Magazine article Risk Management

What's Behind a Name?

Magazine article Risk Management

What's Behind a Name?

Article excerpt

What's Behind a Name?

It is becoming increasingly difficult to make a living out of insurance. There's more than enough reasons for brokers and insurers to wonder anxiously whether they have a divine right to prosperity any longer. Here are some of them: the emergence of more sophisticated corporate insurance buyers, powerful consumers lobbies, a governmental view of insurance as an exploitable instrument of social justice, competition from other financial services industries, the development of new alternative markets, increasing nationalism, and the legal profession's everpressing need to feed its increasing tribe.

London is no exception to these worldwide pressures. There are, in effect, problems on all fronts. Take Lloyd's for example.

One of the founding members of the Association of Lloyd's Members, the organization set up in 1980 by the name whose individual wealth capitalize the underwriting syndicates that comprise the Lloyd's market, recently wrote a letter to the daily insurance and shipping newspaper, Lloyd's List, demanding a referendum among the names on whether their liability for claims should extend beyond their Lloyd's deposit. Currently, it extends beyond their deposits, to the limit of their entire wealth, in fact, if this is necessary to meet claims.

This is a matter about which Lloyd's names are very sensitive nowadays. In 1985, the results of individual Lloyd's syndicates varied from a 19 percent profit to an 18 percent loss. Currently, the Outhwaite syndicate names together face losses which could reach 1 billion pound sterling, which, of course, would bankrupt some of them.

The argument of those who are urging a change at Lloyd's to limit their liability, in much the same way as a stockholder's liability is limited to the value of his holding, is that the current system represents the law of the jungle. Moreover, it is not in Lloyd's interests to have names bankrupted when the system of individual responsibility could be protected by a collective safety net. The idea is that Lloyd's should not really be a marketplace of competitors but more like a department store where the losses on, say, perfumes will ultimately be covered by liquor, etc.

Well, Lloyd's would not be Lloyd's if such a change came about. That is no reason why it should not, of course, but what perhaps is the effect it would have on the security of the Lloyd's policy. This is why I think it will be resisted to the bitter end by Lloyd's Council. …

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