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Coverholders

A managing agent may delegate to another company, including to a Lloyd鈥檚 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 鈥榗overholder鈥�. The document setting out the terms of the coverholder鈥檚 delegated authority is known as a 鈥榖inding authority鈥�. Coverholders act as agent of the Lloyd鈥檚 managing agent (rather than as agent of the policyholder).

Lloyd鈥檚 brokers

Generally, Lloyd鈥檚 underwriters do business only in 鈥榯he Room鈥� in the Lloyd鈥檚 building in One Lime Street, and only with accredited Lloyd鈥檚 brokers. Lloyd鈥檚 underwriters do not deal direct with policyholders. Brokers who want to place business with a Lloyd鈥檚 syndicate generally come to the building to do so.

UK brokers must be authorised as a general insurance intermediary by the Financial Services Authority, and foreign brokers must be authorised by their equivalent regulatory authority. In addition, Lloyd鈥檚 brokers must meet certain accreditation requirements (covering such things as financial standing, management controls, and knowledge of the Lloyd鈥檚 market) set out in the Lloyd鈥檚 Brokers Byelaw. A Lloyd鈥檚 broker is not permitted also to be a managing agent or to be associated with a managing agent.

Coverholder arrangements and binding authorities may be arranged and administered with or without the involvement of a Lloyd鈥檚 broker. Some managing agencies also run direct sales companies, which do not use brokers.

Placing risk at Lloyd鈥檚

The following is a brief synopsis of how risk is placed at Lloyd鈥檚.

• A customer approaches a Lloyd鈥檚 broker (either directly or via an intermediary) with the details of a risk to be insured.
• The Lloyd鈥檚 broker approaches an underwriter to discuss premium, terms and conditions. If both parties remain interested, a proposal will be made to accept a percentage of the total risk. A number of underwriters may accept portions of one risk (either within Lloyd鈥檚 or outside).
• The Lloyd鈥檚 broker feeds back the proposal to the customer.
• If the customer wants to proceed, the Lloyd鈥檚 broker prepares a 鈥榮lip鈥� with the details of the insurance, which is signed by each of the underwriters that have agreed to accept part of the risk (鈥渟ubscription鈥�).
• The Lloyd鈥檚 broker deducts its fee from the premium paid by the customer and pays the net amount to Lloyd鈥檚 which then allocates it to the syndicates.