Lloyd’s of London is a British insurance marketplace where member insurance companies underwrite risk for companies and individuals in the form of insurance policies. You may be surprised to know that Lloyd’s (as it is sometimes familiarly called), is not itself an insurance company. It is a marketplace that provides a space for insurance companies to sell their policies. Lloyd’s manages the space and the companies within it.
The history of Lloyd’s of London
Lloyd’s of London began in 1688 as a coffee shop on Tower Street, London. The coffee shop, owned by Edward Lloyd, quickly became a hub for ship-owners, merchants, and sailors.
Over time, the clientele began to discuss insurance deals at the café. Lloyd was not directly involved in the insurance business, but he provided a space for these deals to come together. Elizabeth Fielder of the University of Ohio wrote, “The insurance process began with members of the coffee house each taking a share of risk and then signing their names one beneath the other on a particular policy with the amount they agreed to cover.” Those who signed on to take on a share of the risk, were then coined “underwriters”.
The exchange was officially incorporated with the Lloyd’s Act of 1871 and had cornered the market on marine coverage. To honor their nautical history, Lloyd’s placed a bell recovered from a sunken ship on the floor of the underwriting room.
Lloyd’s Growing Credibility
Lloyd’s gained credibility in the United States after the 1906 San Francisco earthquake and subsequent fires. Many insurers were questioning whether a claim should be paid on a fire policy or an earthquake policy, and claim denials were widespread. Cuthbert Heath, a Lloyd’s underwriter who has been dubbed “the Father of Modern Lloyd’s of London”, determined that Lloyd’s policyholders would be paid. This decision gave customers in the United States confidence in the Lloyd’s market.
Lloyd’s Marketplace Structure
Lloyd’s of London’s unique structure has made it famous worldwide. The marketplace is comprised of three key groups:
- Members: Lloyd’s members are comprised of corporations, Limited Liability Partnerships, Scottish Limited Partnerships, and individuals. Members, also known as capital providers, accept insurance business through syndicates. Members are solely responsible for their own loss or profit and do not share responsibility. Individual members are known as Names and their exposure is unlimited. However, individuals can no longer be elected to unlimited liability.
- Syndicates: Members of Lloyd’s are grouped together into syndicates, which work together on risks that require multiple underwriting specialties, and to share insurance risk between a number of individuals. Should a policyholder file a claim, each member is responsible only for their portion of the policy.
- Managing Agents: Managing agents are companies set for the purpose of managing syndicates for members. These companies are responsible for managing operations and employing and managing underwriters.
How The Lloyd’s Marketplace Works
A Lloyd’s broker and a specialized underwriter work together to develop a custom policy. Larger or more specialized risks may be delegated to a team of specialist underwriters who decide what percentage of the risk they are comfortable assuming.
The performance of the Lloyd’s market has been strong over the last several hundred years, even throughout tumultuous times. Lloyd’s recently reported that they had paid 2.9bn to clients impacted by COVID-19, but that they were returning to a profitable and “resilient capital position in 2021 results”. 2022 has also brought its share of challenges, as Reuters reports that Lloyd’s “faces major claims this year related to Russia’s invasion of Ukraine, but this will not lead to solvency issues”, according to the insurance market.
Lloyd’s of London’s iconic home
The building that houses the Lloyd’s marketplace is “one of the 1980s most recognizable pieces of architecture”. While Lloyd’s has been located on Lime Street for more than 100 years, the Lloyd’s building was built in 1986. All the service equipment for the building is on the outside, including staircases, ductwork and pipes. The building has also been featured in several movies like Mamma Mia! (2008), Guardians of the Galaxy (2014), and Hackers (1995).
Insuring Everything from Ships to Legs and Voices
While Lloyd’s got its start by insuring ships, the appetite of the syndicates, or members that take on risk, has greatly expanded. Lloyd’s underwriters have registered many firsts, writing the first auto insurance policy in 1904, the first aviation policy in 1911, and the first spacecraft policy in 1965. And yes, Lloyd’s has placed coverage on David Beckham’s legs and on Bruce Springsteen’s voice. As large and famous as their name has become, Lloyd’s has never abandoned its roots in that they still place coverage for the shipping industry.
Would you believe they still record shipping losses with a quill and ink?