Motor Insurance in Hong Kong

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1. What is required by law?
2. Is the driver covered for injury to himself and passengers?
3. What is the effect of having a 'No Claim Discount or No Claim Bonus' on how much my insurance costs?
4. If I have a Comprehensive policy, What is the rule of 'Betterment' and how does this work?
5. How can I interpret the excesses!?
6. What is the MIB Levy?
7. What is the Tariff Rate?
8. What is the "special" or "client discount"?
9. What relevance is my sum insured?

1. What is required by law?

In Hong Kong, it is compulsory to have HKD100,000,000 Third Party Liability insurance in case we injure someone.

In addition, insurers provide liability cover for third party property damage. The maximum property damage cover is HKD2m (This property damage limit can sometimes be increased by negotiation, most commonly to HKD5m).

2. Is the driver covered for injury to himself and passengers?

There is NO cover for the driver, as he is not a third party. There is cover for the passengers, bystanders and those in another vehicle, but there is no cover for the drivers medical bills, rehabilitation costs or the long term loss of income that may result. This requires separate insurance.

3. What is the effect of having a 'No Claim Discount or No Claim Bonus' on how much my insurance costs?

The discount rules are:

Number of full years provably owning a car & claim free % Discount off annual premium Example of HKD10,000 normal premium
0 0 HKD10,000
1 20 HKD8,000
2 30 HKD7,000
3 40 HKD6,000
4 50 HKD5,000
5 60 HKD4,000

In Hong Kong, few insurers will agree to this if you have not owned a car in the past year.

If you have owned a car in the past year, or still own a car but keep it abroad to use like a rental vehicle, the insurer will likely agree to reduce your premium – IF you can provide a letter from the previous/current insurer, showing how many years in the past 5 you have been claim free.

It is possible for you to transfer your 'no claim entitlement' to your spouse or your company, or vice versa. Different insurers have different rules on this.

As soon as you inform an insurer of a claim or a likely claim, the market practice is to remove your No Claim Bonus entitlement and only to return this to you after there has finally been a court case to determine who was at fault.

4. If I have a Comprehensive policy, What is the rule of 'Betterment' and how does this work?

If you have arrived from the US, Europe or Australia for example this will be a real shock if you claim.

The theory goes like this: The intention of the insurer is to not make us 'better off' as the result of a claim.

This means that assuming our car is more than a year old the insurer will only pay the value of second hand parts.

But because there are relatively few cars owned by people in Hong Kong, the second hand part market is not well developed and in any event second hand parts are often unavailable. As a result, people use new parts, which incidentally will often need a special order from overseas, thus slowing the repair process.

A common example would be someone runs into the back of your vehicle while you are stopped or slowing in traffic. The rear end assembly and boot (trunk), with parking sensors etc may easily cost HKD30,000 (labour aside). If your car is already 7 years old you may find yourself offered say just HKD15,000.

Some insurers will negotiate to waive 'Betterment' but only for cars less than 7 years.

5. How can I interpret the excesses!?

The market practice in Hong Kong is for the Excesses or deductibles accumulate.

So say you leave your car to a young restaurant attendant to park. If he/she has an accident, say hitting a post in the parking area, you will find the insurer will add:

  • Young (under 25) Excess
  • Inexperienced (under 2 years) Excess and
  • Third Party Property Damage Excess, if damage is done to the post

This will mean you will be responsible to pay the total of these excesses BEFORE the insurer will begin to pay.

6. What is the MIB Levy?

"MIB" refers to the Motor Insurers Bureau that was set up in Hong Kong in 1980.

On behalf of this Bureau insurers are responsible to collect a charge that is currently 3% of the premium to provide compensations to victims of traffic accidents where the person causing the accident is:

  • Untraceable or,
  • Uninsured

7. What is the Tariff Rate?

Historically insurers had an agreement as to how to charge for insurance and most insurers, apart from AXA, rely on some a formula which they then modify according to their experience.

AXA rates by driver age, sex, occupation and especially the repair costs.

Other insurers may additionally factor in the area in which you live but there are none of which we are aware that rate according to repair costs.

The 1998 recommended basis for motor premiums were as below:

Hong Kong Federation of Insurers - Motor Tariff
Accident Insurance Association Premium Recommendation 1998
Private Cars Basic Rates Additional percentage of car value +
Engine Size Comprehensive
Up to 1850 cc HKD8,600 8.40%
1851 cc - 3500 cc HKD9,500 5.50%
Over 3500 cc HKD9,700 5.80%
Engine Size Third party Only
Not relevant HKD5,000 Not relevant

So for example, if you car was worth HKD250,000 and the engine size was 2.0 liter, then your premium BEFORE any levies of discounts would be calculated as follows:

HKD9,500+ HKD250,000*5.5% = HKD9500+HKD13750 = HD23,250

There was also a table for such things as goods carrying vehicles, taxis and hotel/airport hired cars.

If you were taking Third party only cover the starting premium would be HKD5,000

8. What is the "special" or "client discount"?

A client discount is a discount off the insurers version of the tariff rates.

9. What relevance is my sum insured?

The sum insured is substantially irrelevant should you claim. The reason is that Hong Kong policies are not generally AGREE VALUE policies.

A handful of insurers will write a agreed value policy.

For the rest of the market, if you write off your car the sum insured will be the market value of the car.

In our experience, because there is no definitive reference that is universally accepted for car values, the payout received if your car is damaged beyond economic repair, will be likely its wholesale rather than retail value.

The Australian company 'Red Book' provides and on line service, like Blue Book in the US, but few insurers will accept a Redbook valuation without question.

Part of the problem is the small size of the market and the buoyancy of the new car market which mean that in the second hand market can be very volatile.

Certainly car values drop off rapidly after 7 years when cars begin to need an annual MOT- Motor Transport Test, to prove they are road worthy.

Each year you insure your car be careful to advise your intermediary the revised car's value. if in doubt, we suggest simply depreciating by 10-15%.

Note: Motor Vehicle Finance companies do not accept a car value being shown on the policy as "Market Value" and will insist on a sum insured being the loan amount you have taken.. A few finance companies will agree to reducing the sum insured each year.. best check with them!

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