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2/6 W01/March 2017 Award in General Insurance

Most risks are not placed using a proposal form but using a Market Reform Contract (still known in the
market as a ‘slip’) and there is a strict set of rules in place regarding the nature and content of this
document. Much of the business at Lloyd’s is still conducted by face-to-face negotiation.
2 For those transactions that involve a broker, the broker will obtain a quotation from an underwriter who
Chapter is a recognised ‘leader’ in a particular class of business. The underwriter will indicate the percentage
share that they will accept and the terms that apply. Subsequently, the broker will approach other
underwriters and will ‘fill’ the slip by obtaining signatures for the shares that they are each willing to
accept. This process is known as ‘scratching a slip’ – a term derived from the type of pen originally used
for the purpose. This is how the term ‘underwriter’ developed: from the custom of writing successive
shares underneath each other. In this way a number of syndicates can accept a share of the same risk.
This is called ‘writing a line’, each share being a line. Lloyd’s is known as a subscription market because
of this practice of sharing risks.
Once the slip is fully placed (in other words, the percentages accepted by each underwriter total the
amount of cover required, usually 100%) the policy will be prepared and signed. This is carried out
centrally for Lloyd’s. The organisation that carries out these functions is called Xchanging. Not every risk
placed in Lloyd’s requires the support of more than one underwriter. Motor insurance is a good example
of a class of business where the insurance will be placed with a single underwriter, who accepts the
whole of the risk. The broker collects the premium and submits this to Lloyd’s, less the agreed
commission (also known as brokerage).

D2 Lloyd’s business plan: limited and unlimited liability

The actual risk carriers at Lloyd’s were originally all individuals, called ‘Names’. Names were people who,
having demonstrated a certain level of financial wealth, provided capacity for insuring risks. They did so
by guaranteeing their shares of losses up to the full extent of their own personal fortune. This was and is
a very onerous commitment. Following some unprofitable years, the Lloyd’s Business Plan in 1993
brought about a number of major changes in the way Lloyd’s operates.
One important change was the introduction of capital from companies rather than individuals. Corporate
capital (as these were jointly termed) was introduced so that the resources of a new type of corporate Reference copy for CII Face to Face Training
investor could help strengthen the capital base of Lloyd’s. Corporate members have limited liability for
their share of the risks accepted. The proportion of individual capital in the market has dramatically
decreased since 1994, so that by 2010 only 4% of Lloyd’s capacity was provided in this way.

Activity
You can find out more about Lloyd’s at www.lloyds.com

Sample examination question 2

Which individuals provide financial backing for Lloyd’s syndicates?
a. Underwriters. F
b. Names. F
c. Managing agents. F
d. Member agents. F

E Intermediaries

Traditionally, insurance companies have marketed their products through middlemen, such as agents
and brokers. Today, more insurance companies diversify their marketing strategy, using mass media and
internet channels as well as direct marketing to attract these individuals.

E1 Insurance brokers

Generally speaking, an insurance broker is an individual or an entity of which their primary, often full-
time, occupation is placing of risks with insurance companies. A broker normally acts as a representative
of the client and/or insurer and is remunerated by commission based on the premiums charged to the
client. By appointing a broker, individuals can obtain independent advice on a wide range of insurance
matters, including relevant developments in the insurance market.