What is Lloyd’s of London?
Lloyds of London is one of the world’s oldest and most popular insurance markets headquartered in London. It is not an insurance company, it’s a market regulated and overseen by Lloyds Corporation. It has a unique position in the industry for providing coverage for most complex and unique risks. The buyers are individual entities or corporate. The sellers are group of investors called syndicates who are ready to take the risk for a premium. The policies are handcrafted (risks are underwritten) with both representatives of both parties sitting together in the market place (which explains the iconic building construction with hundreds of underwriter tables). Most of the business takes place through brokers, and middle men who has expertise to do so.
How is Lloyd’s of London different from insurance companies?
Insurance companies are individual entities having specific nature of business as like auto, life, home etc). The insurance companies provide a predesigned set of policies for a target group of customers, and are not custom made. In most cases, the risks covered are generic, and the companies have their own limitations on what risks to cover, based on the overall strategy. Where as Lloyd’s is an open market; we need to go back to the basics to explain the Lloyds operations i.e business between people who want their risk to be covered, and who would like to cover them. The two parties meet and make business.
In simple, an insurance company is a single entity that designs and markets insurance products where Lloyd’s is an open market place where companies and customer come together desing products that meets both their needs through a broker.
Who are the players in the Lloyd’s market?
The best way to explain this is through an example. Imagine that Mr. John works for a company that does offshore oil extraction, and his company sends him to find an insurance cover for specific valves that are laid under the ocean and form key component of the extraction process. Obviously this is one of its type cover that Mr. John cannot find in the commercial market. He goes to the Lloyds, finds a broker and explains him the cover requirements. The broker then takes the cover needs to the Lloyd’s underwriting room, where he meets with underwriters representing the different syndicates. Syndicates are formed to accept risks on behalf of the members, who are basically investors. The specialist underwriters measure the risk, calculate the premium and sometimes negotiation takes place with the broker. The broker, after meeting up with different underwriters, compares the options available on the table and takes it back to the Mr.John & his company (in this case the policy holder). And if both the parties are satisfied, deal!
This entire process is overseen by the corporation of Lloyd’s, ensuring that future valid claim if happens is fully paid. Its because of the existence of the corporate that Lloyds is not one of the most reliable and sustaining market place trusted by each stakeholder we have seen above.
How does Lloyd’s work?
Why Lloyd’s of London?
– Lloyds market offers custom made insurance solutions for unusual and complicated risks
– Lloyds clearly is well regulated and associated with trust and reliability. The leading rating agency A.M. Best has rated it as A (Excellent). The agencies Standard & Poor and Fitch has given A+ (Strong)
– Lloyds also holds track record in responsible paying for valid claims
The famous Lloyd’s building
This unique insurance market is housed in a unique building. The Lloyds building, built in 1986, is often cited as ‘inside-out’ building. Looks like an industry from outside, with huge pipes and ducts, leaving an uncluttered space inside. The building, till today, is considered one of the innovative architectures in the world.