The move highlights city's drive to become a global financial center

SHANGHAI - Shanghai has applied for central government approval of its plans to build an insurance exchange, according to one of the people responsible.

The move marks another step in the eastern financial hub's drive to become an international financial center by 2020.

Xu Wenhu, director of the Insurance Research Center in Fudan University and head of the research group for the proposed exchange, said on Thursday that the municipal government recently completed preliminary work on the plan and had submitted it to the State Council.

The city's intention to establish the exchange first surfaced in June last year, when the deputy-mayor, Tu Guangshao, told the Third Lujiazui Forum that Shanghai is "conducting research and working on a plan to establish a market for insurance products with the support of the central government".

Tu said at a forum on June 25 that the exchange will be a major market for reinsurance products.

Participants will "probably" include foreign insurers, Xu told China Daily on Thursday, but declined to provide further details because they are still subject to alteration by the central government.

However, a report in the Security Times on Thursday said the exchange will initially trade liability insurance, reinsurance, and property and group life insurance products.

It will offer risk securitization products, catastrophe bonds and insurance derivatives, to spread the risk from the insurance market to the securities market, at a later date.

Life insurance, property insurance, reinsurers and insurance brokers will be among the main participants in the proposed exchange, according to the report.

Shanghai has vowed to become an international financial center by 2020, but the development of the city's insurance industry - one of the three pillars of the modern financial industry - lags behind activity in banking and securities.

Fudan University's Xu said the exchange, if established, will be a watershed in the development of the industry.

"The insurance exchange is one of the most important components in the city's plan to become an international financial center," he said. "Innovation in the trading system for insurance products will drive forward the overall development of Shanghai's insurance industry."

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Two shipping insurance centers were set up in December, providing a boost to insurance services in the city.

The Shanghai-based China Pacific Insurance (Group) Co Ltd unveiled a shipping insurance center on Dec 30 to provide insurance services covering vessels, cargo transportation, maritime energy, port property and marine liabilities. A similar body was launched a day earlier by PICC Property and Casualty Co Ltd, a subsidiary of the People's Insurance Co (Group) of China Ltd.

The number of insurance companies in Shanghai increased to 110 at the end of 2010 from 100 a year earlier, according to figures released by the Shanghai Bureau of the China Insurance Regulatory Commission.