Lloyd’s began in the 1650s, when ship captains, vessel owners, and others gathered at a London coffee house to buy or sell oceancargo insurance. Nowadays, brokers and underwriters convene at the Lloyd’s office building to buy and sell many types of insurance, not just cargo.
Lloyd’s of London Key Participants
While Lloyd’s has implemented some restrictions as a result of the COVID-19 pandemic, business at the marketplace is still mostly face-to-face. The marketplace involves five key participants: syndicates, managing agents, brokers, cover holders, and insurance buyers.
Syndicates
The syndicates are the backbone of the Lloyd’s marketplace. A syndicate functions like a little insurance company, assuming risks and paying claims. Each syndicate is made up of one or more members, who may be individuals or corporations. Members provide the financial capital that allows the syndicate to operate. Each syndicate specializes in certain types of insurance. For instance, one syndicate may focus on commercial property insurance, while another underwrites general liability andcommercial auto liability insurance. When Lloyd’s syndicates assume risks, they operate by subscription. This means that each syndicate assumes only a percentage of each risk. For some risks, a syndicate may assume only a small amount, such as 1% or 2%. For others, it may assume a larger chunk, such as 25% or 50%. Here’s an example of how subscription works. Bill wants to ship a load of computers valued at $15 million from India to the U.S. Bill contacts a broker, who obtains cargo insurance on his behalf through Lloyd’s. Bill’s insurance is underwritten by 15 syndicates. Each syndicate assumes only $1 million or 1/15 or of the total risk. The syndicates have minimized their exposure to loss since each has assumed only a small portion (6 .67%) of the total risk.
Managing Agents
Managing agents work on behalf of syndicates, overseeing their day-to-day business affairs. They hire and supervise underwriters, claims adjusters, accountants, and other essential staff. A managing agent may oversee more than one syndicate. In some cases, the managing agent may be the same company that provides the capital for the syndicate. Managing agents select and oversee coverholders.
Brokers
Insurance brokers act as intermediaries between insurance buyers and syndicates. Brokers must be registered by the Corporation of Lloyd’s to conduct business in the Lloyd’s marketplace A list of registered brokers is available from Lloyd’s online Market Directory.
Coverholders
While most of the business underwritten by syndicates is generated by brokers, some comes from coverholders. A coverholder underwrites risks on behalf of a managing agent under authority granted to them by the agent. Some coverholders are authorized to issue documents such as insurance binders andcertificates of insurance. They may also have the authority to collect premiums and settle claims. Their contracts with coverholders enable Lloyd’s managing agents to operate in foreign countries without establishing an office in each one. For example, suppose a managing agent in the U.K. authorizes a coverholder in the U.S. to bind insurance coverages for U.S. policyholders. Because of its contract with the coverholder, the managing agent can generate income in the U.S. without establishing a physical presence there.
Insurance Buyers
Most small business owners can obtain all the coverages they need from “regular” insurers. However, if your business has unusual risks, your agent or broker may be unable to secure insurance for you in the standard market. In that event, they may contact either a Lloyd’s broker or a surplus lines broker who has access to the Lloyd’s marketplace. Your local agent will then negotiate with the Lloyd’s or surplus lines broker to obtain insurance on your behalf.
