Product liability insurance in china report by daxue consulting

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Product liability insurance in China
July 2021
HONG KONG | BEIJING | SHANGHAI
www.daxueconsulting.com
Product liability insurance in China
dx@daxueconsulting.com +86 (21) 5386 0380

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2
Overview of the product liability
insurance market in China
1.
Policies & obstacles of product liability
insurance
2.
03
08
14
Relevant legal cases study
3.
CONTENT OUTLINE
20
Main insurers & key products in China
4.

3
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Overview of product liability insurance market in China
Overview of the product liability
insurance market in China
1

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Liability insurance in China took off in the 80s
Legislation and related policies started to improve in the 2000s as people began to have stronger awareness of rights and
risk prevention. As a result, liability insurance has become more and more popular under the guidance of new laws and
regulations.
4
Market size of liability
insurance was small.
Liability insurance mostly
concentrated on vehicle
third-party liability
insurance.
Other liability insurance
only involved in overseas
business.
Civil laws and regulations
had improved.
The public’s legal concept
and awareness of rights
protection continued to
increase.
People gradually started
to buy other liability
insurance.
With the announcement of
Some Issues Concerning
the Application of Law for
the Trial of Cases on
Compensation for
Personal Injury and Some
Opinions of the State
Council on the Reform
and Development of the
Insurance Industry,
liability insurance began
to become active.
Companies are encouraged
to purchase liability
insurance by including
insurance premiums into
pre-tax deductions.
Insurance companies are
stimulated by favorable
policies and liability
insurance has broad
prospects for development.
1950 – 1980 1981 – 2002 2003 – 2014 2014 – Now
Source: Leadleo data institution designed by Daxue consulting
Infancy Stage Slow Development Stage Rapid Development Stage Rocket Stage

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5
Source: Qiaozhan, Chyxx consulting designed by Daxue consulting
Liability insurance is designed to offer specific protection to the policyholders against third-party claims. Thus, compensation is
not typically made to the policyholder, but to the third-parties who suffered loss caused by policyholders’ liabilities. Also, when a
claim is made, the insurer has the duty to defend for the policyholder.
Liability insurance protects policyholders from third-party claims
30.1
36.2
45.1
59.1
75.3
90.1
20.3%
25%
31%
27%
19.7%
2015 2016 2017 2018 2019 2020
Liability insurance premium revenues in China
(2015-2020)
Premium revenues (billion RMB) Growth rate
In 2020, the growth rate of liability
insurance premium revenues slowed
down due to COVID-19. Slower
business transactions led to fewer
new policyholders and relatively low
premium revenues.

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Despite making only 12% of liability insurance premiums in China, product liability insurance is the most profitable field of liability
insurance since the expense ratio ranked the lowest cross all liability insurance types.
Product liability is the most profitable type of liability insurance in China
6
Source: Nankai University, Swiss Re designed by Daxue consulting
Proportion of premiums for liability insurance
in property insurance in China
(2015-2019)
The proportion of
liability insurance in
property insurance
has been increasing
continuously.
Public liability
38%
Employer liability
25%
Product liability
12%
Professional liability
7%
Other
18%
Liability insurance premiums by line of businesses
(2019)

7
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Product liability insurance covers the following industries’ products issues
Product liability insurance covers all the chain from manufacturers to retailers for compensations related to illnesses, injuries and
property damages caused by defective products they sold.
7
Medical
Medicine
Medical
equipment
Food & beverage
Packaged
food
Raw meet Drinks
Related industries covered by product lability insurance
Transportation 3C product Fireworks
Manufacturing
Toys
Automobile Airplane & train

8
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Policies & obstacles of product liability insurance
Policies & obstacles of product
liability insurance
2

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Oct. 2018
Announcement of relevant issues concerning the pre-tax deduction of liability insurance premium enterprise income tax
Encouraging enterprises participate in liability insurance, and insurance premiums paid in accordance with regulations are
allowed to be deducted before paying the income tax.
Jan. 2018
Laws and policies protecting policyholders in China
China is increasingly attaching importance to the quality of manufactured products while the government is incentivizing
businesses to purchase product liability insurance.
9
Source: The Supreme People’s Court, China Court designed by
Daxue consulting
Opinions on promoting the development of urban safety
Emphasizing the implementation of safety liability insurance and enhancing its accident prevention functions.

