Founded in 1686, Lloyd’s of London is one of the oldest, largest, and most recognizable insurance marketplaces in the world. True to its roots, Lloyd’s of London is not an insurance company, but rather a central hub where underwriters provide a wide range of specialty insurance products to brokers working on behalf of their clients. Specifically, the Lloyd’s of London marketplace insures complex and specialized risks across a variety of industries and insurance lines, including property, casualty, marine, energy, motor, aviation, and reinsurance.
Lloyd’s of London insures people, businesses, and communities in over 200 countries and territories worldwide. In total, the Lloyd’s of London marketplace covers more than 60 lines of insurance and reinsurance.
The Lloyd’s of London marketplace is comprised of five key stakeholders: insurance buyers, brokers, syndicates, managing agents, and coverholders. The way these parties interact with one another shape the way the Lloyd’s of London marketplace operates and how coverage is placed.
Policyholders
Policyholders include businesses, organizations, other insurers, and individuals from around the world who seek to mitigate the impact of potential risks. Policyholders may access the Lloyd’s market via a broker, coverholder, or service company. While it’s true that a policyholder can often secure the policies they need from local insurers, they may have unique or complex exposures traditional insurers are unable or unwilling to underwrite.
In these instances, an insurance broker can help the organization obtain the coverage it needs from the Lloyd’s of London marketplace. This typically involves contacting a surplus line broker with access to the marketplace or locating a Lloyd’s of London broker who can obtain coverage on their behalf.
Brokers
The majority of insurance bought and sold in the Lloyd’s of London marketplace is done so with the assistance of a broker. Specifically, as it relates to the marketplace, insurance brokers act as the direct line of communication between insurance buyers and syndicates. These brokers have to meet a number of standards in order to conduct business in the marketplace. Not only are they responsible for complying with any relevant national regulations, they must also be accredited by the Corporation of Lloyd’s.
Many Lloyd’s of London brokers are located in London itself and may conduct their business through a subsidiary company. It should be noted that insurance buyers won’t be able to work with a Lloyd’s of London broker directly, and will typically have to work through a local broker or agent.
Syndicates
In the Lloyd’s of London marketplace, syndicates function similarly to insurance companies and are comprised of one or more members (e.g., individual underwriters or corporations). These entities group together to assume risks and pay out claims using financial capital provided by its members.
Every syndicate has insurance coverages they specialize in, such as commercial property, general liability, or commercial auto. Syndicates operate on what’s known as a subscription model when assuming risk. Under this model, syndicates typically assume a percentage of the risk. This could be a large portion of the total risk (e.g., 50%), or a small portion (e.g., 1%)—it really depends on the syndicates involved and their appetite for risk. By spreading out the risk, Lloyd’s of London syndicates are able to offer broad and diverse coverage for many different types of risks.
Syndicates are, technically, set up on an annual basis. In practice, they usually operate from year to year with members having the right, but not the obligation, to participate in syndicates the following year. This continuity of capital backing the syndicates means they function like permanent insurance operations.
Managing Agents
Managing agents have a number of responsibilities in the Lloyd’s of London marketplace. Above all, these parties work on behalf of syndicates, managing their day-to-day business. Additionally, managing agents may:
- Hire and supervise underwriters, claims adjusters, accountants, and other essential staff.
- Work with more than one syndicate at a time.
- Serve as a member of a syndicate, providing capital.
- Select and oversee coverholders.
Coverholders
While the majority of business in the Lloyd’s of London marketplace underwritten by syndicates comes from brokers, some may be generated by coverholders. Coverholders are companies that, on behalf of the members of a syndicate, enter into contracts of insurance or issue insurance documentation.
In general, coverholders operate under authority granted to them by managing agents. While the scope of this authority can vary, coverholders may be able to issue insurance binders and certificates of insurance. In some cases, coverholders have the authority to collect premiums or settle claims.
It should be noted that coverholders may be referred to as service companies in certain instances. A service company is effectively a Lloyd’s of London-approved coverholder that is owned by a subsidiary of either a managing agent or its holding company.
Through the use of coverholders, managing agents are able to operate worldwide without ever having to establish a local office. For instance, a U.K. managing agent could authorize a U.S. coverholder to bind insurance coverage for local policyholders.
Putting It All Together
There are many parities at play in the Lloyd’s of London marketplace. However, the process of securing the appropriate coverage through the marketplace is relatively straightforward:
- An insurance buyer requests coverage.
- Brokers, coverholders, or service companies place the insurance buyer’s risks.
- Syndicates write the insurance risks using capital provided by Lloyd’s of London members or managing agents.
- Managing agents oversee and manage syndicates throughout the process.
It’s important to note that, while Lloyd’s of London specializes in complex and nontraditional risks, they don’t necessarily assume any and all risks automatically. Furthermore, while Lloyd’s of London does handle more niche risks, they do cover traditional exposures (e.g., property damage from wind and hail) as well, particularly for businesses categorized under excess and surplus lines.
