What is Lloyd's of London?

Lloyd's Register of Shipping Building in Fenchurch Street
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DEFINITION
Lloyd's of London is a marketplace where brokers and underwriters come together to buy and sell insurance. It’s not an insurance company but a meeting place where brokers buy insurance on their clients’ behalf from underwriters.

Key Takeaways

  • Lloyd’s is a marketplace where buyers and sellers of insurance meet to do business. 
  • The main players at Lloyd’s are syndicates, managing agents, brokers, coverholders, and insurance buyers.
  • Lloyd’s can be a valuable source of insurance if your business has risks that standard insurers won’t cover.
  • You can’t buy insurance directly from Lloyd’s yourself. Instead, you must enlist a local broker or agent to obtain insurance on your behalf through a Lloyd’s broker.

How Lloyd’s of London Works

Lloyd’s of London is a specialist insurance and reinsurance market. It’s a place where brokers and underwriters meet to buy and sell many types of insurance. Lloyd’s is known for its innovation and willingness to insure unusual risks. If your business has unusual or risky exposures that traditional insurers won’t insure, Lloyd’s can be a valuable source of coverage.  The Lloyd’s marketplace is overseen by the Lloyd’s Corporation. Among other things, the corporation provides the building where Lloyd's operates, monitors syndicates’ financial strength, and ensures the marketplace runs efficiently.

Lloyd’s began in the 1650s, when ship captains, vessel owners, and others gathered at a London coffee house to buy or sell oceancargo insurance. Nowadays, brokers and underwriters convene at the Lloyd's office building to buy and sell many types of insurance, not just cargo.

Lloyd's of London Key Participants

While Lloyd’s has implemented some restrictions as a result of the COVID-19 pandemic, business at the marketplace is still mostly face-to-face. The marketplace involves five key participants: syndicates, managing agents, brokers, cover holders, and insurance buyers.

Syndicates

The syndicates are the backbone of the Lloyd's marketplace. A syndicate functions like a little insurance company, assuming risks and paying claims. Each syndicate is made up of one or more members, who may be individuals or corporations. Members provide the financial capital that allows the syndicate to operate. Each syndicate specializes in certain types of insurance. For instance, one syndicate may focus on commercial property insurance, while another underwrites general liability andcommercial auto liability insurance.

At the end of 2020, 76 syndicates were active at Lloyd’s.


When Lloyd's syndicates assume risks, they operate by subscription. This means that each syndicate assumes only a percentage of each risk. For some risks, a syndicate may assume only a small amount, such as 1% or 2%. For others, it may assume a larger chunk, such as 25% or 50%.


Here’s an example of how subscription works. Bill wants to ship a load of computers valued at $15 million from India to the U.S. Bill contacts a broker, who obtains cargo insurance on his behalf through Lloyd's. Bill's insurance is underwritten by 15 syndicates. Each syndicate assumes only $1 million or 1/15 or of the total risk. The syndicates have minimized their exposure to loss since each has assumed only a small portion (6 .67%) of the total risk.

Managing Agents 

Managing agents work on behalf of syndicates, overseeing their day-to-day business affairs. They hire and supervise underwriters, claims adjusters, accountants, and other essential staff. A managing agent may oversee more than one syndicate. In some cases, the managing agent may be the same company that provides the capital for the syndicate. Managing agents select and oversee coverholders.

Brokers

Insurance brokers act as intermediaries between insurance buyers and syndicates. Brokers must be registered by the Corporation of Lloyd's to conduct business in the Lloyd's marketplace A list of registered brokers is available from Lloyd’s online Market Directory.

Insurance buyers can’t communicate directly with Lloyd's brokers. Instead, they must work through a local broker or agent, who interacts with a Lloyd's broker on their behalf. 

Coverholders 

While most of the business underwritten by syndicates is generated by brokers, some comes from coverholders. A coverholder underwrites risks on behalf of a managing agent under authority granted to them by the agent. Some coverholders are authorized to issue documents such as insurance binders andcertificates of insurance. They may also have the authority to collect premiums and settle claims.

Their contracts with coverholders enable Lloyd's managing agents to operate in foreign countries without establishing an office in each one. For example, suppose a managing agent in the U.K. authorizes a coverholder in the U.S. to bind insurance coverages for U.S. policyholders. Because of its contract with the coverholder, the managing agent can generate income in the U.S. without establishing a physical presence there. 

Insurance Buyers

Most small business owners can obtain all the coverages they need from “regular” insurers. However, if your business has unusual risks, your agent or broker may be unable to secure insurance for you in the standard market. In that event, they may contact either a Lloyd’s broker or a surplus lines broker who has access to the Lloyd's marketplace. Your local agent will then negotiate with the Lloyd’s or surplus lines broker to obtain insurance on your behalf.

Frequently Asked Questions (FAQs)

Is Lloyd's of London the biggest insurance company?

Lloyd’s of London is not an insurance company but a marketplace where insurance buyers and sellers meet to do business. The marketplace generates a huge volume of business. In 2021, Lloyd's market generated £35.5 billion (about $42 billion) in gross written premiums and paid £145 billion (about $171.5 billion) in claims.

What is sold at Lloyd's of London?

Lloyd’s began as a market for buying and selling cargo insurance, but it now offers more than 60 types of insurance and reinsurance. Brokers can buy standard coverages like property and liability as well as specialized coverages like aviation and political risk. Lloyd’s can insure almost any kind of business, whether it’s a start-up, a government entity, or a multinational corporation.

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