The Curious Case of Lloyd’s of London

Chances are you’ve heard of Lloyd’s of London. If not, it’s the organization that insures a wide variety of items — most notably, famous singers’ vocal chords, the hair of an NFL athlete, and even a Playboy model’s breasts. Since most of us are only familiar with healthcare, automotive, and homeowner’s insurance, these policies undoubtedly seem bizarre. Whatever they are, at the very least, they’re legal. Further, since insurance is simply the act of paying for the opportunity to reduce your risk of financial loss, insuring your “milkshake,” as Kelis would say, can be an extremely important step for celebrities to take.

Outside of the world of celebrity, Lloyd’s has also earned notoriety from the catastrophic events that have occurred under its policies. Chiefly among them have been the Exxon Valdez oil spill, the falling of the World Trade Center, and the damage caused by Hurricane Katrina. While detrimental to Lloyd’s financial statements, to be sure, as Donald Trump has taught us, “all publicity is good publicity.” The point is, regardless of why you’ve heard of them, the Lloyd’s brand is recognized worldwide. I’d like to argue, however, that they should be famous for a different reason: their business model.

Most insurance companies — let’s use State Farm, for example — will broker, underwrite, and insure a policy all by itself. State Farm will have a relationship with a broker, will put up the capital to underwrite that policy, and will also be a licensed insurer in their customer’s state of residence. The same can’t be said for Lloyd’s because it isn’t an insurance company; it’s an insurance marketplace. Each member, of which there are about one-hundred, individually puts up capital and writes policies. They use Lloyd’s to help “make” the market, share overhead costs, and gain access to their global insurance licenses.

Formed circa 1688 in London, England, Lloyd’s is the oldest insurance marketplace in the world. It was originally created to offer insurance for sailors, merchants, and shipowners. As Lloyd’s grew in size, the British Parliament was forced to create legislation to govern its unique structure and protect the interests of its members, brokers, and policyholders — another distinction worthy of international acclaim. That said, whether you want to learn more about their history or open a policy for yourself, you can find Lloyd’s corporate headquarters in the iconic “Inside-Out” building on Lime Street in London’s financial district.