Lloyd’s of London is one of the oldest insurance markets in the world. Their history spans more than 330 years and an innumerable number of events that affected the market. Currently, the market consists of more than a hundred syndicates which are managed by 57 different agencies. The market as a whole has written £29, 862 billion of gross revenue in 2016, with the majority of policies concerning property and liability cases. Since its inception, the company has dealt with international insurance, and this led to a lot of factors affecting its work. This paper will provide information about the history of the company, its achievements, and its claims history.
The history of Lloyd’s of London began in a coffeehouse located in Tower Street, near the London docks. It was opened by Edward Lloyd in 1686 with plans to attract various clients in the shipping industry, especially those connected to the marine insurance business. The plan worked, and Lloyd’s coffeehouse quickly became a hub of marine insurance providers who were often focused on insurance for slaves and slave ships. The coffeehouse was moved to Lombard Street in 1691. Edward Lloyd passed away in 1713, but his business carried on. In 1734 the business started publishing a daily paper called Lloyd’s List. The paper is focused on shipping news and still comes out to this day (“History of Lloyd’s of London”).
With time, Lloyd became the primary place for marine underwriters. Despite the Bubble Act of 1720, which gave The Royal Exchange Assurance and The London Assurance the exclusive right to provide marine insurance as corporations, private insurers were still allowed to continue their operation. Aside from marine insurance, gambling insurances became popular among Lloyd’s clients. However, it brought a rift to the company, and a portion of the underwriters split off in 1769 after persuading Lloyd’s waiter to open the second coffeehouse. In only five years it became a more popular location, and the old one had to close down. However, the number of clients became too much for the small building, and to address it a committee was formed in 1771. It consisted of a group of nine people which included merchants, underwriters, and brokers. They took over the building and appointed two people to run it. Subsequently, in Lloyds moved into the Royal Exchange (“History of Lloyd’s of London”).
By 1779, Lloyd’s provided services to 179 subscribers, but this number rose to 2000 due to various wars with France. This period led to the first major influx of money into the business and continued until the early 19th century. However, the wars ended in the 1800s and the number of clients gradually started to decline. The Bubble Act was repealed in 1824, but it did not improve the situation for Lloyds because every year the number of customers fell. In 1814, Lloyd’s serviced more than 2,150 clients, but by 1843, this number fell to 953. The new office system was put in place to address this issue, and the prices of subscriptions were increased. The market struggled for several years, but through careful intelligence-gathering acts for the clients of Lloyds, the reputation of the market remained positive (“History of Lloyd’s of London”).
One of the most important events for the market happened in 1871 when the market was incorporated through the Lloyd’s Act. Prior, the committee of the market held little power, and the club was run only loosely. One of the only actions of the committee was performed in 1851 when it was decided that members who went bankrupt should have their membership forfeited. The incorporation of Lloyd’s brought in a great number of non-marine insurance cases to the market and expanded the business in a variety of directions. In 1871, the market started providing fire insurance and all risks insurance in a variety of cases. These innovations were created by C. E. Heath, who helped transition the market from its marine insurance roots. The international business of Lloyd’s began to expand in 1875. While before the market mostly insured internationally traveling ships, now the company started receiving new business from the United States and other regions. Also, reinsurance became a larger part of the company’s business (“History of Lloyd’s of London”).
In the 1900s the corporation became more concerned with security and after a general meeting, it was stipulated that all underwriters had to provide certificates of solvency from approved auditors. The premiums under new policies would be held in trust accounts to ensure that the claims can be properly paid. The events of World War I were beneficial for the company as the demand for war-risk coverage at high premiums rose dramatically. During wartime, the state provided 80% of all war-risk insurance on ships, and cargo insurance at fixed rates. This allowed Lloyds to provide insurance at lower prices for any business. The state was losing money on less desirable cargo, while Lloyds provided insurance for the most valuable clients. The war-risk on property insurance was only provided by private enterprises, out of which, Lloyd’s took the lead because the majority of companies were unwilling to provide such insurance (“History of Lloyd’s of London”).
