Lloyd’s is the world’s leading specialist insurance and reinsurance market.
‘Specialist’ insurance covers a myriad of diverse risk, from devastating natural events such as the Earthquake in Japan and the subsequent Tsunami, to Bruce Springsteen’s voice and international terrorism.
Lloyd’s is not an insurance company, it is an insurance market place. Syndicates, made up of Lloyd’s members, insure risks using products tailored to clients needs. Many syndicates cover several different areas of insurance but some specialise in particular fields, such as Property, Aviation, Terrorism or Medical, to name just a few.
Lloyd’s of London had already been in the business of marine insurance for over 220 years, when one of it’s ‘risks’ sailed out of Southampton Docks in April 1912.
The story of the ill-fated RMS Titanic is the most famous in maritime history, but less well known, and certainly less newsworthy was that Lloyd’s subsequently met all valid insurance claims.
The organisation, due to the nature of it’s business, is often associated with disasters, both manmade and natural. The two aircraft that struck New York’s World Trade Center in 2001 were both insured through Lloyd’s, and the organisation was also the single biggest insurer of the twin towers destroyed by the hijacked aircraft.
Dating back as far as the Napoleonic Wars, Lloyd’s in depth knowledge of international shipping movements and port information has been invaluable in times of conflict.
The origins of Lloyd’s and several other City of London institutions is closely associated with the introduction of coffee into Britain in the 17th Century. The first Coffee Houses opened in London in the 1650’s, but by the turn of the 18th century there were over 3000.
Within the City of London individual coffee houses began to be frequented by a clientele with a particular business interest, Edward Lloyd’s new establishment was one of them.
Lloyd opened his Coffee House in 1688, in Tower Street, not far from Lloyd’s present premises in Lime Street. It soon became known as a meeting place for Sea Captain’s, ship owners and merchants to exchange latest shipping information.
Within 3 years Lloyd had moved to larger premises in Lombard Street. His fledgling marine insurance business prospered and the coffee shop was known to host not only insurance business deals covering vessels and their cargoes, but also the auctioning of ships.
A structured approach to business emerged. Clients requiring insurance cover, would contact a Lloyd’s Broker, he then acted as an intermediary, sourcing an insurance Underwriter who would cover the ‘risk’. Quite often the Broker would have to secure several underwriters for the same policy, to spread the risk. The broker agreed the terms of the deal between client and Underwriter. Wealthy individuals working as Underwriters would later become known as ‘Names’.
The ‘Vansittart’ scandal in the early 1700’s was a massive wake up call for the city’s growing insurance community. A Broker was £200 short of covering the whole risk on a ship called the Vansittart, and instead of declining the business, he falsified the policy with a bogus underwriter. This would have gone unnoticed, and the broker able to pocket the fee of the ‘ghost’ underwriter, had the ship arrived safely at it’s destination, but it didn’t. The vessel was deemed a ‘loss’, the broker was unable to cover the insurance deficit, and the ship’s owners subsequently discovered they were the victims of fraud. Regulation was on it’s way.
Lloyd’s started a publication in the 1730’s that still continues to this day. ‘Lloyd’s List’ was originally a weekly journal, giving shipping information to interested parties within the city. It still fulfills the same function today, but now reports daily instead of weekly on all aspects of Lloyd’s marine interests.
In 1771, 58 years after Edward Lloyd’s death, 79 business associates contributed £100 each to pay for the new premises of ‘Lloyd’s of London’. The 79 included merchants, ship owners, brokers and underwriters. A defining moment in Lloyd’s history happened at this time, when they appointed their first Committee to oversee the business. After a brief stay in Pope’s Head Alley, they moved into the newly rebuilt Royal Exchange building in 1773, and remained there for over 150 years.
Towards the end of the 19th century Lloyd’s ventured into other areas of insurance, Earthquakes and Hurricanes were amongst their new business, including the devastating San Francisco Earthquake of 1906.
In 1928 the corporation moved to a new custom built location in Leadenhall Street, on the site previously occupied by the East India Company.
H.M.S La Lutine was a Lloyd’s insured British naval ship that sunk near the coast of Holland in 1799, only one crew member survived. It’s cargo of Gold, Silver, and Spanish coins, was never fully recovered. Salvaged items from the ship, including the ships bell, became symbolic heirlooms for the organisation, a stark reminder of the very real risks they are covering. The Lutine Bell, which has been hung in four different Lloyd’s Headquarters, was rung once for bad news (when a vessel was deemed ‘lost’) and twice for good news (a belated safe arrival). The bell still hangs on display in the main underwriting room of the modern Lloyd’s building, but is now only rung on ceremonial occasions.
Marine insurance is still covered by Lloyd’s, but equates to less than 10% of it’s annual turnover. Reinsurance now accounts for more than a third of it’s business. This is when an insurance company needs to cover it’s own risk by buying an insurance (reinsurance) from another insurer.
Modern business techniques do not differ greatly from the Client-Broker-Underwriter system implemented centuries ago. However, a fundamental change is that instead of wealthy individuals ‘Names’ underwriting policies, there are now 88 syndicates (as of 2011), each made up of Lloyd’s Members (mainly corporate) that are able to spread the financial burden in turbulent times. Previously, individual ‘Names’ had been financially liable from their personal wealth. The old ‘Unlimited Liability’ system came to an end in the 1990’s after a catastrophic period for the industry resulted in many Names going bankrupt. Around 2500 Limited Liability Names now cover what up to 34000 Unlimited Liability Names did previously.
The Hurricane season of 2005, including the infamous Hurricane Katrina, contributed to a year (and a bill) Lloyd’s will never forget, £3.3billion was paid out. Although the organisation took a massive hit of £1.4 billion in payouts due to the devastion caused by Hurricane Sandy in October 2012 it still managed to show a profit for the year. http://www.bbc.co.uk/news/business-21951157
In August 2013 Lloyd’s took the unusual step of offering a £1 million reward for information leading to the recovery of stolen jewellery their syndicates had underwritten.
In January 2014 Inga Beale became the organisations first female Chief Executive.
Lloyd’s present Headquarters was designed by Lord Rogers. The impressive Post-Modern structure is the company’s eighth premises, and was officially opened for business by H.M Queen in 1986.
No.1 Lime Street is a long way in prestige, if not in distance, from the humble coffee house Edward Lloyd opened in 1688.