RELATIONSHIP BETWEEN CHINA AND INSURANCE

RELATIONSHIP BETWEEN CHINA AND INSURANCE

The history of insurance industry could be traced to the Chinese. The earliest form of insurance occurred when wealthy Chinese merchants along the Yangtze River decided that it was too risky to place all their merchandise on a single vessel and sail it down the river. To reduce their risks, they split the shipment into smaller portions and placed them on several boats.

They knew that it was unlikely:

(i). All the vessels would sink or suffer damage.

(ii). If one did sink, the majority of the cargo would reach its     destination safely. 

Although this arrangement was not formally called insurance, it was the forerunner of the modern insurance company, which also recognizes the importance of spreading risk.

(Lloyd's of London):

The more formalized insurance arrangements we are familiar with today actually began at a coffeehouse owned by Edward Lloyd near London. In the late 1600s, wealthy merchants gathered at the coffeehouse to discuss their latest ventures, which often involved overseas shipments, increasingly to the new world. Concerned that they could be devastated financially if an entire shipment was lost, merchants began to make arrangements with each other to share their risks of loss.

When a shipment was scheduled to depart, the owner posted a notice with a complete description of the cargo and vessel at the coffeehouse. Other merchants looked at the description and signed their names beneath with a percentage of the cargo they were willing to pay for if the vessel were lost. When 100 percent of the cargo was insured in this manner, the vessel sailed.

These early merchants became known as UNDERWRITERS. If the voyage was successful, each underwriter received a bonus, or premium. If, however, the vessel did not reach its destination, the underwriters made good the loss to the shipper. This, of course, was the beginning of Lloyd's of London, an institution that has continued to operate in much the same way for more than 400 years.

Lloyd's remains a major participant in the worldwide insurance industry. Lloyd's of London is not an insurance company that sells policies. It is a group of private insurers that underwrite risks they feel are good business proposals submitted to them from customer groups.