Lloyd's of London - from Coffee House to Insurance Market
Created | Updated Jan 3, 2006
Lloyd's of London is the world's leading insurance market, providing specialist insurance services to businesses in over 120 countries. It is the world's second largest commercial insurer and sixth largest reinsurance group. What this means is that Lloyd's is not an insurance company. Lloyd's does not sell insurance, just as the Stock Exchange does not sell shares. It is a marketplace where one goes to buy insurance. The business at Lloyd's is conducted in 'The Room', the inner sanctum of the Lloyd's building in London, and is only open to a very select few.
Lloyd's, historically, is a collection of 'gentlemen insurers'; a group of men who together put up the money to underwrite insurance and to pay out claims. An underwriting member of Lloyd's is usually referred to as a Name. Names have full personal liability for any losses made on their account. This means that everything they own is attached to their underwriting account including their homes. A group of Names form a syndicate. A syndicate is not a legal entity, merely a collection of individual Names, which have agreed for the purpose of convenience to do their underwriting under a common administrative system.
So What goes on in The Room? The Room is where the business of writing insurance occurs. To place insurance at Lloyd's, you first need to approach a broker1. Unlike your car insurance company who you can phone directly to buy your car insurance, at Lloyd's only the brokers can place insurance. Once you have contacted a broker, he will write up a slip detailing your risk to be insured. This will then be passed round the underwriters for the syndicates who will sign a line underneath the risk (hence the name underwriters) and determine a premium level. The broker will pass this information on to you, and if you accept then you are now insured at Lloyd's.
So How Important Is Lloyd's Really?
Lloyd's is the specialist insurance market. It caters for all risks and especially re-insurance. It also has the enviable position of never failing to pay a claim in its long history. It is backed by a vast pool of money called the 'central fund'. Each syndicate pays a levy to the central fund each year. In the event of a syndicate going bankrupt and not being able to meet its claims, then the names and the central fund ensure that the claims are paid. In 2003 the capacity of Lloyd's (the amount of premium it can write) reached a record £14.4 billion. Lloyd's acts as a re-insurer2 or insurers for 96% of the FTSE 100 and 93% of the Dow Jones. Anything and everything you can think of is insured by Lloyd's.
So You Mentioned the History of Lloyd's - What Is It?
It all started at Edward Lloyd's coffee house on Tower Street. The first reference to Lloyd's coffee house was in the London Gazette, 18-21 February, 1688. Lloyd himself was not involved in insurance, but he provided a free information service on shipping, which prompted the wealthy to invest in insurance from Lloyd's coffee house. After Lloyd's death in 1713 the coffee house remained the centre for insurance in London. His information sheet became the 'Lloyd's list', and Lloyd's prospered as a place for marine insurance. By 1774 the underwriters had organised a committee and had taken space at the Royal Exchange building. In 1871, in return for supporting and funding the government, the Lloyd's Act gained Royal Assent, incorporating Lloyd's. Lloyd's of London was now firmly on the map as the most important insurance market in the empire, and therefore the world.
So Who Owns and Runs Lloyd's?
An excellent question. Lloyd's is not an insurance company, owned by its shareholders, but a marketplace for insurance. It is 'owned' by the members, and is financed by the membership fees. It is overseen by the Council of Lloyd's and was self-regulating until the Financial Services Authority took over the regulation of Lloyd's in 2000.
So Where is Lloyd's Now?
Lloyd's is now based in its modern premises at Number One, Lime Street, London. Entry, unfortunately, is strictly forbidden. This Researcher can confirm though that 'the Room' is still the original from the previous Lloyd's premises and that the new building has just been built round it. The Lutine Bell sits proudly in the middle and is still rung to mark the sinking of ships and state occasions. The book of Marine losses is on display and the pages are turned daily. The general staff are still called waiters in reference to the humble origin of Lloyd's, and no matter what the building looks like from the outside, the inside is a wonderful blend of the old world, which still predominates at Lloyd's, and the modern.