Sunday, October 12, 2008

China's Insurance Industry Before 1949 (part 1)

As a country with a history of more than five thousand years, ancient people of China developed various measures by which people with similar conditions could share risks and help each other. These measures can be considered the most primitive forms of insurance. According to the Book of Yizhou, an ancient Chinese literary history book, Chinese people realized the uncertain nature of natural catastrophes and began to make efforts to store grain in abundant years for famine approximately three thousand years ago. Years later, merchants conducting freight on the Yangtze River invented a clever method to diversify risks. Each merchant would place his goods on several different boats, consequently sharing the losses incurred from the sinking of one boat with other merchants.

The modem insurance industry did not emerge until the end of the Qing Dynasty (1644-1911), China's last feudal dynasty. Initially, the Qing Dynasty saw China as the center of the world and pursued a closed door policy resulting in serious trouble both at home and abroad. The western powers, which had already completed the industrial revolution, later compelled the weak and corrupted Qing government to accept trade, thus introducing modem insurance to China in conjunction with westem commodities to China.

Guangzhou used to be the only trade port in China before the Opium War (1839-1842) between China and England. Usually, foreign insurance companies entmsted their Chinese business to foreign trade firms established in China, the socalled Yang Hang. In 1805, British merchants established the first foreign insurance institution in Guangzhou, China, the Canton Insurance Society. This kind of effort did not gain popularity until the Qing government was defeated in the Opium War and was forced to open more trade ports. Then, the sharp increase of foreign trade resulted in a tremendous demand for insurance. Many foreign firms divested their insurance business and established separate insurance companies in China, which monopolized China's insurance market for a period of time.

In May 1865, the Shanghai Yihe Insurance Society, a freight insurer, was established. It was the first domestic insurer in China and introduced insurance policies written in both English and Chinese for the first time. Previously, policies were written only in English in China. In December 1875, the Insurance Promotion Bureau was founded and it ended the monopoly of foreign insurers for hull insurance. The emergence of domestic insurers was welcomed and supported by the domestic business community. Subsequently, the Renhe Marine Insurance Company, Jihe Fire and Marine Insurance Company, and other domestic insurance companies were set up. Until 1911, there were approximately forty-five domestic insurers operating in China which were highly concentrated in trade ports in Shanghai. Infact, thirty-seven out of forty-five insurers were in Shanghai (Ye, et al. 1998, p. 54).

Also read: China's Insurance Industry Before 1949 (part 2)

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