Awareness of public liability insurance is low and its adaptability is also not very encouraging in China. Things are transforming and this line of insurance should find a wider market in the country soon. Asian Risks Management Services’ Mr Marc Burban shared his views.
According to a market report on liability insurance, awareness of this line of insurance is very low amongst consumers in China compared to Europe and the US. In China public liability accounts for less than 7% of the whole property insurance premium, while in the US it is about 40%-45% and in Europe it is about 30%.
Asian Risks Management Services founder general manager Marc Burban speaking with Asia Insurance Review said, “The degree of awareness about public liability in China, however, differs from province to province.
“In most of the urban provinces such as Beijing and Shanghai, the public liability insurance covers are relatively more prevalent. The residents there are more aware of their rights, have better information about laws and regulations and hence are more keen to seek compensation when they suffer damages from another party.”
He said, “In most of the insurance policy wordings, the establishment of the liability is based on the laws in respect of death or bodily injury to third parties, or loss of or damage to property belonging to third parties.”
In December 2020, China Banking and Insurance Regulatory Commission (CBIRC) issued the Measures for the Supervision of Liability Insurance Business to regulate this class of business and to restrict its scope of coverage. The measures are to prevent insurance companies from expanding arbitrarily the scope of their services or to use insurance services to engage in illegal or non-compliant conduct.
CBIRC said that the rapid growth of liability insurance in recent years has led to problems including poor understanding of such services among the public, non-standard market conduct and lack of standardisation in the form and quality of insurance services.
Mr Burban said, “Although, there is no mention of specific laws, generally the relevant laws for this purpose are those of the Civil Code of the People’s Republic of China adopted at the third session of the 13th National People’s Congress in 2020, especially the part 7, articles 1,164 to 1,260, which pertain to tort laws.”
In December 2019 Swiss Re China suggested to the Chinese authorities to make liability insurance, such as occupational liability insurance, public liability insurance, environmental pollution liability insurance, and product safety liability insurance, essential prerequisites for the establishment of enterprises.
According to CBIRC, the annual premium collected with respect to public liability is around one third of the total annual premium for all liability insurance lines.
Slow but steady growth
Mr Burban said, “On the whole, liability insurance has achieved a significant growth over the last decade with an annual growth rate between 20%-30% from 2016 to 2019. In 2020 the total premium for all liability insurance lines was about CNY90.1bn ($14bn) and that pertaining to public liability was around CNY30bn.
“From 2020, due the pandemic, the growth rate of the insurance premium dropped from 27.5% in 2019 to 19.6.% over the last two years.”
Mr Burban said “The pandemic popped up around the Chinese New Year in 2020 and many cities were put under a strict lockdown. The most impacted businesses were food and beverages, hotel and tourism. For other businesses, the impact depended much on the region where they were operating from. This situation created a feeling of uncertainty as nobody had a clear view about what would be the situation in the months ahead. Moreover, with all operations on hold, the need for insurance and especially public liability insurance became less important from February 2020 onwards.”
Declined during pandemic
Mr Burban said, “In February 2020, on a year-to-year basis the growth rate of premium income for the whole insurance business except agricultural insurance declined by 7.90% and the public liability insurance premium followed this trend.”
“After the strict lockdown was lifted and economic activities resumed, the premium income growth rebounded at a rate of 11% for the period from March to May 2020 and the public liability insurance volume followed this trend.”
Mr Burban said, “In terms of coverage with the outbreak of the coronavirus, we have seen some insurers adding a clause ‘Infectious Diseases Excluded’ which categorically excluded death, bodily injury or illness arising out of any infectious or contagious disease.
“In terms of claims, the industry did not experience an increase in number of claims incurred. It was mainly due to the slowdown of the activity especially in the food and beverage industry which usually experiences one of the highest rates of claim across all industries and also the application of the strict policy of COVID control on the business premises.”
During the period 2020-2022, the total liability insurance premium grew by 13% between 2020 and 2021 and virtually at the same rate year-on-year basis during the 12 months from October 2021 to October 2022. During this period, the share of public liability remained stable at about 3% of the total annual premium income for liability business line.
Mr Burban said, “The impact of COVID on the insurance market, and especially public liability, was more a decline in growth rate in the premium income than a decrease in premium volume collected. One of the main reasons for this is probably the low penetration rate of insurance in China. On a long-term trend basis, the development of insurance coverage is still on the rise and especially public liability.
Optimistic prospects
“The need for public liability might increase as the public awareness about their rights will continue to grow. The law mentioned above is still new and came into existence only in 2020. The complete application of it may take some time and shall lead to more litigation cases in the years ahead,” Mr Burban said.
“It is difficult to assess any long-term impact of the pandemic on public liability insurance. At present the government does not require monitoring of the COVID-19 virus in open public places such as shopping malls, hotels and restaurants. As long as, there is no such requirement, businesses cannot be held liable for infection caused by someone to others in public venues. Hence, in case someone gets infected in a public venue, the person cannot lodge a claim against the business owner about it.”
Mr Burban said, “The outcome of any legal litigation may also depend on how courts construe the duty of care falling on businesses. They may consider, for instance, that there is obligation of wearing mask in public venues, a duty of monitoring the number of persons present at the venue at any given point of time. If the operator of the venue does not exercise his duty of care, he might be held liable to indemnify the damage caused to the persons infected.”
He said, “If this trend comes through, it might be challenging to insurers as they will have to cover many claims from one event or accident instead of very few which is the present situation under public liability. Reinsurance coverage will also have to be suitably adjusted to cope with the situation that could evolve.”
The impact of the COVID-19 was limited on the public liability insurance, however it might bring newer challenges in the long term with the way the civil laws apply and how the judicial system interprets them. A