Lloyd's Organizations: What It is, How It Works

What Are Lloyd's Organizations?

Lloyd’s organizations are insurance syndicates modeled after Lloyd’s of London: a centuries-old, international commercial insurance marketplace famed for insuring unusual risks.

Lloyd’s organizations are funded by subscriptions paid by members who participate in underwriting activities, with the proceeds used to pay general expenses, such as administrative and office costs. They are not officially associated with Lloyd’s of London, despite sharing similarities, and are also sometimes called Lloyd’s Associations or American Lloyd’s.

How Lloyd’s Organizations Work

Lloyd’s organizations act as insurance markets rather than companies. Insurance underwriters and brokers work together to conduct transactions that are facilitated by their membership in the same organization. The organization may focus on a particular type of insurance, such as property or fire, or several different types, and is known to develop tailor-made policies.

The members of a Lloyd’s organization form groups, and appoint a lead underwriter to accept business and conduct day-to-day activities on their behalf. Participating brokers, meanwhile, must demonstrate their solvency, and be capable of bringing in business to the organization.

During the underwriting process, the broker outlines the risk that is being insured against and approaches the underwriters who may specialize in that particular type of risk. The brokers will work with the various underwriters participating in the organization in order to obtain the best terms for his or her client.

It's important to remember that the Lloyd’s organization itself does not assume liability for the underwriting activities of its members. Instead, it is responsible for the management and operation of the market, which involves, among other things, outlining the financial rules and regulations that must be followed.

Lloyd’s Organizations Requirements

Lloyd’s organizations, just like other organizations, must be licensed to operate by state insurance regulators. Even though Lloyd’s organizations don’t underwrite policies, they collect membership fees, which is often enough to trigger oversight.

In North America, underwriters at Lloyd’s have licenses in Illinois, Kentucky, and the U.S. Virgin Islands and are approved surplus lines insurers—protection against a financial risk that is too high for a regular insurance company to take on—in all states and territories. Lloyd’s is also an accredited reinsurer in all 50 states, according to its website. 

Special Considerations

Lloyd’s bills itself as a “unique insurance market" with "an unrivalled concentration of specialist underwriting expertise.”

Based on its estimates from 2018, 40% of Lloyd's global premiums are held by U.S. customers, with total premium in the country accounting for more than $18 billion. In the United States, it also claimed to lead the way in the excess and surplus lines and reinsurance segments.

Examples of the types of things Lloyd’s organizations insure include agriculture, aviation, fine art, legal expenses, marine, political risks, space, and terrorism.