Marine insurance and Lloyd’s
Much of the early insurance was underwritten by Lloyd’s underwriters. In the early days of Edward Lloyd’s coffee house in the late seventeenth century – where such insurance business was conducted (thus christening the name of the eventual institution) – these underwriters were individuals. Subsequently, these individuals underwrote for others, thereby creating ‘syndicates’. These individuals (and, subsequently, syndicates) initially just underwrote marine insurance – the insurance of ships and their cargo against loss or damage at sea.
By the mid-eighteenth century, the reputation of the coffee house was under threat from gamblers, and therefore in 1769 the foremost marine underwriters left the coffee house to form New Lloyd’s and to publish the New Lloyd’s List (a list of commercial and shipping information). New Lloyd’s subsequently became known as Lloyd’s, which then became the centre for marine insurance and the basis for good underwriting practice – and has remained so up to the present day.
Lloyd’s is now made up of a number of syndicates (96 as at September 2015) but these no longer consist of individual members or ‘names’. Until 1994 ‘names’ with unlimited liability were the only source of capital. However, following the huge losses incurred during the years of account from 1988 to 1992 (largely resulting from claims relating to asbestos and pollution), most ‘names’ were either unwilling or unable to continue to provide capital. Access to corporate capital was therefore permitted. Unlimited liability ‘names’ now only account for a tiny proportion of Lloyd’s capital and no further members are allowed to join on this basis. All capital providers are now known as ‘members’.
Until 1980 insurance brokers were allowed to own the managing agencies that managed the syndicates. This meant that it was perceived that brokers could bring undue influence to bear on underwriters under the same ownership to accept business from them or place reinsurance through them. This was one of the issues dealt with by the Lloyd’s Act 1982, which enforced divestment of managing agencies and brokers.
Marine insurance, as with many other types of general insurance, regains some of the losses it makes through the salvage of the goods that have been destroyed or damaged, and a significant salvage industry has arisen from this. Sometimes, however, this salvage can take many years to recover, as in the case of the SS Central America which sank in 1857 with 3 tons of gold on board. This cargo was not recovered until 1992, at which point the original insurers successfully claimed that it belonged to them.