A History of Insurance in China A History of Insurance in China Introduction 2 Pre-1949: The Arrival of Insurance and the Rise of a Domestic Market 4 Swiss Re History 20 1949 to 2001: The Rebirth of the Chinese Insurance Market 28 2001 to the Present: The Path to Globalisation 40 Introduction China is one of the biggest success stories in the history of insurance. Having survived some tumultuous times, the Chinese market is now one of the most exciting and important in the world. Chinese traders in the third millennia BC were some of the very first practitioners of risk diversification, dividing their wares between vessels to limit losses. But like many other countries in the Asia- Pacific region, China was first introduced to the modern concept of insurance by foreign traders in the early 1800s. Foreign insurers continue to provide valuable expertise as well as access to a worldwide insurance and reinsurance safety net. However, China’s recent success is largely down to the achievements of its domestic insurance sector. Established in the late 1800s, the indigenous Chinese insurance market has proved extraordinarily resilient and, in recent years, incredibly fast growing. It is currently on course to become the world’s second largest insurance market behind the US. China began the herculean task of re-building its insurance market in the 1970s, initially through the state insurer, the People’s Insurance Company of China. Following market liberalisation, and with the active encouragement of the government, the Chinese insurance sector has blossomed into a vigorous and competitive marketplace. Insurance is now seen as a key pillar supporting economic and social development and growth in agriculture, industry and the infrastructure, as well as mitigating the impact of natural disasters and providing welfare protection. The increasing impact of natural disasters and an ageing population are emerging issues for China. However, being part of the interna- tional insurance and reinsurance safety net will help make China more resilient and more capable of meeting the risks of tomorrow. 2 Swiss Re A History of Insurance in China Swiss Re A History of Insurance in China 3 4 Pre-1949: The Arrival of Insurance and the Rise of a Domestic Market Insurance was an alien concept to the Chinese for much of the nineteenth century, but by the twentieth century a thriving community of domestic and foreign insurers was well established. Marine, fire and life insurance were first introduced by foreign traders operating out of southern Chinese port cities. However, over time the Chinese themselves became involved, and eventually the first Chinese- owned insurers were formed. Many of these insurers thrived – despite war, civil war and natural disasters – right up until the People’s Republic of China was founded in 1949. Insurance travels east Due to a number of factors, the develop- The modern concept of insurance was ment of insurance took a slightly different first developed in Europe in the late path in China. An unusual feature of 1600s when the first insurance companies the history of insurance in China is that were set up to provide cover for fire and the foundations of the insurance industry marine risks, as well as early life insurance were laid by Europeans and North Amer- policies. Driven by industrial expansion, icans already living and working there, international trade and growing wealth, while in many other parts of the world, the benefits of insurance were quickly it was agencies of the major European recognised, and the practice spread rapidly insurers that were first off the mark. to the Americas and then Asia. The first foreign insurers in China Marine, fire and life insurance usually Unlike in other parts of the world, the ports followed in the wake of European traders, of southern China, not London, were the as they sought to protect cargo, ware- spawning ground for the insurance indus- houses and their lives with insurance. try in the Asia-Pacific region. European insurers, agents and traders were usually the first to start selling insur- In the early 1800s the British East India ance, but the creation of domestic Company held a monopoly on Chinese insurance sectors eventually followed. trade, and European merchants involved in trade between India and China struggled to insure their ships and goods in London and were forced to pay extremely high premiums. Left: The Canton Waterfront. Watercolour. China, ca.1850. ©Victoria and Albert Museum, London Swiss Re A History of Insurance in China 5 Pre-1949: The Arrival of Insurance and the Rise of a Domestic Market Traders based in India eventually began To allow them to insure risks that exceeded some other countries. However, growing insuring trade with China, but the first the capacity of Canton Insurance, the international trade, industrialisation and insurance entity established in China, and two Macau-based trading houses had the Opium Wars eventually forced the to pay claims in China, was the Canton also engaged in coinsurance since