses operating in the city) as well as receiving protection for a range of extended benefits including:

• Business Interruption Insurance
• MPF Contribution Insurance
• Loss of Money Insurance
• Stock Insurance
• Debris Removal Expenses
• Public Liability Insurance
• Office Assault Insurance

Each of these policies would normally only be available to SME’s through individual plans, but under office contents packages will enable a company to access a range of protection which may otherwise be beyond the budget if purchased on a standalone basis.

However, it is important to note that while the EC protection offered under an Office Contents Insurance plan will satisfy the regulatory requirements, the coverage limits for the additional umbrella benefits will normally be lower than if those covers were purchased on individual plans. But, as the rest of these benefits are not required, a package policy can be a quick solution to covering the big risks.

Free Startup and Small Business Insurance Consultations

If you are considering starting a business in Hong Kong, or if your company is investigating how to better protect itself against diverse risks, please Contact CCW Global to arrange a free no-risk, no-obligation consultation on the complete range of Business Insurance products available in Hong Kong.

CCW Global offers extensive benchmarking and consulting services to startups and small businesses completely free of charge; and all products we provide will cost exactly the same as if you had gone to the insurance companies directly.

If you have any additional questions about the perfect insurance solutions for Small Businesses and Startup Companies in Hong Kong, of if you would like to learn more about the services which CCW Global is able to offer, please visit our dedicated Corporate Insurance Website today.