SME Insurance in China: What You Need to Know

Running an SME in China comes with opportunities, but also a fair share of risks. From property damage and employee injuries to cyber threats and legal liabilities, unforeseen events can disrupt business operations and lead to financial losses that can otherwise be prevented. 

That’s why having the right SME insurance in China is the key for long-term success and sustainability. This Pacific Prime guide covers everything you need to know about SME insurance in China, including the types of coverage, why they matter, and how to choose the right plans for your business. 

Whether you’re a local entrepreneur or a foreign business owner looking for expansion to the Chinese market, understanding your insurance options can help your company stay compliant and well-protected.

Types of Insurance for SMEs in China

Small and medium-sized enterprises (SMEs) in China contribute more than 60% of the country’s GDP and provide around 80% of urban employment. Without a doubt, SMEs have been the main driver of China’s economy. But as an employer, are you doing enough to protect your business and your employees?

Due to their smaller scale, limited financial resources, and less diversified revenue streams, SMEs are often more vulnerable to economic downturns, operational interruptions, and legal liabilities compared to larger corporations. That’s where business insurance becomes important.

In China, there are both mandatory insurance requirements, such as social insurance for employees, and optional but highly recommended policies like property & casualty insurance, public liability insurance, employer’s liability coverage, and group health insurance. 

In this article, we’ll walk you through the key types of insurance that SMEs in China should consider and why securing the right coverage is a strategic investment for your business’ future.

Mandatory Insurance for Businesses in China

There is one type of insurance that all businesses in China, regardless of size, are legally required to have: Social Insurance.

Understanding the Basics of Social Insurance in China

China’s social security system consists of five types of insurance and one mandatory housing fund, as shown in this table:

* The contribution amount for each social insurance category is calculated based on the employee’s payment base, which is then multiplied by specific rates set by local government authorities.

** Contribution rates may vary depending on the industry. For example, the manufacturing sector usually has higher rates. 

*** Work-related injury insurance rates are generally determined by the risk level of the employer’s industry.

**** Maternity insurance has been integrated into medical insurance in many cities. The contribution rate of the employer shall be the sum of their original contribution rates to the medical insurance and the maternity insurance. 

***** In some cities, both employers and employees can contribute more than 12% toward the Housing Fund.

When hiring employees, employers must register them with their local Social Insurance Bureau and Housing Fund Bureau in order to initiate or reactivate the company’s corresponding accounts.

Social Insurance for Foreign Employees in China

Many foreign employees working in China are required to participate in the country’s social insurance system. 

According to the Social Insurance Law, foreign workers holding valid work permits and employment contracts are entitled to the same social insurance coverage as Chinese citizens. However, the specific implementation can vary by city or province. 

Participation in social insurance is required in cities such as Beijing and Shanghai. Foreign workers may not be required to pay into some insurance plans, such as maternity or unemployment insurance, in some cities.

Some cities treat foreign employees the same way as domestic employees, which means that social insurance payments are compulsory, while others do not currently require foreign employees to contribute towards social insurance.

Foreign employees may also qualify for social insurance exemptions if they are from countries that have signed bilateral social insurance agreements with China.

As of now, 11 such agreements are in effect with the following countries: Germany, South Korea, Denmark, Canada, Finland, Switzerland, the Netherlands, Spain, Luxembourg, Japan, and Serbia.

An agreement has also been signed with France, but it has not yet been implemented.

Picking the Right Business Insurance for SMEs in China

For startups and SMEs, finding the right business insurance plan can be hard. Due to their smaller size, many business owners often assume that investing in a comprehensive insurance plan isn’t worthwhile, especially when compared to policies typically designed for large corporations.

SMEs are indeed the backbone of China’s economy, but they also face a wide range of risks that can threaten their operations, financial health, and long-term survival.

That’s why business insurance is important for SMEs in China. Here is the list of insurances that SMEs in China should consider:

1. Property & Casualty Insurance (P&C Insurance)

Property and Casualty (P&C) Insurance is a broad category that includes two important types of protection:

• Property Insurance safeguards your physical assets, such as buildings, equipment, and inventory, against loss or damage from events like fire, theft, or natural disasters.
• Casualty Insurance provides liability coverage in case your business is held responsible for accidents, injuries, or damages caused to others or their property.

