Months of major scandals at Lloyd's, London's venerable and lucrative insurance exchange, have prompted a substantial overhaul of its operation, making it less a self-regulating brokers club--and hopefully, salvaging the market's reputation in the process.

The appointment this month, for the first time, of a tough-minded $200,000-a-year "chief executive" with a broad brief for reform, expansion of the governing Lloyd's committee to bring in outsiders, and proposed new disclosure rules for underwriters released Jan. 12 hold out the prospect of a less free-wheeling operation.

While no Lloyd's policyholder has been let down thus far, the succession of separate but similar scandals since last summer involve the alleged misuse of tens of millions of dollars by underwriters who have operated largely beyond accountability until now.

Because of Lloyd's 300-year history and international standing, "a great deal is taken on trust," one former Lloyd's official told John Moore of the London Financial Times, but that was on an assumption, he added, "that standards exist which frankly are not there."

The impact of the changes extend well beyond Lloyd's itself to the time-honored laissez faire traditions of London's City, as Britain's financial community is known. Anxious to preserve the City's position as a world financial leader and its standards for reliability without government control, specialists here and abroad are watching the unfolding Lloyd's saga with great attention.

"The City at Risk," said the London Sunday Times, crisply heading its editorial urging firm action.

Elements of the changes had been in the works for some time, as it became clear in recent years that Lloyd's informal practices of the past needed closer scrutiny. But the measures have been stiffened greatly by the recent embarrassing revelations of abuses, both proven and merely alleged, in the activities of, as one saddened critic put it, "some senior people within the Lloyd's community."

Lloyd's, whose name is associated with costly and sometimes unlikely risks, is a market where wealthy investors and syndicates pool their resources to underwrite policies.

While the industrial side of Britain's economy has been mired in severe recession, the financial sector has flourished, with Lloyd's one of the City's consistently largest earners. The number of members in its insurance syndicates has doubled in the past five years as business has grown. But the increasing international competition in the insurance field has raised the stakes ever higher and cautious investors have started to demand more information on their underwriters' assets--which is basically the reason the scandals of the past few months have been unearthed.

The thrust of the two main cases is that leading underwriters were accused of diverting funds at their disposal to companies in tax havens around the globe such as Panama, Lichtenstein and Bermuda, in which they had interests unknown to their investors or policyholders.

Money, investigators say, went into the so-called "reinsurance" market, allowing underwriters in effect to spread their risk into distant companies far beyond any reliable supervision or scrutiny. The practice itself is common and even necessary, but the lack of disclosure in these instances leaves openings for serious abuses.

The chairman, John Wallrock, two directors and three senior executives of Minet Holdings, one of Britain's leading insurance brokers, were forced to resign in one such scandal. Wallrock reportedly admitted making $2 million in reinsurance premiums while ostensibly acting on behalf of Minet investors. In all, about $40 million was channeled into off-shore reinsurance companies.

What added to the dismay of investors--known in the Lloyd's jargon as "names"--is that Minet's activities supposedly had been examined under Lloyd's old rules and nothing wrong of significance had been found.

The second case is even more tangled. It involves accusations by the U.S. company, Alexander and Alexander Services, the world's second largest insurance broker, of misappropriation of about $55 million at a British subsidiary, Alexander Howden Group, which it purchased last year. The bulk of the funds also allegedly was diverted into off-shore reinsurance companies.

The Lloyd's management committee last September suspended Ian Posgate, a senior executive of Alexander Howden and the market's most successful and flamboyant underwriter, for his supposed part in the affair. Posgate retaliated with a suit which ended in a High Court ruling that the committee had surpassed its authority in suspending Posgate without due process. He was awarded costs, but the committee quickly moved against him again, this time offering him an opportunity to make his case to the skeptical authorities.

Moreover, the court was not ruling on the question of whether funds were misused. That matter is still under investigation by the Department of Trade and the City's police fraud squad.

As other lesser scandals came and went over the months, pressure grew for more dramatic moves than those already envisioned by the expansion of Lloyd's management group to make it better able to deal with abuses and more representative of the investors. Even before the first meeting of the expanded body--up from 16 to 27 and elected by the investors--it was decided to retain a powerful professional administrator.

Lloyd's chairman, Sir Peter Green, whose own authority will be much diluted by the change, apparently relented only after a strong personal appeal from Gordon Richardson, governor of the Bank of England.

Within days the executive was named. He is Ian Hay Davison, 51, a well-known City accountant who resigned a partnership in the firm of Arthur Andersen to take the position. Davison was already involved in a study of Lloyd's accounting and audit procedures.

To deal with the recent problems, Davison's recommendations include a register of all insurance interests held by underwriters and approval by the governing bodies of Lloyd's of all reinsurance arrangements. The definition of interests will be broad.

"If someone owns interests in a towel company and that company supplies towels to his underwriting agency, then it would have to be disclosed," Davison said in explaining his plans.

Significantly, the register is to be retroactive. According to Charles Raw of the Sunday Times, this provision will be especially controversial because underwriters "may feel they should be allowed to put their houses in order without fear of exposure of past arrangements . . . "

But even if opposition does develop, Davison's mandate is considered so secure that even the suggestion that he might abandon the effort for reform would be enough to assure that it goes through. Lloyd's may well endure for centuries more, financial observers in London agree, but as a result of recent events, many of the old ways of trading are gone forever.