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Chapter 2 The insurance market 2/7

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
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 Chapter
decreased since 1994, so that by 2010 only 4% of Lloyd’s capacity was provided in this way.
Activity 2
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 intermediaries such as agents
and brokers. Today, more insurance companies use direct marketing via print and digital channels to
reach their customers directly.

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.
The complexity of many commercial risks and the large premiums involved often render a broker service
invaluable.

E2 Agents

An insurance agent is appointed by an insurer to secure new business and service existing business for
the insurance company. An agency agreement lays down the specific authority to act for a principal (i.e.
the insurer) with the objective of bringing the principal into a legal relationship with others.
General insurance contracts entered into by an agent, within its authority, will be binding on the insurer.
In fact, all acts carried out by the agent in their agency agreement have the same effect as if they were
carried out by the insurer.

E3 Lloyd’s insurance brokers
It is worth pointing out at this stage that the term ‘broker’ is frequently used in the insurance market. At
To be registered,
one time, it was necessary to be formally registered to use this term. Nowadays, in practice it tends to be brokers must satisfy
only those offering truly independent advice that use the term in their titles. the Council as to their
expertise
However, it is the Council of Lloyd’s that registers insurance broking firms to act as Lloyd’s brokers. This
title will be retained, even though access to Lloyd’s has been granted to a wider range of intermediaries
by virtue of Legislative Reform (Lloyd’s) Order 2008. To be registered, brokers must satisfy the Council
as to their expertise, integrity and financial standing. Once appointed, the words ‘and at Lloyd’s’ may be
used on letterheads and name plates. The requirements of Lloyd’s are in addition to those of the UK
Financial Conduct Authority (FCA) for authorised persons. However, Lloyd’s no longer has its own
separate code of conduct for Lloyd’s brokers, relying instead on the FCA rules for authorised persons.
An intermediary that is not itself a Lloyd’s broker and does not wish to pursue the new direct routing
possibilities, may access the Lloyd’s market by using the services of a Lloyd’s broker. This effectively
creates a chain of supply. In these circumstances the Lloyd’s broker is termed a ‘wholesale’ broker and
the originating intermediary a ‘sub-broker’ or ‘producing broker’.