the country to open up to the outside world Insurance Society in 1805. The society, 1820s by acting as agents for other ocean after 1842. which pooled the shipping risks of its marine and fire insurers. By 1829 they member companies, was formed in Macau represented eight companies, including Up until 1842, foreign merchants were by two independent trading houses, the London-based Phoenix. confined to Guangzhou – known to Dent & Co. and Jardine Matheson & Co, foreigners as Canton – but the treaties and grew out of ad hoc and temporary The success of the Canton Insurance signed following the Opium Wars ex- partnerships between traders to insure Society prompted some of its sharehold- tended their presence to sixteen cities, their ships and cargoes. ers, which had gained substantial financial including Shanghai, which was to become might through the opium trade, to set up the most important of them all. Right from the start, Canton Insurance their own insurance companies. Dent & Co. shared in the rapid growth of its share- and Jardine Matheson & Co laid the cor- When China opened up in 1842, Jardine holders. At a relatively early stage it nerstone for this development. Matheson & Co. immediately moved Can- extended its activities to other countries ton Insurance to Hong Kong to become as its backers expanded their trading In 1835 Dent left the partnership to set the very first insurance company in the networks, and was a pioneer in the expan- up the Union Insurance Society of Canton Chinese free ports. The North American sion of the insurance network as far (initially called the China Insurance Com- trading company Russell & Co. also founded as Japan. pany), probably in Macau, but it moved to the Yangtze Insurance Association in 1862 Hong Kong in 1842 when the island was to complement its Shanghai Steam Navi- ceded to Britain. The society was reorgan- gation company. It dominated marine ised into an insurance company along insurance on the Yangtze river and soon Below left: modern lines in 1874. expanded to London, New York, Singapore Offices of the Yangtze Insurance Association and other important ports. Ltd., 1908. Jardine went on to form the Canton Insurance Company in 1836. Until the middle of the 19th century, this Below right: safety net for Chinese trade was linked The Shanghai building of the China Mutual Life China opens to the outside world only loosely to the European insurance Insurance Company Ltd., 1908. China, like Japan and Korea, had chosen industry through the British insurance Opposite: an autonomous policy which meant that companies engaged on an occasional Detailed city maps were among the most it was slower to embrace insurance than basis as co-insurers. important instruments for risk assessment in the early 20th century. 6 Swiss Re A History of Insurance in China Swiss Re A History of Insurance in China 7 Pre-1949: The Arrival of Insurance and the Rise of a Domestic Market Early Chinese interest in insurance The first true domestic Chinese It wasn’t until after the 1860s that the insurers foreign marine and fire insurers based on It was well known that Chinese capital the east coast of China began to accept was being invested in Western companies Chinese clients, with Canton Insurance in China, and Chinese merchants were again leading the way. among those investing in the region’s burgeoning insurance market: Union But the Chinese also maintained their own Insurance began accepting Chinese traditional forms of preventing losses and investments soon after its foundation in minimising risks: Chinese long-distance the 1830s. Chinese investors were also traders divided their goods among several serving as directors of the Hong Kong- ships and relied on the solidarity derived based Chinese Insurance Company (incor- from a shared place of origin. porated 1871), which required two native shareholders to be among its directors. At the same time, the agents of the Euro- pean ocean marine and fire insurers However, the beginnings of a truly do- made no effort to draw Asians into the mestic insurance industry date back insurance community. They restricted to the founding of the Renhe Maritime themselves to insuring Europeans and Insurance Company, which was set up North Americans living in Asia and refused as a subsidiary of the China Merchants to insure the junks, warehouses and Steamship Navigation Company in 1875. homes of Chinese merchants. It was followed in 1878 by the Jehe Maritime and Fire Insurance Company, However, the local Chinese soon came although the two companies merged to recognise the benefits of insurance. in 1886. Small-scale merchants, in particular, who were trading quantities of goods that These early Chinese insurers were com- were too small to distribute across several mercial operations funded by private ships, were the first to approach ocean capital, but they operated under the aus- Top: marine insurers, but it took some time for pices of the imperial regime until it Letterhead of the Tai Ping Insurance Company the first contracts to be signed.