At the start of the century, the services of the market expanded to the motor, aviation, and credit insurance. However, credit insurance proved to be too risky and was subsequently banned. Nevertheless, the market grew due to the flexibility of its underwriters. Its syndicates also grew because of the size of insurances increasing over time. By 1952, the market had 16 syndicates with more than 100 Names each, with the largest reading up to 300 Names. The growth of the company led to an increased interest in the search for new Names, separation of the marine syndicate within Lloyd’s, and the increased size of the market forced it to move to specially built premises in Leadenhall Street (“History of Lloyd’s of London”).
The company grew rapidly in the post-World War II era, with memberships growing from 3,157 in 1952 to 33,532 in 1988. Motor insurance grew immensely after the 1950s. International business and especially the United States became a large portion of the market’s profit, which led the brokers of the company to be headhunted by its competitors overseas. Some poor decisions on the part of syndicates have led to some losses which prompted the market to call for a new governing structure with wider powers (“History of Lloyd’s of London”).
The fast growth of the company eventually brought record profits in the 1980s. This was coupled with the implementation of the Lloyd’s Act of 1982, which included the recommendations that were presented by the market in 1980. The Council of Lloyd’s was established which included 16 members who held power over the committee of the market. Also, brokers and managing agents were separated in 1987. The council dealt with internal scandals and oversaw that Lloyd’s market did not suffer because of them (“History of Lloyd’s of London”).
At the time, the corporation had record numbers of clients. In 1988, they reached 32,433. However, after several large claims were paid out in a row, the organization started to experience large losses. By the end of 1988, the net loss of £509 million was recorded. Thousands of Names turned away from the market and refused to pay their debts while launching lawsuits against it. Even more, Names resigned, which led to a fall of memberships to below 10,000 in 1997. The most tragic cases included three instances of suicide by names. By 1992, the company lost £7.9 billion. This downfall led to a change in the company strategy, with Lloyd’s starting to permit corporate and institutional investors to underwrite policies. The financial obligations to the Names were limited to 80 percent of premium income, with an option to use a reserve in cases when the person is hit with excess losses. Despite the events of the 1990s, the company is still one of the largest insurance markets in the world and operates at assets worth dozens of billions of pounds (“History of Lloyd’s of London”).
The primary achievements of the market are in the innovative insurance types that it began offering after the initial incorporation. Fire insurance and all-risk insurance on property and premises were the first in the long line of practical and appealing services that led to the company’s success. Its unique structure also innovated the way that insurance business can be operated (Rejda and McNamara 103). The market was one of the first in providing motor and aviation insurance and managed to capitalize on it heavily after the Second World War (“Innovation and Unusual Risks”).
The claims history of Lloyds is filled with historical events. For example, the company was heavily influenced by the events of the 1906 San Francisco earthquake that destroyed the vast majority of the city through the fires caused by it. However, the market fulfilled its obligations and paid all of its policyholders in full. Another historically significant claim was paid after the sinking of the RMS Titanic in 1912, the claims of safety that the engineers of Titanic provided, forced the claims to rise massively and almost led to large losses for the company. Later notable claims include the Three Mile Island nuclear accident, the Piper Alpha disaster, Exxon Valdez oil spill as well as effects of natural disasters such as typhoons and earthquakes (“Catastrophes and Claims”).
The company is also famous for its unusual novelty claims for famous people. For example, Bruce Springsteen insured his voice for £3.5 million, and food critic Egon Ronay insured his taste buds for £250,000. While such claims are unusual, they protect the livelihood of artists and make sense fiscally (“Catastrophes and Claims”).
Lloyd’s is an insurance market that has a tremendous history. After starting from a small coffeehouse, it expanded to a massive corporation that operates almost unimaginable sums of money. It innovated in the field of insurance and on multiple occasions made sure to pay out money to its policyholders despite it possibly putting the company in jeopardy. The market experienced a great number of losses in the late 1980s, but through massive reorganization, it was capable of regaining its status.
“Catastrophes and Claims.” Lloyd’s, 2017, Web.
“History of Lloyd’s of London.” Funding Universe, 2017, Web.
“Innovation and Unusual Risks.” Lloyd’s, 2017, Web.
Rejda, George E., and Michael J. McNamara. Principles of Risk Management and Insurance. 13th ed., Pearson, 2017.