The History of Insurance: Lloyd’s of London’s Contributions

Lloyd’s of London has played a major role in the history and development of the insurance industry. As one of the oldest insurance markets in the world, Lloyd’s pioneered many innovations in insuring risks that helped shape the coverages we have today.

The Origins of Lloyd’s in Marine Insurance

The origins of Lloyd’s date back over 300 years. In 1688, Edward Lloyd opened Lloyd’s Coffee House on Tower Street in London. This coffee house became a popular hangout for sailors, merchants, and ship owners, as Lloyd began collecting and distributing shipping information.

Soon, the coffee house evolved into a place where deals were made to insure cargo and ships. By the 1730s, Lloyd’s became recognized as the place to go for marine insurance. Ship owners could find underwriters willing to share and spread the risks involved with overseas trade and transport.

This pooling of resources for sharing risk became a hallmark of the Lloyd’s insurance market. Underwriters at Lloyd’s would join together in syndicates and clubs to insure vessels, their cargo, and even maritime workers against the many perils at sea.

Expansion into Non-Marine Insurance Markets

During the 1700s, Lloyd’s led innovations in statistical analysis, developing new actuarial methods for pricing insurance premiums based on measurable risks. By the mid-1800s, Lloyd’s had expanded beyond just maritime risks, offering fire insurance as well as coverage for land-based property and assets.

Lloyd’s continued to grow its risk expertise into many new insurance lines over the ensuing decades:

• 1860s – Personal accident insurance
• 1880s – Financial guarantee bonds
• Early 1900s – Automobile coverage
• 1940s – Aviation risks

Underwriters at Lloyd’s gained a reputation for covering extraordinary risks and unusual circumstances that mainstream insurers avoided. The Lloyd’s market developed expertise across a vast range of industries and specialty coverage areas.

Modern Operations of the Lloyd’s Marketplace

Today, Lloyd’s still conducts business face-to-face in its London underwriting room. More than 50 registered syndicates interact in person to insure complex or hard-to-place risks. Overseen by the Corporation of Lloyd’s, it remains a self-regulating marketplace.

Some key aspects of how Lloyd’s operates today include:

• Each risk is placed with multiple syndicates who take a percentage share. This spreads the coverage and liability.

• Syndicates can write policies on either a binding authority basis or through open market submission.

• Lloyd’s has an “A” financial strength rating from agencies like A.M. Best.

• US surplus lines brokers access Lloyd’s through London brokers and coverholder agreements.