Insurance comfort
Introduction
Insurance is about putting safeguards in place, in case the worst happens.
This enables people to go on living their lives and running businesses in the
full knowledge that they are covered against risks. They seek insurance pro-
tection for peace of mind, just as, in ancient Greece, people sacrificed to the
gods as a safeguard against future misfortunes.
In this chapter, we will look at how insurance works, and the tripartite
relationship between insurers, broker and client. We will look at regulatory
developments, particularly Solvency II, and the reputational problems that
the industry faces.
Insurance
Companies buy plenty of insurance. For example, banks take large amounts
of errors and omission insurance to cover them against the risk of giving
wrong advice. They buy directors’ and officers’ liability insurance to protect
the company, its officers and its directors against corporate liability claims,
and insure against property damage risk.
The insurance must be precisely tailored to the firm’s needs for cover.
The wrong insurance is useless. Similarly in The Odyssey, Odysseus’s men
sacrificed to the gods after they had killed the sun god’s cattle but this did
not save them from divine retribution.
16
15 4 Safet y f irs t
The profitability of business varies,
according to rates and the incidence of
claims. The rates are impacted by cycles
shifting from soft to hard markets and back
again. In a soft market, rates are low, based
on supply and demand, and underwriters
prefer to take on really good risk. When a hard market comes, rates rise,
and underwriters become more relaxed.
Let us now take a look at how the London insurance market works.
The London market
Insurance or reinsurance programmes have to be multifaceted and expertly
crafted to meet the needs of buyers. The London market concentrates
mainly on non-life insurance and is famed for covering a high proportion of
very large or complex risks. The range includes marine, aviation and trans-
port, home–foreign; and some treaty reinsurance (covering a class or classes
of business) for general risks, meaning non-transport.
The unique structural elements of the London market are the cause of
some misunderstandings in the US, Europe and beyond. London is split
approximately 60:40 between Lloyd’s and the London company market.
The overall London market is worth about £40 billion, some £10 billion
more than the traditional figure given, according to new statistics from the
Insurance Underwriting Association.
It is a subscription market where various underwriters, from Lloyds
syndicates and insurance companies, together underwrite a single risk, sub-
scribing to percentage lines of the risk on a several, not joint, basis. Lloyd’s
consists uniquely of around 80 syndicates, each consisting of individuals
and companies that have agreed to join together to underwrite insurance
risks at Lloyd’s.
Lloyd’s and reputation
Lloyds insurers are seen as the best in the world at what they do. The
Lloyd’s underwriters share a public-school type of camaraderie, addressing
each other as ‘old boy’ or ‘squire’. There is a reputation to keep up. Lloyd’s
In a soft market, rates are
low. When a hard market
comes, rates rise.

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