Product Liability

Introduction

China offers a unique and significant commercial insurance opportunity arising from its export business. Based upon data from China Customs, China exported goods worth US$1,428.5 billion which included US$252.3 billion to the United States and US$141.2 billion to Germany, the Netherlands, and the UK combined during 2008.

While China has quickly joined the industrialized world in the production and export of a wide range of commodities, its local insurers have lacked the technical insurance skills necessary to protect its commercial liability interests abroad. While they as a whole clearly recognize that commercial liability insurance is essential, especially in the product liability area, their confusion over US and European liability laws creates the most enormous demand on insurance. The challenge for Chinese insurers is to find a way to protect its product liability exposures against the litigious environments of Europe and the United States.

In fact, a lot of insurance companies are interested in product liability. Many of these companies, however, refuse to involve themselves with Chinese imports that generally fall under the insurance term "reverse flow business" (general liability exposures in the Unnited States that have their source from overseas). The reluctance stems from the fact that reverse flow business can be very difficult to underwrite as the risk is far away and difficult to understand. Since most of the underwriting companies do not have facilities in China, developing critical underwriting information becomes next to impossible. Recognizing this as an immediate and long term golden opportunity, and in answering this need and linking the two opportunities together, Bestfi has done two things:

  1. First and foremost, several interested insurers undertake to invest in a comprehensive organization in writing the liability business to protect exports from China. In addition to its experienced underwriting team, they also consult one of the top product liability underwriting managers in China today, a CPCU with over 20 years of product liability underwriting experience in the USA and 10 years in China. The combination of local and foreign experience establishes a system and leads the company to the right direction in pursuing a profitable portfolio of product liability insurance business.

  2. The second step is to secure a steady flow of business from a nationwide network. This shall involve identification of potential clients through partnering with brokers and a comprehensive training program to front-line producers. The training program also includes selection of clients and products likely to be desired by the insurer.

Product Details

Insured Products

China’s main bodies of export comprise primary products, industrial products and consumer products. The targeted categories includes textiles, garments, foot wear, toys, light and heavy machinery and equipment, white and brown goods, telecommunicaitons, food & related items, petrochemicals, chemicals, consumer electronics and cement, and auto parts.

In order to balance premium and exposure, we aim at arranging insurance to products normally declined by major insurers which are prepared to provide coverage at cheap premiums to general products, such as textile and garments. Emphasis of production shall be in the areas of toys, industrial tools and machinery, and auto parts of moderate risks.

Clientele Location

There are three major bases of export in China, namely the Pearl River Delta, Yangtze River Delta, and Boahai Area that accounted for almost 60% of the exports from China in 2005. Whereas the Boahai Area including Beijing, Tianjin, and Shangdong are too far from our operations, marketing effort shall concentrate on the two Deltas which include the following major cities:

With extensive networks in these bases, Bestfi expects to reach clients of preferred quality effectively and identify causes of losses, if any.

Brokerage Operations

There are three anchor brokerage operations to produce business, Bestfi Insurance Brokers in Hong Kong, Chang Cheng Insurance Brokers in Guangzhou, and Alltrust Insurance Brokers in Shanghai. These brokers shall assist other retail brokers in technical aspects and production support.

In addition to being the wholesale broker to coordinate underwriting information for all submissions, Bestfi shall also arrange excess policies through its correspondent brokers in London and the US, in the event higher limits are required.

Philosophy

Underwriting

Please refer to our BEST underwriting guide for products risk classification and loss prevention.

Claims

Original Policy Conditions
Territory
Worldwide.
Jurisdiction
Loss incurred locations, USA and worldwide.
Original Policy Period
One year policy period plus any extension not exceeding 18 months in all.
Basis
Occurrence basis, optional claims made basis.
Minimum Deductible
US$5,000 each and every loss, claim expenses included.
Minimum Premium
US$10,000.
Supplementary Coverage
Bond premium to release attachment. Vendor's coverage. Prejudgement interest awards. Legal fees and cost.
Rates
“A” rated.
Wordings
ISO Form with program’s own endorsements, or PCA 94 (Occurrence Form) and PCA 86 (Claim Made Form) commonly used in the London market. Choice of form depends upon client’s request and facultative support, if required.
Choice of Law and Jurisdiction in Original Policy
People’s Republic of China
Exclusions
Products related to asbestos; war; terrorist acts; nuclear waste, fusion, or explosion; environmental impairment; gradual pollution; contamination; punitive damages; product recall; guarantee; warranty; workers’ compensation; damages to properties under care; custody; and control.
Underwriting Requisites
Completed applications (ACORD Form), product information, and field underwriting survey report, if necessary.