October 28, 2014 Articles

Insurance 101: Decoding the Secrets of the London Market

Understanding the history and unique terminology of Lloyd’s of London

by Anna Torres

Understanding the Lloyd's of London insurance market requires historical context. Lloyd's of London is not an insurance company. Technically, Lloyd's of London is a place, a building where insurance transactions take place. The building which currently houses the Lloyd's of London insurance market was completed in 1986. Its ultramodern architecture was designed by Lord Richard Rogers and to this day elicits strong feelings of like or dislike. But this is merely the most recent home of the Lloyd's market.

In the London of the 1680's coffee houses had become quite popular. Each coffee house had its own personality and attracted its specific clientele—politicians, financiers, doctors, publishers, scientists. One of these coffee houses, owned by Edward Lloyd, located on Tower Street, attracted marine types: sailors, shipping merchants, and shipowners.

By then the insurance industry in London was roughly 20 years old, having begun after the Great Fire of London in 1666. Inevitably Lloyd's coffee house became the place where shipowners and merchants would go to arrange insurance for the ships and cargo. The owner of the ship or cargo would write the details on the "slip" and the merchant willing to accept the risk would write his name "under" the details - hence the term "underwriter." Often more than one merchant would agree to underwrite a certain percentage of the risk, limiting the exposure of each of the underwriters subscribing to the risk. A group of underwriters agreeing to insure a risk became a "syndicate" (or what we in the U.S. call a "pool"). Eventually more than just shipping risks began to be insured at Lloyd's. And today, the London insurance market is known for offering coverage for unusual or complicated risks all over the world.

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