Glossary
https://www.lloyds.com/help/glossary-and-acronyms
Premise of Insurance:
Protection from Risk
Risk Transfer
Insurer: Pool from large number of Insured.
Syndicate: Investors who put money into Llyods, they would sell insurance and get large number of
premiums coming in, pay few claims and hopefully make profit.
But in case you make loss (more claims than premiums)?
Syndicates are fronted by managing agents. They are the insures who sell insurance. Lot of Banks,
Pension funds are syndicates.
Traditional Underwriting
Broker: Acts as an agent of the Insured (or Re-Insured) to arrange Insurance (or Re-Insurance) with
Llyod’s Syndicates. Broker arranges Underwriters, Subscriptions etc for client (Insured). Broker puts
up basic contract and liaisons relevant insurers/underwriters to close the insurance.
Managing Agent: An underwriting agent which has permission from Lloyd’s to manage a syndicate
and carry on underwriting and other functions for a member.
Syndicate: Syndicate is a group of companies or underwriters who join together to insure very highvalued property or high-hazard liability exposures.
Llyod’s: Corporation which regulates and provides support services to the market. It’s not an Insurance
company, rather a society of individuals and corporate underwriting memnbers that insure and reinsure
risks as member of one or more syndicates.
If you are a Managing agent or Broker of Llyods, you get regulated by Llyods through auditing etc.
Why London market populare? Because it has got Llyod’s.
Lloyd’s has got very high reputation of paying claims. If syndicate fails to settle, Lloyd has the
guarantee to settle the claim. It has solvency regulations on syndicates by ensuring their business plans
to be robust by several measures including re-insurance.
Subscription Market: Each insurer taking a chunk of the Risk. Example: a ship worth 10 Million
whose risk is distributed among 10 insurers for 1 million each.
Layers / Reinsurance: Insurer may take an insurance on the possible underwriting loss in return for a
premium. Reinsurance accounts for more than half the Lloyd’s total business.
Horizontal Vs Vertical Layers:
Horizontal: 10 Million sliced into 10 chunks of 1 Million each.
Vertical: 1st Insurer wil pay any claims upto 5 Million, then next insurer will pay (between 5 and 10
Million).
Risk Spread: Syndicates spread the risk by diversifying their insurances. Example: A syndicate insures
a huge number of properties in Texas (which has a high risk of storm). It also insures electrical sub
stations in another part of the world. So the chances of natural disaster occurring in both places is really
small.
Insurance Platform: More standardized products are traded through e-platforms such as acturis,
Global XB, Novidea etc, but not used very much in London Market, because of it’s complexity,
redundancy and non-standard approach of dealing. A lot of communication happens through emails and
face to face.
PPL and Whitespace are two leading platforms in London.
Generally brokers goes to trade with a dozen clients with a mix of Risks (low, medium, high) as a
bundle/package and offer to give it as a bundle to underwriters.
High end Special Commercial Insurance:
Standard Insurance: Example, car insurance are pretty standardized and can be completely executed
by technology/online without broker intervention. With the advent of technology, broker industry has
been squeezed.
Risk pertaining to small commercials (shops, offices etc) can be packaged without broker and the
commission is so minuscule that if you are deploying a broker, you are making a loss. Gradually, with
technology and AI, more and more insurance will be transformed to packaged products.
On the contrary, there are few spaces which are difficult to automate.
Role of Broker: A broker (ideally) works for Insured/Client, not for the Insurer. Broker commission
should come from customer’s payment. But in reality it could be different. The commission percentage
is often set by the Insurer. Ideally a broker should work for the Insured. Broker should not work for the
Insurer and present the best insurance to the client and not the one that pays the best commission.
There are Audit mechanism that questions broker the basis of it’s sell (of insurance) to client to ensure
that client is presented with the best value.
In other hand, involvement of Broker is some times necessary to get the best Insurance at the best
price in the market among many competitors (Insurers).
Delegated Underwriting:
Managing agent will have to do a lot of activities to set up the contract, hence it’s administratively
heavy. For a risk such as a Vessel, on accord of years of experience, Insurers can develop a product
which is well defined for a specific size, specification of a Vessel and specific Risk, the premium is say
X amount. This can be set up as a product that can be sold by somebody else. That somebody is called
a Cover Holder. It’s similar to a Wholesaler-Retailer mode.
Cover Holder: A managing agent may delegate to another company, including to a Lloyd’s broker, its
authority to enter into contracts of insurance on behalf of a syndicate it manages. The recipient of the
authority is known as a ‘coverholder’.
Cover holder sends monthly statement, which is called bordeaux, to the Insurer.
Bordeaux: A list of premiums payable and claims paid or due which is prepared by a coverholder for a
managing agent or by a reassured for its reinsurer. Bordereaux are commonly produced on a monthly or
quarterly basis. They breakdown block premium payments that are made to underwriters and detail
claim payments made on behalf of or due from underwriters.
The bordeaux is a way to deal with volumes. Rather than having each individual transactions
(Insurances, Premiums, Claims etc) which could be in thousands in case of a really good product, is
delegated to Cover holders by the Insurer.
This delegations are seen in small commercials, large commercials.
US Market: Even though it’s the biggest market in the world, north American property insurance, they
don’t have adequate underwriters, so it often comes to London. Licensed agents in US act as cover
holders for London Insurers/brokers.
But for large Risks, produced in US are placed in London. There could be many parties involved such
as local broker in New York, who would probably place some risk in local NY Insurers while taking
bigger chunks to London broker. There could be chain of brokers, Advisors and Specialists etc
involved. That’s an example of Wholesale market which involves real money with series of comission.
Sections: A Risk is divided into sections. Each section may depend on business classification (A
section that covers all buildings of a Business, another section covers all stocks, another section covers
employees etc).
A section may be defined based on Geography or Vicinity. Another example could be a division based
on mode of payment. Everything that’s paid in USD could be a section and those paid in Sterling could
be a different section. Or it could be combination of various criteria/division. They way sections are
defined could be very simple to very arbitrary.
Section is generally defined by Broker.
Each section is attached to one or more Insurer.
Hierarchy: Contract → Section → Insurer (1 → N)
CDR(Core Data Record): The Core Data Record is a set of Standardized, Quality Transactional data,
that empowers downstream processing.
The CDR holds the critical transactional data required to be captured at written line across four
downstream processes:
• premium validation and settlement
• claims matching at first notification of loss
• tax validation and reporting, and
• regulatory validation and core reporting.
For more understanding, visit this link Core Data Record (CDR) | Blueprint Two (velonetic.co.uk)
CDR is not live at this moment, but in future it’s going to be the defacto standard or structure for
creating an Insurance electronically.
LIMOSS(London Insurance Market Operations & Strategic Sourcing): Is a service company for
Llyod’s. They provide first line support for Lloyd’s systems in terms of Market Services for London
Market to deliver high quality service and value for money.
LIMOSS | Overview
ACORD(Association for Cooperative Operations Research and Development): Is the Global standardsetting body for Insurance and related financial services industries. It facilitates fast, accurate data
exchange and efficient workflows through the development of electronic standards, standardized form
and tools to support their use.
ACORD is the messaging standard which connects Market Services. It provides structure of the data
being exchanged.
LIMOSS | ACORD
ACORD Reference Architecture: Provides an enterprise architecture framework for the insurance
industry. It has following components which can be utilized collectively or individually.
ACORD Reference Architecture