Together, P&C insurance forms a good risk management foundation for businesses. It acts as an umbrella term to describe various policies specific to your business’ needs.

The type and extent of coverage you require will depend on your industry and risk profile. For instance, a tech startup may prioritize cyber liability insurance, while a retail store might focus more on public liability and property coverage.

2. Public Liability Insurance

Liability Insurance protects against third-party claims for bodily injury or property damage occurring on your premises or as a result of your operations. This type of insurance is suitable for any business with customer interaction or foot traffic, such as cafes, shops, or gyms.

According to Bank of China, the standard coverage of Public Liability Insurance often includes:

• Third-Party Bodily Injury or Property Damage: Covers liability for accidental bodily injury or physical damage/loss to third-party property caused during business operations.
• Legal Liability and Defense Costs: Covers legal liability arising from third-party claims, including litigation and defense costs, provided they are incurred with the insurer’s written consent.
• Exclusion of Claims from Employees or Family Members: Coverage is limited to third parties. Claims made by the policyholder’s employees, family members, or for damage to their personal belongings are typically excluded.

3. Worker’s Compensation and Employer’s Liability Insurance

Workers’ Compensation and Employer’s Liability Insurance provides protection for employers who may be held financially or legally responsible if an employee suffers a work-related injury, illness, or death.

Employer’s Liability Insurance covers compensation claims made by employees due to accidents or health issues that occur during the course of employment. This includes incidents such as:

• Injuries occurring during working hours, on the worksite, and for work-related reasons
• Accidents that happen before or after working hours on-site, while the employee is preparing for or finishing work
• Workplace violence encountered while performing duties
• Occupational diseases diagnosed and officially recognized as work-related
• Injuries or disappearances caused by workplace accidents
• Traffic accidents while commuting to or from work
• Sudden illness resulting in death within 48 hours during working hours and on company premises
• Other situations as specified in the insurance policy

A typical Employer’s Liability Insurance policy in China includes:

• Up to 36 months of salary paid to the employee’s family in the event of death
• Up to 48 months of salary for cases involving permanent disability
• Salary coverage for up to 52 weeks during recovery from injury
• Accident-related medical expenses
• Legal liability protection for the employer in the event of a claim

4. Group Health Insurance

Group health insurance is not just a benefit for your employees; it’s a smart investment, especially for SMEs in China. 

In today’s competitive job market, talented professionals are often looking for more than just a paycheck. Group health insurance helps SMEs attract and retain top talent by offering a benefits package that can rival what larger corporations provide.

Group health insurance supports employee well-being and productivity. When staff have access to quality medical care like preventive services, specialist consultations, and mental health support, they are more likely to stay healthy and engaged, leading to fewer sick days and better workplace morale.

From a financial standpoint, group health insurance is typically more cost-effective than individual plans. SMEs benefit from economies of scale, resulting in lower premiums per employee. These plans can often be tailored to suit the company’s budget while still offering a high level of coverage.

Although China’s social insurance system is mandatory and offers a basic level of medical coverage, it’s limited to public healthcare services and may not be sufficient for employees who expect faster access or higher-quality treatment. 

Group health insurance fills this gap by offering access to private clinics and hospitals, which is even more beneficial for expat employees who will have a hard time at public hospitals because they don’t speak Chinese.

Secure Business Insurance in China with Pacific Prime

Protecting your SME with the right business insurance isn’t just about fulfilling legal requirements. It’s about building sustainability and peace of mind. Whether you’re looking to cover your property, employees, liabilities, or health benefits, having a tailored insurance plan can make a big difference.

While this article covers the common kinds of coverage, there are many more types of business insurance worth exploring, including business interruption, cyber liability, and directors and officers (D&O) insurance.

To learn more about your options or get personalized advice, feel free to visit our website or contact our specialists today!

Disclaimer: Pacific Prime solely represents, operates and manages locally regulated insurance products and services in the territory of PR China. Any references to Pacific Prime Global Company or Group, the international services, insurance products or otherwise stated written or verbally, is for introduction purposes about our overseas network only as each entity is fully independent.