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China is constantly introducing laws to regulate product quality issues
10
Source: The Supreme People’s Court, China Court designed by Daxue consulting
Dec. 2018
Product quality law
If the victim's personal injury is caused by the defect of the product, the infringer should compensate the medical expenses,
nursing expenses during the treatment period, and the income lost due to lost work.
If the product is defective and causes the victim's property loss, the infringer should restore it to its original state or provide
compensation at a discount. If the victim suffers other major losses as a result, the infringer should compensate for the
losses.
Jan. 2021
Civil Code / Book Seven: tort liability, Chapter IV: product liability
Manufacturers and vendors should immediately stop selling and recall the products as well as inform consumers when
defective products are put on the market. Among them, the recall and other costs are borne by the manufacturers and vendors.
Manufacturers who do not take timely remedial measures need to bear the corresponding legal responsibility.
In case of death or serious health injury, the tort victims have the right to request the appropriate punitive compensations.

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Laws governing liability insurance insurers are increasingly formalized
11
Source: The Supreme People’s Court, China Court designed by Daxue consulting
May. 2015
Dec. 2018
Judicial interpretation of the insurance law
Even though the court judgment refers only to the insured company and the third party (the victims), the insurer is still
required to fulfill its contractual obligation with the policyholder to compensate the victims.
When the policyholder and the third party have reached a settlement through an agreement on the policyholder’s indemnity
liability and the agreement has been approved by the insurer, the insurer should bear the insurance liability in accordance
with the settlement agreement within the scope of the insurance contract.
Insurance law
The insurer may directly compensate the third party for damages caused by the insured.
The arbitration or litigation costs and other relevant expenses paid by the insured are borne by the insurer.

12
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The legal environment for product liability insurance in China is relatively immature
China does not have an independent legal system for product lability, and comparing with developed countries, related terms are
less specific. Penalties for offenders such as manufacturers and vendors in China are lower than developed countries.
12
China Developed countries
VS.
a. Civil Code, b. Produce Quality Law,
c. Insurance Law
a. Civil Code, b. Product Liability Law, c. Insurance Law, d. Medicinal Products Act
(Germany), e. Penal Law (Japan), f. Restatement of Torts, Second (USA), g. Consumer
Protection Act (UK), h. Consumer Rights Act (UK), i. Code of Practice (UK)
Related laws
Design Defect, Manufacturing Defect (Germany, USA)
Failure to warn the dangers associated with its use (USA)
Instruction and Motoring Defect (Germany)
Safety of the product is below which consumers are generally entitled to expect
(UK).
Depends on different industrial standards
(national standards and local standards).
Type of defects
No Relevant Policies.
Mandatory product liability insurance for medical products (Germany)
If a company fails to recall defective products, officers and employees of the
company may be prosecuted (Japan).
Mandatory policies
Victims in a product related accident can seek compensation from the
manufacturer without proving intent or negligence (Japan).
Non-economical damage compensation is significantly high due to the punitive
compensation based on manufacturer's malicious, evil or particularly reckless
conduct. (USA).
People injured by defective products can sue for compensation without proving
that the manufacturer was negligent (UK).
Compensation mostly made up of
economic damages including medical
costs and property damages.
Victims can claim punitive
compensation only when
manufacturers are aware of the
product has defect but still produces
and sells or fails to take effective
remedial actions which caused severe
outcome.
Compensation
Source: Thomson Reuters, Pinsent Masons Law Firm, Gibbons Law
Firm designed by Daxue consulting

13
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Inbound product liability insurance companies have a talent shortage
Insurance companies in China lack the corresponding experts and only a few of them offer product liability insurance products.
Insufficient actuaries
Insurance companies as a
part of the finance industry
needs actuaries to
estimate P&L (profits and
losses).
According to China
Banking Regulation
Commission there were
only 978 actuaries in 2018
compared with 11,728 in
the United Sates in 2017.
Brokers are unfamiliar
with products
The demand for product
liability insurance are quite
niche in China. Thus, both of
insurance agents and brokers
cannot offer consultancy to
inquirers since they are
unfamiliar with it. Some B2B
brokers exclude this type of
insurance in their partnership
with insurance companies.
Most of the needs are for
exported products
Great overseas shopping
platforms, such as Amazon,
Walmart, and Metro
mandatorily require suppliers
to purchase product liability
insurance. In contrast, the
needs in China are minor.
Therefore, most product
liability insurance only serves
exported products.
Source: Leadleo data institution, AIG, CPIC, Xiebao,
Agency designed by Daxue consulting

