Lloyd's of London, the world's oldest and largest insurance market and a cornerstone of the British financial establishment, today concluded two years of searching self-examination by announcing it will make major structural changes to modernize its operation and tighten internal discipline.
The changes were recommended by a blue-ribbon group of experts commissioned by Lloyd's to investigate its self-regulation during what has been one of the most difficult periods in its 300-year history as an insurance pioneer.
Lloyd's -- which is famous for insuring everything from a film star's bust or a concert pianist's fingers to nuclear reactors, offshore oil rigs and space satellites -- has suffered a spate of large losses, troublesome lawsuits, internal discipline problems and the unprecedented refusal of one its syndicates to pay claims against it.
It is also facing new competition from foreign imitators and attempts to buy into Lloyd's by American investors at a time when its tradition-bound, sometimes archaic ways of doing business appear to be out of step with modern practices and the demands of the computer age.
Some of Lloyd's problems have simply been the result of bad luck. Last year was the worst on record for aircraft losses, with 19 major airliners destroyed, and this year is becoming the worst for oil tanker disasters, with an average of three occurring each month. Most of the planes that crashed and tankers that exploded or sank were insured at Lloyd's, as was a communications satellite that disappeared in space this year. Lloyd's also insured NBC television against damage to its contract to televise the Moscow Olympics this summer by the refusal of the United States to send a team.
Other problems appear attributable to underwriting misjudgements by Lloyd's which prides itself on its underwriting flexibility and expertise and on being the first insurer into new fields. It already has lost several hundred million dollars and is fighting lawsuits worth hundreds of millions more after insuring American computer-leasing businesses against rapid technological advances that made their computers commercially obsolete far faster than the Lloyd's underwriters expected.
When one Lloyd's syndicate lost millions after foolishly insuring Bronx slum property against fire, 44 of its members broke Lloyd's cardinal rule by refusing to pay nearly $50 million in claims and embroiling Lloyd's in more lawsuits and unpleasant publicity. The claims have been paid out of Lloyd's self-confidence and reputation for integrity, as have a growing number of cases of other syndicates assuming risks beyond their limits.
Lloyd's is not an insurance company, but rather a collection of wealthy individuals who underwrite insurance risks with their own capital and make their entire personal wealth liable for losses, usually sharing risks with other Lloyd's members grouped in syndicates. Lloyd's is really a market for these individuals and syndicates, just as the New York Stock Exchange is a market for stockholders.
Lloyd's began as a group of merchants who frequented at a London coffee house run by a man named Lloyd during the late 1600s to swap information about the London-based global shipping industry and to gamble their money on insuring ships and their cargos against loss.
A group of these men who became marine insurance specialists later moved to their own quarters but carried with them Lloyd's name and their unique organization as a market of individuals rather than an insurance corporation. They still transact business in a single large room with balconies, called simple "the room," passing around pieces of paper that become insurance policies as each underwriter signs up for a portion of the risk involved.
Since the end of the 19th Century, Lloyd's has expanded from marine insurance into automobiles, planes and anything else anyone wants to insure. It has occupied increasingly imposing buildings in the financial heart of London, and is beginning construction of a widely acclaimed new building -- in which "the room" will occupy the floor and galleries of a 12-story glass atriuim -- designed by Richard Rogers, architect of the futuristic Pompidou Center for the arts in central Paris.
But with the passage of time, few of Lloyd's present 18,557 members, or "names" as they are called, grouped into 436 syndicates of a few to several hundred members each, are actively engaged in writing insurance. Most of them -- including "names" like former prime minister Ted Heath, tennis player Virginia Wade, rock performer Pink Floyd, boxer Henry Cooper or Cricketer Peter May -- simply put up the necessary risk capital to be used by the syndicates and their managing agents and underwriters.
While this has helped Lloyd's grow immensely and profitably -- taking in nearly $5 billion in premiums this year -- it also has created problems of management, potential conflicts of interest and protection of the interests of both Lloyd's members and Lloyd's customers. Lloyd's is regulated only by its members and their elected ruling committee under regulations and acts of Parliament that it has acknowledge are antiquated.
Yet Lloyd's continues to do so well that competing insurance markets of almost identical structure are being set up in New York, Chicago and by a group of four Wealthy oil-producing Arab states. American insurance brokers also have been trying to buy into Lloyd's brokerages despite its current rule limiting participation by "outside interests" to just 20 percent. Three-fourths of Lloyd's business is now brought to it from outside Britain by Lloyd's brokers all over the world and it is Britain's largest single earner of foreign exchange revenues.
The recommended structural changes at Lloyd's which were accepted today as "a blueprint for change" by its current chairman, Peter Green, will replace its present ruling committee of 16 with a 25-member council. The present 16, elected largely by the minority of Lloyd's members actually working as underwriters, will be augmented with 6 others elected by the nearly 14,000 members who do not work there and by 3 outsiders completely independent of Lloyd's.
This new council will be given much stronger, more centralized powers and speedy procedures for regulating the activities of members, their syndicates, agents, underwritters and brokes. Green acknowledged at a press conference today that the present disciplinary process is too "slow and cumbersome."
Among other recommendations, the 20 percent limitation on involvement by outsiders in Lloyd's brokerages eventually is to be changed to allow more participation by other British and foreign investors, although Lloyd's members are wary of foreign interference in one of the country's most British institutions despite its substantail business abroad. Present connections between many brokers who bring business to Lloyd's and agents for Lloyd's members who compete for that business are eventually to be severed.
To carry out most of these changes, a new act of Parliament drawn up by Lloyd's must be passed, a process that will take at least a year and involve detailed consultation with Lloyd's thousands of members. But Green emphasized today the strong commitment of Lloyd's present leadership to making these changes to "ensure that the past success of Lloyd's continues into the 1980s, 1990s, and beyond."