A truly global market
A Lloyd's of London case study

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Page 5: Roles in the Lloyd's market

The Corporation of Lloyd's

The Corporation of Lloyd's is the administrative body of the Lloyd's market. The Corporation itself does not provide insurance. The role of the Corporation is to provide the infrastructure for underwriters and brokers to do business. The Corporation acts in a supervisory capacity to ensure that the market operates efficiently and effectively and that those involved meet certain standards.

Underwriters/Syndicates

The Lloyd's market is made up of a collection of syndicates. Underwriters work for these syndicates, assessing risks on the basis of specialist knowledge and accepting or declining a risk on behalf of the syndicate. The underwriter works with the broker and calculates a premium based on the probability of the risk occurring and the value insured. The underwriter may accept the whole of the risk or only part, in which case the broker will need to visit a number of syndicates in order to cover the risk. This means that one risk may be covered by more than one syndicate in the market, with each syndicate taking a percentage of the risk.

The structure of the Lloyd's market encourages flexibility and an entrepreneurial approach to underwriting. The risks insured in the Lloyd's market are divided into the following main classes:

  • Property and Casualty
  • Aviation
  • Marine
  • Energy
  • Motor
  • Re-insurance.

Lloyd's underwriters create innovative policies tailored to meet customers' needs. Examples of innovation in the Lloyd's market include specialist policies for:

  • satellites
  • niche UK motoring activities e.g. coach companies, taxi fleets
  • protection against hostile takeoverbids
  • large international, national and local sporting events.

Brokers

There are over 160 firms of Lloyd's brokers operating in the Lloyd's market. The brokers act on behalf of clients who are seeking to cover their risks by arranging insurance with underwriters. The brokers have a thorough understanding of the Lloyd's market and many specialise in finding insurance for particular risks.

Brokers use their specialist knowledge of the insurance available in the market to choose the best syndicate and negotiate competitive prices for their clients. Brokers add value to the underwriting process for their clients by:

  • representing their interests
  • achieving the best value for money
  • ensuring the quality of the cover offered meets the client's needs
  • finding the most competitive price.

Corporate and private members of Lloyd's

All insurers require capital to provide security for their underwriting. After all, policyholders need to know that an insurer will have the funds to pay in the event of a claim. The capital that finances the activities of the syndicates in the Lloyd's market is provided by what are known as members.

There are two types of member:

  • Corporate members - insurance businesses such as Munich Re, Berkshire Hathaway, Ace and XL
  • Individual members - the individual capital providers in Lloyd's known as 'Names'. Until 1994 Names were the sole capital providers for the market.

Members provide capital to syndicates operating in the market, who use this capital to underwrite risks. In 2003, 87%* of the capital backing the Lloyd's market was provided by corporate members.

* Lloyd's Members' Services Unit, February 2003

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