The British insurer

Publish date 02 May 2018
The British insurer image

Lloyd's (formerly called Lloyd's-London) is an insurance market, not just a separate company. More than 200 organizations do insurance business in Lloyd's and their market overlaps with the International Insurance Association (IUA), which includes many companies around the world that are licensed to operate as insurers in the "London market".

There are currently tendencies for the two markets to merge for practical reasons. And while the story of Lloyd's, of Lloyd's brokers, who in the past had exclusive rights to do business for Lloyd's and the London market (insurance companies), is interesting and sometimes romantic, it is no longer directly related to the current situation.

In fact, there is a single international insurance market, Lloyd's, London, most of which uses the name Lloyd's because it is well known around the world.

The key to the functioning of this merging market is its ability to be innovative and to take risks that other insurers find difficult to bear entirely at their own expense, as London market participants take risks. Each insurance offer accepted by a lead insurer is then offered (according to the terms of the lead insurer) to other market participants. Other insurers (sometimes several dozen, sometimes more) individually bear a certain part of the risk, so that if an insured event occurs in accordance with the subject of the insurance, they all share the loss and none of them will be ruined by it (as long as someone that he has not had the misfortune to have already suffered several other significant disasters in other segments of his portfolio). Different insurers can specialize in different branches of insurance and play the role of leaders there. At the same time, they can balance this part of their portfolio by agreeing to follow other leaders by providing the maximum possible part of their capacity for a given subscription year.

There are many different ways to invest in the London market. There are still some individuals who act as "Natural Names" and risk their entire fortune with unlimited liability for the risks that the insurers working for them are authorized to bear. But "names" with unlimited liability make up a small part of the market, which also includes Lloyd's specialized investment instruments and subsidiaries of most of the world's leading insurance companies.

Although special "slight intervention" by regulators is needed to enable the London market to provide the world with an innovative "alternative" insurance option, it is equally important that investors and policyholders are protected in to the greatest extent. Thus, the regulatory principles set out earlier also apply to Lloyd's and the wider London market, although some of the details are specific to this specific business center.

Policies are issued on behalf of the entire market by specialized offices and claims are also processed specifically. Therefore, to the policyholder, Lloyd's (and in fact the Lloyd's - London merging market) looks a lot like any other insurance company. Of course, it is necessary to operate a compensatory mechanism within the market so that proportional shares of losses are reimbursed by the various participating insurers.


Source: David E. Bland "Insurance: Principles and Practice"