14
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Relevant legal cases study
Relevant legal case studies
3

ALL RIGHTS RESERVED
Product liability related legal disputes are on the rise
15
Source: the Supreme People's Procuratorate designed by Daxue consulting
773
845
723
800
1,585
1,931
855
2015 2016 2017 2018 2019 2020 January - July. 2021
Judicial disputes related to product liability in China
(2015-July. 2020)
Number of related lawsuits has been increasing over recent years as people are becoming more aware of their rights and Online
Courts have been established.
By the end of 2018, Beijing and Guangzhou established local Online Courts, which accept and
hear 11 types of cases, such as product liability disputes and tort liability disputes from online
shopping and disputes related to service contract.
Since then, the litigants and their representatives can complete the entire trial process from
home.

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5.3
11.3
20
12.5
6.5 6.8
241
202
251
221
223
199
0
5
10
15
20
25
2015 2016 2017 2018 2019 2020
Product recalls in the motor industry in China
(2015-2020)
Vehicles recalled (in millions) Number of recalls
Number of recalled cases
The automobile industry suffered severe losses due to product recalls
16
Source: Beiten Burkhard, China State Administration for Market
Regulation, People’s Net, Xinhua Net designed by Daxue consulting
Due to the high fatal consequences linked to a defective product in the motor industry, automobiles were one of the first product
to get specific liability regulations in China. Because of the strict quality standards enforced on the industry, automobile recalls are
common.
9.8 million (48.3%) of the recalls
were made because of a design
defects with Takata airbags.
As the market share of New Energy
Vehicles is growing, the number of
vehicles recalled increased slightly as
many electronical systems are new.

17
ALL RIGHTS RESERVED
Types of automobile Recalled units
Cars 6,695,719
Motorbikes 13,726
Vans 3,196
Buses 1,537
Trucks 581
Total recalled units 6,714,759
Almost 7 million automobiles were recalled in 2020 alone
Cars are still the major type of automobile which are recalled by manufacturers.
Design defects with the products of some dominating suppliers may lead to large-scale recalls. Top 6 manufacturers
accounted 42% of recall cases in 2020 in China. In between, Mercedes Benz, BMW and Volkswagen were recalled the most.
17
Mercedes Benz
14
10%
BMW
13
9%
Volkswagen
13
9%
Ford
8
5%
Toyota
7
5%
Chrysler
6
4%
Others
83
58%
Number of recalled cases
(2020)
Mercedes Benz BMW Volkswagen Ford Toyota Chrysler Others
Source: State Administration for Market Regulation designed by Daxue consulting

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Liability legal cases in China’s manufacturing industry
Manufacturers are still liable for the loss caused by product defects even when they have reported recalls for potential defects.
In addition to manufacturers, the retailers and wholesalers are liable for losses caused by product defects.
18
Source: Xinhua News, China Court designed by Daxue consulting
Driver killed due to Audi A4’s airbag failure.
Zhang purchased an Audi A4 3.0 on Jan 20, 2014 from local Audi dealer, Xinfeng Taibo'ao Automobile Co.,Ltd. In Oct, 2014, the
manufacturer, FAW-VW reported a recall for Audi A4 because of the potential airbag defects, but Zhang did not return his car. On
July 25, 2015, he had a traffic accident and was killed as none of the airbags worked. Zhang’s mother, Wu, sued Xinfeng Taibo'ao
for the product defect liability and the court sentenced the manufacturer and local dealer taking 80% of responsibility.
Level-7 disability caused by defective fireworks.
On Jan 24, 2020, Wu purchased three fireworks from a store operated by Li and wholesaled from Hong. Due to the product defect,
the fireworks damaged Wu’s left eye and the injury was regarded as level-7 disability. Wu sued Li, Hong, and the manufacturer of
the fireworks for the product defect liability and the court sentenced a compensation of RMB 595,000 for the liabilities.

