Enriching Lives: A History of Insurance in Hong Kong, 1841-2010

Introduction

Introduction Insurance is one of the oldest industries in Hong Kong, and it has long played a significant role in the city’s economic development. Suffice it to say that the insurance industry has evolved in step with the economy at large. In essence, the industry’s development encapsulates that of the overall development of the territory. The industry’s birth in Hong Kong can be traced to the establishment of the Canton Insurance Office Ltd. and the Union Insurance Society of Canton in the nineteenth century. Canton Insurance was jointly formed, and run, by turns, by Davidson-Dent (later called Dent & Co.) and Magniac & Co. (forerunner of Jardine, Matheson & Co.). In 1835, Dent quit the joint operation and set up Union Insurance. The following year, Jardine re-established Canton Insurance as a limited liability company. After the British took over Hong Kong in 1841, Canton Insurance and Union Insurance moved their bases of operations and registered for business in what was soon to be the Crown colony. This made them the territory’s earliest insurers. The subsequent development of the insurance industry in Hong Kong can be broken down into five phases, chronologically: • The first phase runs from 1841 until the start of the Japanese occupation in 1941. This phase marks the industry’s fledgling days. In the 1860s, riding on its superior geographical advantages, Hong Kong took off as a newly opened free trade port. The concentration of foreign firms in the colony laid the foundation for the rise of shipping and international trade. Early on, the economy showed its promise of prosperity. During this period, insurance, much like banking and shipping, became an important department in most foreign firms; investing in an insurance arm was all the rage among them. By the early 1940s, there were about 100 insurers in the colony. Nearly all were British-controlled subsidiaries that acted as agents and offered a single line of products related to shipping and trading; they primarily served foreign traders. 2 Enriching Lives • Phase 2 runs from the end of World War II until the late 1960s, marking a transition within the industry. The 1950s and 1960s saw Hong Kong evolving from an entrepôt into the light-manufacturing hub of the Far East. As the economic base evolved, so did the insurance industry. Although marine products saw further growth, the competition became more cut-throat than ever. Fire products were thriving, while accident products, especially auto and employees’ compensation, were beginning to grow. In other words, the postwar insurance sector was gradually diversifying. However, even until the end of the 1960s, the market remained dominated by British insurers, with only a few foreign-funded agencies, locally registered limited liability companies, and subsidiaries of large foreign insurers getting slices of the growing pie. • The third phase goes from late 1960s until the early 1980s, the period of the industry’s globalization and diversification. In the 1970s, with the rise of the stock exchange and continued economic growth, international financial institutions flocked to the city. These favourable macroeconomic developments gave rise to many more upstarts. Not only did foreign insurance firms begin to set up shops, but trading firms, real estate developers, and banks also entered the fray with their own insurance operations. In addition, the sector began to diversify in scale; small and medium-sized local firms and large international underwriters intensified the competition. By this time, Hong Kong had already established itself as an insurance centre in the Asia-Pacific region. • Phase 4 is bracketed by the 1980s and the return of Hong Kong to Chinese sovereignty in 1997. In an effort to build Hong Kong into an insurance centre worldwide and to protect investors’ interests, the government issued the Insurance Companies Ordinance. This required the establishment of the Hong Kong Federation of Insurers, or HKFI, in August 1988. Under growing pressure in the 1990s from government regulators and the public, the HKFI pro-actively promoted self-regulatory measures, 3 Introduction such as managing intermediaries and introducing legal sanctions, and cemented the institutionalization of the industry. However, as more manufacturers relocated their operations to the Chinese Mainland, the demand for fire and employees’ insurance slackened, while that for life products began to dominate the market. This motivated the industry to offer new products and broaden the scope of service to satisfy growing demand for quantity and quality. • The last phase in the industry’s development encompasses the post...