Most people in the world might have heard of Lloyds and their commonly known brands such as Lloyds Bank, Lloyds Shipping, the Lloyds Register or Lloyds Insurance. They might think of Lloyds of London as that insurance company who will insure just about anything, like an actor’s nose, or a footballer’s legs. That would be correct, they do indeed insure such weird and wonderful risks and they will insure almost anything else you can think of. What most wouldn’t know is that they are not an insurance company in the strict sense, they are much more.
The business of insuring risks is quite different with Lloyds than the general marketplace or with a general insurance company.
How Lloyds Works
Lloyds is a syndicate of members that share in the risk of anything considered insurable. The business model is centred around a subscription method that allows more than one syndicate to take on a share of the same risk. This method of insuring risk is not uncommon throughout the industry, where some risks may be so large that insurance coverage is broken up between different players. You might notice on your Statewide policy schedule that the insurer is referred to as ‘Certain Underwriters at Lloyds” – this is the syndicate model.
The Lloyds of London market is made up of managing agents and syndicates that generally offer superior qualifications in expertise and talent. Uncommon to most insurance companies, business at Lloyds is still done on a face to face basis and the Underwriting Room is central to the efficiency of the marketplace. This face to face and direct market structure continually encourages innovation, efficiency and value which make it attractive to its policyholders and participants. It allows immediate access to the decision makers so that answers on whether a risk can be accepted happen quickly, which allows brokers to service their clients and prospects in a timely manner. Its a throw back to the old days of face to face insurance, certainly a different concept than today when most of us transact with no name companies through computers.
Business is conducted with the Lloyds syndicate by way of authorised and licensed brokers. The broker conducts an interview or discusses the risk with the prospect (ourselves as the insurance broker) and puts together a portfolio of the risk. The portfolio is then submitted electronically to relevant specialist underwriters where underwriting and pricing is set for the Lloyds broker to present back to the Client broker. The appetite of most standard insurers is generally smaller than that of a Lloyds syndicate, which is why Lloyds is generally known as that weird and wonderful mob who insure crazy risks. We term it ‘hard to place’ risks – if you need coverage for a 100ft yacht, built in 1920, by the finest woodworking artisans, which is being moored off a cyclone ravaged Northern Australian coast, no chance! The standard market is generally not set up for or interested in such risks, whereas Lloyds will likely accept the risk.
The Lloyds risk concept was actually started in 1688 in Edward Lloyds coffee house. The gentlemen in the coffee house developed a reputation for having specialised information about shipping which was considered second to none. This is where insurance began and was offered to cargo companies shipping in and out of London and soon to the world. By the 1730’s Lloyds began to dominate the shipping insurance market and as other marine insurers suffered huge losses, Lloyds began to dominate on a global scale. In the 1750’s the first details of underwriting began and the shipping specialists continue to profit for about the next 20 years. In 1768, after the end of a prosperous Seven Years’ War, marine premiums began to fall. This drove certain underwriters to take on more speculative risks for such crazy things as ‘highway robbery’ and ‘death by gin drinking’ which at that time earned Lloyds the reputation of a gambling den.
Several years later a group of underwriters broke away from the coffee house group and established a new Lloyds coffee house at 5 Pope’s Head Alley in London. While the old Lloyds group ceased to exist, the new Lloyds group of professional underwriters took over and preserved the earlier established name of the company, and began the march to the Lloyds of London that serves industry on a global basis today. There’s 300 years of history to discuss, so perhaps its easier to view the below video!
So what does this all mean for ourselves as brokers, and our clients?
The method of how Lloyds transacts is nice to know, but it does not mean a great deal to either brokers or clients – we simply want the risk placed, with total security, for a fair price and with excellent coverage. We don’t particularly concern ourselves with what Lloyds do in their office, or what syndicate is what, or who is talking to who…we just want great terms obtained!
We transact with Lloyds the same way we do with anyone else – we prepare our risk submission and submit to the local Australian Lloyds representatives, and its up to them to deal with all of the above! It is the same process as dealing with an insurance company, an underwriting agency, a wholesale broker or anyone else – we submit, they come back with terms, we hassle them for better terms, we present to client and place the cover.
What Lloyds do offer is security, and capacity. They offer great terms, particularly on hard to place risks. We use Lloyds for both hard to place risks, and for general risks where they offer superior terms and pricing. You may have a small $1500 policy and notice its with Lloyds, that would be due to superior terms and pricing decision as opposed to general insurers. If you need that yacht covered, try us!
A key concept of Lloyds Insurance today and their future plans, is the recent Vision 2025 – their new strategy for development, and their positioning plans to take advantage of opportunities presented by the world’s developing economies. The aim of course is to make sure that Lloyds remains the global centre for specialist insurance and reinsurance – with an increased focus on growing to a larger capacity so Lloyds can achieve profitable growth from both the developing and developed economies.
….Straight from their corporate brochure….
- Growing our premium income from developed markets in line with their economic growth, with greater growth in developing markets.
- Encouraging a more diversified capital base, with far more contribution from high growth economies.
- Supporting a truly international underwriting community.
- Remaining a broker market, and making full use of the specialist international networks that our brokers have worked so hard to achieve.
- Having a small number of powerful overseas hubs in key major overseas markets.
Lloyds as an institution might be 100’s of years old, but they are as always at the forefront of modern insurance solutions, and are continually evolving their risk and placement capabilities. Lloyds is represented in Australia, which gives Australian Insurance the extra security of a local presence, and adds to our confidence in their claims process. A giant of the insurance industry…. is Lloyds of London.