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Level-7 disability caused by fireworks defect.
On Jan 24, 2020, Wu purchased three fireworks from the store operated by Li and wholesaled from Hong. Due to the product
defect, the fireworks damaged Wu’s left eye and the injury was regarded as level-7 disability. Wu sued Li, Hong, and the
manufacturer of the fireworks for the product defect liability and the court sentenced a compensation of RMB 595,000 for the
liabilities.
Driver killed due to Audi A4’s airbag failure.
Zhang purchased an Audi A4 3.0 on Jan 20, 2014 from local Audi dealer, Xinfeng Taibo'ao Automobile Co.,Ltd. In Oct, 2014, the
manufacturer, FAW-VW reported a recalled for Audi A4 because of the potential airbag defects, but Zhang didn’t respond on it.
On July 25, 2015, he had a traffic accident and was killed as none of the airbags worked. Zhang’s mother, Wu, sued Xinfeng
Taibo'ao for the product defect liability and the court sentenced the manufacturer and local dealer taking 80% of
responsibility.
Liability legal cases in China’s food and medical industries
If a hospital can provide quality certification of medical products provided by the retailer or the manufacturer, it will not be
reliable for the medical products liability.
Conflicts caused by food quality defects usually can be settled out of the court, unless punitive damages or criminal liabilities
are involved.
19
Source: Tianyancha, Xinhua News designed by Daxue consulting
Medical Femur Locking Plate.
In Jul 2017, Peng had a surgery to implant a Femur Locking Plate in her right thigh. Six months later, she developed a painful
deformity in the right thigh and found that the implanted steel plate was broken after inspection. She sued Xingwen County
Hospital of Traditional Chinese Medicine, Yibin Baierde Trading Company (retailer), and Jiangsu Ideal Medical Technology
Company (manufacturer) for the liabilities, and the court ordered Yibin Baierde Trading Company to compensate the damages by
paying RMB 14,800.
Punitive damages for manufacturing inferior salt.
From June to October, 2016, Liu manufactured over 100 tone fake Yue Salt and was arrested by Guangzhou Police. He was
sentenced three years in jail for illegal business operations and fined RMB 80,000. Also, since he sold 100 tone inferior salt at
the price of RMB 1,200 per tone, he was required to compensate ten times of the sales price as a punitive damage, which was
RMB 1.12 million (RMB 80,000 deducted from fines).

20
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Main insurers & key products in China
Main insurers & key products in
China
4

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China's liability insurance market is highly concentrated
PICC, Ping An, and CPIC are dominating the liability insurance market because of their advantage in sufficient funding, wide coverage
of branches in China, variety insurance products and senior industrial experience. In comparison, it is a challenge for middle-sized
insurance companies to expand their liability insurance business.
Source: Foresight Economist, designed by Daxue consulting
39.1% 40% 39.9%
13.9% 14.3% 15.9%
9.4% 9% 8.1%
37.6% 36.7% 36.1%
Market share of liability insurance in China
(2017-2019)
Other insurers Ping An CPIC PICC
2017 2018 2019
Ping An has shown a continuously increasing
trend in last 3 years.
Top three
companies
have been
maintained
at over 60%. 6.1
12
27.2
Ping
An
PICC
CPIC
Liability insurance income for
leading companies in China
(billion RMB, 2019)
The rest leading insurers are China Life, CIC and
China Continent Insurance.

22
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Main players of product liability insurance in China
Product liability insurance services provided by foreign insurance companies are targeting at exported products while domestic
companies focus on combining AI technology into insurance to help business avoid potential losses and providing policy-oriented
product liability insurance products.
Leading property insurer in China
held by the Chinese Government.
It actively respond to the national
policy of Insurance Compensation
Mechanism for the Application of
the First Batch of Key New
Materials by providing different
types of product liability
insurances for companies that
meet the requirements.
Income from insurance for
potential defects of engineering
quality has increased significantly
in 2020.
Largest insurer in China, with
US$110 billion in net premium
revenues.
Has 3,300 branches throughout
China, which can provide on-time
loss assessment and claim
compensation.
Utilizes technologies to optimize
business process and online
services.
Offering online risk management
program, Know Your Risk (NYR) for
enterprise risk consolation.
One of the first foreign insurance
companies in China.
Product liability insurance
providers recommended by
Amazon.
Focusing on liability insurance for
exported products.
Covering punitive penalties and
providing legal defense services.
Source: AIG, Ping An Insurance companies designed by Daxue consulting

