The history of Lloyd’s begins at Edward Lloyd’s coffeehouse in 1688. The establishment attracted the custom of merchants, particularly ship owners, with vessels and cargoes needing protection. It evolved into a meeting place where business people sought brokers to place insurance with wealthy, reputable men. Character and integrity were important because the persons (called underwriters) who agreed to invest in the ships and cargoes put their personal fortunes at risk to pay their share of any claim. If a ship’s voyage was successful, the underwriter would share in the profits.
Note: The term underwriter came from the practice of persons agreeing to insure a ship and/or its cargo by placing his signature under the name of the vessel he was willing to sponsor.
Lloyd’s of London has long been identified with British history and the growth of worldwide commerce. It is an international insurance market located in London, whose members cooperate with each other, compete with each other, and compete against other insurance organizations. There are four major markets at Lloyd’s: Marine, Non-Marine, Aviation, and Motor. Lloyd’s also has a smaller market that handles short- and long-term life insurance.
Insurance is not placed with the Corporation of Lloyd’s, a society incorporated under Act of Parliament of 1871. The Corporation provides the premises, shipping information services, administrative staff, and other facilities that enable the Lloyd’s market to transact insurance business. Thousands of Lloyd’s members handle the actual insurance transactions. About one-third of the membership is actively engaged in the market. The remaining members provide capital but do not actively place business in any of Lloyd’s insurance markets. Only the underwriting members may accept insurance business on behalf of a syndicate.
Historically, a policyholder with a valid claim could be certain that the claim would be paid, whatever the cost to the member who accepted the risk. Formerly, every underwriting member was responsible up to the full extent of his personal assets for his share of business losses. If a member’s personal assets were not enough, Lloyd’s would make any deficit out of its reserve funds.
Today, Lloyd’s liability is more conventional, limited in the same manner as traditional insurance companies. The change was necessary due to its long-term problem in handling losses associated with asbestos claims. Lloyd’s created a separate entity to handle that large source of loss, and many organization members became inactive (no longer writing new business) in order to meet their payment obligations.
While Lloyds’ number of active memberships has substantially decreased, their capacity to write business in the global marketplace is substantial and growing. Lloyd’s will continue to be an essential part of the insurance market.