Blogs
4th October 2023
The Lloyd’s market is one of the most iconic and influential institutions in the global insurance and reinsurance industry. Its history is a fascinating tale of innovation, resilience, and adaptability over its near 335-year reign. From humble beginnings to now the world’s leading market for specialist insurance, where did it all start?
Last month, Lloyd’s reopened the doors to its historic underwriting room following 10 weeks of refurbishment, allowing face to face trading to restart, and marking a significant milestone in the institution’s journey. During the launch event, Chairman of Lloyd’s, Bruce Carnegie-Brown, commented; “In this new chapter for the Underwriting Room, we have not lost sight of our historical roots or our place in time and space. This is merely the next iteration of our market’s journey to underwrite the world’s risks. This space, the way we work, represents a handshake between the time-tested models of the past and the brave possibilities of the future; a thoughtful integration of old and new to blend digital transactions with human interactions; artificial intelligence with emotional intelligence; and machine learning with learned experience.”
So, as Lloyd’s starts this new chapter, let’s delve into the rich history of the Lloyd’s market, which is “unique, colourful, tempestuous and fascinating, but ultimately about lessons learnt on ways to improve – then, now, and tomorrow – as we work with purpose, sharing risk to create a braver word.”
Lloyd’s has its origins in a humble coffee house, following the downfall of the city after the Great Fire of London, coffee shops emerged as a symbol of hope to recommence trade, with city dwellers gathering in these establishments to transact business. In 1688, Edward Lloyd opened a coffee house in Tower Street, London, frequented by sailors, shipowners, merchants, and captains returning from overseas voyages.
Lloyd’s coffee house became a hub for discussions on shipping news, insurance, and maritime trade, with entrepreneurial businessmen seeking opportunity to sell insurance in the event ships did not return. This gathering of maritime information led to the birth of marine insurance as we know it today and the coffee house a “centre of marine intelligence which founded the modern insurance industry.”
In the 18th century, Lloyd’s coffee house began to formalise insurance arrangements. Merchants and shipowners would write their names under the details of a particular ship and its cargo on a large board. This practice, known as “underwriting,” signified their willingness to provide insurance coverage for specific voyages.
‘New Lloyd’s’, a bastion for professionalism and order, formed establishment in 1769 following a group of professional underwriters seeking to dissociate themselves from the gambling and quick profit reputation the market had created. With this evolution came new subscribers and innovations as the community moved to Royal Exchange. Most prominently, ‘The Lloyd’s Loss Book’, which is still proudly displayed in the centre of the Lloyd’s Underwriting Room and updated daily with quill and ink, recorded details of lost ships. It was also during this period that ‘Lloyd’s List’ was first published, sharing shipping news and intelligence, which to this day still provides weekly updates as one of the world’s oldest continuously running journals.
As trade expanded during the 19th century, so did Lloyd’s. New candidates were required to provide a deposit or guarantee to support their underwriting, which became obligatory from 1870. It officially became known as Lloyd’s of London in 1871 when it moved to its current location on Lombard Street. Lloyd’s Act of 1871 also provided a legal framework for the market, certifying the economic importance of insurance and establishing the role of “Names” (individual investors who pledged their personal wealth to cover insurance liabilities) and “Syndicates” (groups of Names who pooled their resources). With the Society of Lloyd’s forming a statutory corporation, anyone not recognised as a Lloyd’s underwriting member was forbidden to sign their name to a Lloyd’s policy.
This era saw the birth of non-marine policies, as Lloyd’s began to expand their market offering; Cuthbert Heath introducing the first burglary, hurricane and earthquake policies.
The 1900s commenced with the formation of audits, following a high-profile debt scandal, which ushered underwriters to submit to account auditing to satisfy clients they were solvent and able to uphold their claims. Lloyd’s market faced its share of challenges during the 20th century. The San Francisco earthquake in 1906 resulted in more than a £40m loss for Lloyd’s, which sparked the framework of today’s modern risk modelling. Most famously, The Titanic disaster in 1912 became the largest ever marine risk, being insured for 20% of the market’s total capacity and deemed ‘unsinkable’, Lloyd insurers paid claims in full following the collision. Both World Wars also brought significant losses, but the market rebounded each time.
It was also during this period that The Central Fund, based on the principle of mutuality, was established to ensure a contingency of funds to fall back on if an underwriter or syndicate were unable to compensate claims. The introduction of aviation insurance and motorcar in the early 20th century marked Lloyd’s expansion into new lines of coverage and the Lloyd’s Act was amended to reflect non-marine insurance inclusion. The society then moved to Leadenhall Street in 1928.
The late 20th century brought modernisation to Lloyd’s, the market pioneering space satellite insurance in the 1980s and launching a successfully salvage mission. Lloyd’s faced substantial losses due to a series of catastrophes relating to pollution, oil, wind and fire hazards, and financial irregularities. This crisis led to a reformation of the market’s structure, transitioning from solely unlimited liability for Names to include limited liability corporations. This change helped protect investors from catastrophic losses.
The Lloyd’s building as we know it today was commissioned in 1986, granted grade 1 status and continues to remain one of the most significant monuments in the world.
In the 21st century, Lloyd’s faced new challenges, including increased competition, the rise of emerging risks, and the need to embrace digital transformation. The importance of the market was notably realised following the 9/11 terrorist attacks, which to this day is Lloyd’s largest-ever single loss, Florida’s deadly hurricane season from 2004-2005, the Deepwater Horizon oil explosion and devastating 2011 Japan Tsunami.
To address these challenges, Lloyd’s initiated several modernisation efforts, including realistic disaster scenarios, advancement of catastrophe risk modelling and becoming a founding member of the Climate Wise Initiative. 2014 also saw the first female CEO, Inga Beale, as the market sought to diversify its workforce.
In recent years, the advent of Covid-19, push for digitisation and pressures from stakeholders to focus on diversity and inclusion, Lloyd’s has well adapted to remain aligned with the changing times. The introduction of the Lloyd’s Market Association (LMA), Inclusion@Lloyd’s and the adoption of electronic trading platforms has strengthened the institution’s proposition as a forward-thinking market, with its modernised approach to insurance and adaptability to unforeseen externalities.
Lloyd’s remains a global leader in insurance and reinsurance, with a vast network of syndicates, brokers, and insurers operating within the historic Lloyd’s building in the heart of London. It provides coverage for a wide range of risks, from natural disasters to emerging threats like cyberattacks.
The transformation of their underwriting room marks significant steps in the market’s commitment to modernise, digitise and continue developing the institution to align with the needs of its stakeholders; with Lloyd’s welcoming 13 additional managing agents to the ground floor following the re-opening. With digital enhancements made to the underwriting room, Carnegie-Brown stressed this would not replace face-to-face contact, but instead use technology to simplify processes, allowing brokers and underwriters to “provide expert advice and counsel our customers’ needs in uncertain times.”
To summarise, the Lloyd’s market has a storied history that spans centuries. From its origins in a coffee house to its position as a global insurance powerhouse, Lloyd’s has consistently adapted to changing times and emerging risks, making it a symbol of innovation and resilience in the insurance industry. As the global capital of insurance, we look forward to seeing what’s in store for the market in 2024…
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