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Chapter 2 The insurance market 2/5

B2 Types of insurer – defined by function

Having classified companies according to their form of ownership we can now classify them by function:
Composite companies accept several types of business (called classes of business) and they represent Chapter
the major part of the market. The types of business usually accepted are fire, motor, accident, life and
marine. 2

Specialist insurers tend to issue policies for only one class of business. Their expertise is in that
particular niche area and so they form a valuable addition to the market but in a narrow area.

C Protection and indemnity (P&I) clubs

These clubs are marine associations that insure cargo, crew, passengers and other third parties,
providing cover that traditional insurers are often reluctant to insure. Early organisations have now
developed into 13 Mutual Insurance Associations (P&I Clubs) which between them insure the liabilities
of around 95% of the world’s ocean going tonnage.
In the UK, P&I Clubs are subject to the Marine Insurance Act 1906.

Sample examination question 1
Which type of insurance company does not provide insurance to members of the general public?
a. Captive. F
b. Composite. F
c. Mutual. F
d. Proprietary. F

DLloyd’s Reference copy for CII Face to Face Training

In this section, we will examine the structure and main features of the Lloyd’s market. Lloyd’s, as an
institution, is not an insurer. Instead it is an organisation providing facilities for the placing of risks in its
own market.

Syndicates are the groups of private individuals or corporate members who actually carry the risks (they
provide the financial backing). Each syndicate employs a managing agent and it is their responsibility to
appoint the underwriter who may accept risks on behalf of the syndicate. Managing agents are
companies specifically established to manage one or more syndicates on behalf of the members that
provide the capital. Lloyd’s managing agents are dual-regulated which means they have to be approved
by the Prudential Regulatory Authority (PRA) to carry on PRA-regulated activities and any business
conduct activities are regulated by the Financial Conduct Authority (FCA).
By allocating capital support to each syndicate each year, the members govern the amount of business
that each syndicate can underwrite each year – the syndicate capacity.
A members’ agent advises their clients (corporate and individual members) on the advantages and
disadvantages of investing in the Lloyd’s market, syndicate selection and performance, reserve
requirements and compliance issues. They also act as a communication channel between the member
and the various managing agents running the syndicates in which the member has invested, receiving
the regular reports on the profits (or not) made by the syndicate.

D1 Transacting insurance at Lloyd’s

The procedures and practices within the Lloyd’s market have in the past been quite different from those
of any other insurer. They are built on years of tradition and still rely to a large extent on personal
contact. However, as we shall see, Lloyd’s has changed certain aspects of its more traditional rules. In
particular, it has changed the way in which business may be transacted by those who are not Lloyd’s
brokers.
Lloyd’s is housed in a modern, purpose-built building in the centre of the City of London. Underwriters
and their staff sit at desks, still referred to as ‘boxes’ reflecting the original style of furnishing, and
Lloyd’s brokers approach them there to negotiate their contracts.