THE RISKY BUSINESS OF LLOYD'S OF LONDON

Insurance, the business of guaranteeing to cover specified potencial losses in return for premiumspaid, is a common and necessary practice. Nearly everyone has some involvement with typical forms of insurance, such as automobile, health, life, fire, and theft. However, there are also some fairly unusual items of value not covered by ordinary policies. A surgeon's hands, a dancer's legs, an opera star's vocal chords, and a movie star's beard are only a few of the specialities of Lloyd's of London, a world-famous insurance association that has earned a reputation for unconventional insurance risks.

Lloyd's of London was found in 1668. The insurence association actually began as a coffee house where ship owners, bankers, and merchants gathered to discuss trade and shipping. (1) Wealthy businessmen and bankers committed themselves to financial responsibility for ships or their cargoes, which might be lost or damaged at sea. Each risk he was willing to accept at a specified price, thus becoming an insurance underwriter. (2) If the ship or cargo were lost, it was incumbent upon the underwriter to pay the amount he had specified; if the ship or cargo reached port safely, the underwriter profited from the premium paid by the owner. As the shipping industryin England.
By 1911 Lloyd's had extended its business interests to include every form of insurance except long-term life insurance. (3) Although considered feckless by other insurance associations, Lloyd's was a pioneer in offering theft, earthquake, hurricane, and profit-loss insurance. (4) Lloyd's underwriters were accountable for insurance on property lost in the 1906 San Franciseo earthquake and fire, the ill-fated sinkings of the ocean liners Titanic and Andrea Doria, and the 1937 explosion of the German airship Hindenburg.

Unlike a regular insurance agency that transacts business as a unit, Lloyd's of London consists of over seven thousand individual underwriters grouped into syndicates. Agents for each syndicate bid competitively for contracts in much the same manner as stockbrokers working at the stock exchange do. (5) The underwriters accept liability on their own accounts and bear the full risk individually.

(6) The Corporation of Lloyd's of London sets the rules for underwriters to follow and takes disciplinary action if members are remiss in complying with these rules. (7) However, while the Corporation governs the way in which the underwriters operate, it does not assume responsibility for any negligence on their part.

(8) Although underwriters have the onerous responsibility for their own transactions, many seek to become a part of this elite institution. (9) In order to qualify for membership, underwriters must follow several mandatory policies. (10) First, they deposit at least $45,000 with Lloyd's as security against their possible default on risks that they accept. Second, they must maintain detailed records, and third, they contribute a percentage of their profits to Lloyd's central fund, from which policyholders are paid.

Housed in a fifteen-million-dollar palace in the heart of London, Lloyd's has grown from its humble start in a local meeting place. Whether insuring ship travel or space travel, the possibility of having twins, or the capture of the Loch Ness monster, Lloyd's of London maintains its famous and impressive place in insurance history.

Copyright 1998 by Great Source Education Group, a division of Hughton Miffin Company. All rights Reserved.