From: Lloyd’s Diary 1958 Printed and Issued by The Corporation of Lloyd’s London England
With the compliments of Cravens, Dargan & CO Houston TX
Lloyd’s By an Observer
The History of Lloyd’s goes back for over two and a half centuries to the years 1687/8. It was at that time a coffee house in the City of London frequented by shipowners, seafaring men and merchants who had a common interest in shipping and marine insurance. By a natural evolution it developed into a kind of club, which itself developed into a market, and the market became in course of time the world center for the insurance of ships and cargoes. The Corporation of Lloyd’s in the twentieth century is a very different place from Mr. Lloyd’s coffee house, but in its constitution and in its arrangements it shows many marks and reminders of its origin.
Of those reminders, the most important is the Lloyd’s system of individual liability, which distinguishes it from almost every other place of insurance in the world. When a merchant or a shipowner or a private householder insures at Lloyd’s he places his risk not with the Corporation but with one of more syndicates of Lloyd’s underwriters, and every member of each syndicate is directly liable to the policy-holder for his share of any loss that may fall on the policy on which the number of his syndicate appears.
The Lloyd’s market is made up of brokers and underwriters – the brokers who act as the agents of the policy-holders and are paid by a commission – underwriters who receive the premium and are liable for the claims. A broker may be either a member of Lloyd’s or a subscriber. An underwriter must be a member. Both are essential to the working of the market.
First, regarding the broker, his duty is to represent the assured; to discover his needs; to put his risk before the underwriters in as favorable a light as possible; to obtain the best terms for him when the insurance is placed; and (if there should be a claim) to arrange the settlement, collect the money from the underwriters and pay it out in the right quarter. He must know the market; be able to select the most suitable underwriter for each risk; be sufficiently acquainted with the law to secure the contract of insurance in its right form; prepare the policy and get it signed by the underwriter; give his help and guidance in the preparation and handling of claims; and generally act as philosopher and friend to the clients who entrust him with his business.
In the discharge of these functions the Lloyd’s broker should be, and is, of great value to the business community. He is of no less value to the underwriters, who by the constitution of Lloyd’s cannot do business direct with the public. Whatever business comes to Lloyd’s must be brought by brokers and it is their energy and enterprise, working in harmony with the judgment an enterprise of underwriters, that the premium income of Lloyd’s depends. As Lloyd’s is one of the most international markets in the world and draws its business from every continent and most countries, it follows that the brokers’ connections must be cast very wide; and, indeed, where ever free enterprise is permitted, there are few places in which it is not possible to find firms or individuals with contacts among Lloyd’s brokers regularly placing marine, fire and accident business with a Lloyd’s underwriter through a firm of brokers in London.
But when an American or an Australian or a Norwegian places his insurances in London, there must be some good reason why he should do so. He does not insure at Lloyd’s unless Lloyd’s has something to offer him which he does not so readily find in his home town. And it would be useless for brokers to cultivate and maintain their connections in all quarters of the world unless they can provide something that is not to be had elsewhere than at Lloyd’s. For that something the brokers turn to Lloyd’s underwriters and to their system of individual underwriting.
In the earlier period if Lloyd’s history underwriters carried on their business singly and each man accepted risk for himself and himself only. If that method had been continued the great development of the last 50 years would not have been possible. But fortunately for Lloyd’s there grew op towards the end of the last century the syndicate system, by which underwriters joined together in groups under agents so that the resources so that the resources of a large number of underwriters were combined into a large single unit. This arrangement enabled them to deal in much larger sums than before and their scope was enormously widened by the new system.
The strength of this Lloyd’s system is that all the syndicates are gathered in a single market and all specialise in one kind of insurance or another, with each underwriting agent looking at every risk that is offered to him from his on standpoint, and each syndicate – within the market – a potential market in itself. As a result of this arrangement Lloyd’s is extra-ordinarily flexible and fertile in expedients. It can usually afford to accept cheaper rates than its competitors, and it can adapt itself quickly to every changing condition and satisfy the shifting needs of industry more promptly than any other insurance organization in the world.
That is its special contribution to the insurance industry – flexibility and adaptability. The brokers, always in touch with correspondents at home and abroad, are sensitive to every new demand of commerce an every change in the requirements of merchants and manufacturers, while the underwriters, so organized as to combine the maximum of enterprise with the highest degree of financial security, are receptive and responsive to the suggestions brought to them by the brokers. It is even said that you can insure anything at Lloyd’s. Literally that is not correct. But it is more nearly correct of Lloyd’s underwriters than of any other insurer in the world.