The exchange has initial registered capital of 2.24 billion yuan ($341 million) contributed by 91 companies and will allow trading of insurance products and derivatives, Shanghai Daily reported.
The Shanghai exchange, which was first proposed in 2010, will focus on international reinsurance, shipping insurance, "mega" insurance deal bids and special risk insurance, the report said.
Shanghai already has exchanges trading in stocks, bonds, commodities and currencies, Shanghai Daily said.
"The new bourse will further diversify the functions of Shanghai financial markets while gathering international insurers and reinsurers in the city and boost Shanghai’s voice in the global insurance industry," Shanghai executive vice mayor Tu Guangshao said at the launch ceremony, Shanghai Daily reported.
Chen Wenhui, vice chairman of the China Insurance Regulatory Commission said that that the exchange is "an important step to promote the upgrading of China’s insurance industry".
"The new exchange should play an active role in increasing the supply of insurance products to meet increasingly diversified market demand and boost the coverage of insurance services," Chen said.
China issued the country's first insurance development index in December, designed to show the health and development of the insurance sector in the country.
Taking 2010 as its base year, with an index of 100, the Insurance Association of China said that the index for 2014 was 109.1. This shows that the sector is making progress, with steady business, the association told China News in December.
Vehicle insurance made up for more than 70% of all insurance premiums paid in 2014, the report said. In western developed countries, including the US and Germany, vehicle insurance accounts for less than 25% of the market, China News said. China's insurance market needs to diversify and include more residential cover, it said.
China's state council announced plans in 2014 to develop the country's insurance industry, aiming to raise premiums to 5% of gross domestic product, or an average of 3,500 yuan ($545) per capita, by 2020.