Lloyd’s of London is a marketplace where insurance buyers and sellers come together to trade. As it is not actually an insurer, it is managed by a corporate body governed by the Lloyd’s Act of 1871 and 1911, which set out in detail the Society’s objectives, the promotion of its members’ interests and the collection and dissemination of information.
It is made up of various financial backers, groups of underwriters or syndicates, managing agents, insurance buyers and private brokers who mainly underwrite general insurance and reinsurance, as well as a small portion of life and marine insurance.
In 2018 there were 84 syndicates managed by 55 managing agencies that collectively wrote £35.5 billion of gross premiums on risks placed by 303 approved brokers.
Why was Lloyd’s of London created?
Lloyd’s of London is steeped in history. Lloyd’s started out as a coffee shop on Tower Street in London in 1686. It’s owner, Edward Lloyd, catered mainly to sailors, merchants and ship owners who also worked in the slave trade. They would frequent the coffee house to get the latest shipping news and to purchase marine and slave insurance.
Lloyd’s soon dominated the maritime insurance sector and established themselves at a new location at number 16 Lombard Street, in the very centre of London’s business world. They began publishing the Lloyd’s List in 1734, one of the world’s oldest journals, that gives weekly shipping news. A print version was published every day until 2013 until it switched to a digital format.
Lloyd’s only started trading as a proper marketplace 1771 after the death of Edward Lloyd. The first Lloyd’s Committee set up shop in their first underwriting room at their new home, in London’s Royal Exchange Building.
The Committee was established under the name ‘The Society of Lloyd’s’ and consisted of a group of independent men led by underwriter John Julius Augerstein, who later became chairman and initiated numerous changes. In 1973, the organisation appointed Liliana Archibald, the first female broker.
The British Parliament passed the first Lloyd’s Act in 1871, which incorporated the Society of Lloyd’s as a statutory corporation and made it illegal for anyone not a recognised Lloyd’s underwriting member to sign their name to a Lloyd’s policy.
Soon after, various changes took place including the introduction of non-marine policies byCuthbert Heath, one Lloyd’s most famous and illustrious member,followed by Frederick Marten’s invention of larger syndicates. Syndicates are the backbone of the Lloyd’s marketplace and functions just like a normal insurance company, assuming risks and paying claims. Up until now syndicates were made up of two or three individuals or corporations but Marten pushed this to include syndicates of 12 or more.
The organisation set up a new home in The New Lloyd’s building at One Lime Street 1986. The building was designed by Richard Rogers, was officially opened by Her Majesty the Queen and includes the infamous Lutine bell in the main Underwriting Room. In the past, the bell would be rung once for good news and twice for bad news.
By the early 1900’s, Lloyd’s of London had entered into international contracts with managing agents in India, New Zealand, Denmark and Norway. They also established a reinsurance arm, which protected insurers in circumstance when large claim(s) threatened devastation on the balance sheet and also introduced auditing process for their members.
What do Lloyd’s of London do?
Lloyd’s underwrite a diverse range of policies in both direct insurance and reinsurance. The organisation covers more than 60 lines of insurance in areas such as property, marine, energy and motor. They also have a unique niche in unusual, specialist business such as kidnap and ransom, fine art, terrorism, aviation war, satellites, and bloodstock insurances.
The organisation is also well known for developing tailor-made policies for some well-known celebrities. In the past they have insured vocal cords for the likes of Celine Dion and Whitney Houston and insured the legs of Tina Turner and Brooke Shields.
What challenges do Lloyd’s of London face today?
One of the biggest challenges for Lloyd’s is how to limit catastrophic losses on their balance sheet. Although they have successfully spread their risk by insuring a wide range of insurance types, they are still susceptible to the effects ofunprecedented natural disasters.
In 2012, it made a £516 million loss as a result of earthquakes in Japan and New Zealand, storms in America and floods in Thailand and Australia. Lloyd’s ended up paying the largest catastrophe claim on record, with the Thai floods being their biggest disaster playout.
In their most recent annual report for 2018, Lloyd’s reported an underwriting loss of £1.1 billion, impacted by above-average major claims, including hurricanes Florence and Michael in parts of America and wildfires in California.
A number of analysts had also speculated that Brexit would become a challenge for the London based operation but it is anticipated that most of the European Economic Area (EEA) reinsurance will still be written through London on a cross-border basis or covered by Lloyd’s Brussels which opened in 2018.
How will it keep ahead of the curve?
Dramatic changes in technology is reshaping the insurance industry across the world. Lloyd’s of London have often been accused as being too slow, too inefficient, too difficult, too costly and too outdated, but are now forging ahead with technological plans to try and build what they hope will be ‘the most advanced insurance market in the world’.
In May 2019, the organisation announced a host of new plans in a prospectus called ‘The Future of Lloyd’s’. They include strategies to increase efficiency and drastically reduce operational costs, including splitting its business into two.
The idea is that anyone working within the Lloyd’s marketspace will be able to plug into its online platforms to trade simply and efficiently. The transformation will include the introduction of a new digital platform for new and complicated risks, while simpler risks and those with smaller markers like the marine cargo sector will be placed in a separate online platform called the Lloyd’s Risk Exchange. Brokers will be able to use standardised data, automated processes and administration, and IT solutions to log directly into the exchange, to help reduce time and money.
A syndicate-in-a-box style approach is also on the cards with the aim of providing a structured route for entrepreneurs to get new and exciting products to the reinsurance market quicker. This will in turn give customers a wider and more innovative range of insurance products to choose from. There is even the option of a next-generation claims service, where a claim could be paid before the customer realises a loss has been experienced.
Finally, its highly skilled workforce of predominantly traditional underwriters will be amalgamated with personnel with a newer skillset (such as data science and technology engineering for example).
Lloyds has spent the last six months from October last year in a period of transition and planning and the entire proposal has been split into three phases.
Phase one will begin in January 2020 until early 2021 and will include a combination of quick wins, together with a series of initiatives which will have a big impact. Phase two will take place between January 2021 and December 2021, while phase three will occur from January 2022 onwards.
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