23
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Manufacturers of vehicle & 3C usually choose combined insurance plans
Manufacturers can insure the whole product of vehicle, computer, communication and consumer electronics or insure the components
separately. However, some key components of an automobile can not be insured, such as brakes, transmission and engine. For some
important parts, such as batteries for electronic vehicles, companies need to pay comparatively higher premiums.
Logistics expenses
Public relations expenses
Extra labor expenses
Repair or destruction expenses
In China, liability insurance excludes product recall insurance,
but most insurance companies offer it as an optional product.
Source: AIG, Ping An Insurance companies designed by Daxue consulting
Product lability insurance Product recall insurance
Punitive compensation
Arbitration and litigation
expenses
Property damages
compensation
Personal injury
compensation
Medical expenses
Nursing expenses
Income losses
Composition for damaged products
repairs
Depreciation compensation
for insured products
Lawsuit and arbitration fees
Attorney fees
(* Punitive compensation are only applied
when serious injury or death is caused.)

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Liability wavier
Product lability insurance
Food & medical product liability insurance only covers limited losses
In the following cases, the insurance
companies will not pay the compensation.
• Intentional acts
• Out of contract’s scope
• Unauthorized sales
• Production or use of materials is out of
state’s permission
• Contaminated production plant
Insured's fault
Product’s problem
• Out-of-date
• Unqualified with Food or Medical Safety Law
or other regulations
• Chronic diseases indirectly caused by food or
medical products
• Consumer inherent diseases
Force majeure
Source: Food liability insurance clause of CPIC, designed by Daxue
consulting
Arbitration and litigation
expenses
Punitive compensation
Personal injury
compensation
Attorney fee
Medical expense
Nursing expense
Lawsuit and arbitration fee
Lost wages

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Product Liability Insurance facilitates products’ sales
In order to increase brand trustworthiness among consumers, manufacturers demonstrate their products' safety by advertising
their insurance agreement with insurance company.
Source: huayilighting.com & Tmall. com, designed by Daxue consulting
Huayi Lighting is a manufacturer of lighting fixtures and
accessories.
Since 2017, Huayi Lighting has insured product liability
insurance with PICC for five consecutive years.
This insurance not only represents Huayi Lighting‘s awareness
and its determination to protect product safety and consumer
rights, but also the market’s trust in the brand, thus PICC is
willing to publicly insure the company.
Huaxia Silk Road is a high-quality camel milk powder co-
produced by Little Angel Group and Huaqi Dairy Group.
The company has insured this camel milk product with
CPIC‘s product liability insurance.
Meanwhile, the CPIC’s logo printed on the lower left corner
of the product packaging as a guarantee of quality and a
protection for both buyers and sellers.

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What Asian Risks Management Services can do for you
26
Analyzing and assessing the risks
Designing the terms and conditions
Approaching insurers
Analyzing terms and conditions
received
Advising you of the best cover
Following in case of claim
ARMS can
help you
to…
Significant experience on…
Mechanical
Automotive industries
Food industry

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Insurance broker in China
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Asian Risks Management Services Limited (ARMS) advises
corporates on insurable risks in China, individuals on medical
insurance and home insurance.
With a presence in Beijing and Shanghai, we provide services
all over China.
INDEPENDENT from any insurance providers, ARMS combines
international and local expertise in the insurance industry with
more than 15 years of presence in the Chinese insurance
market, we act to the BEST INTERESTS of our clients.
Life Insurance
人寿保险
Employee Benefits
员工福利
General Insurance
综合保险
Medical Insurance
医疗保险

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• Asian Risks Management Services offers tailor-made and innovative insurance solutions for corporates and individuals
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CONTACT US
010-6500 3217
www.asian-risks.com
info@asian-risks.com
Etc…
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31
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