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Monday, February 5, 2024

Insurance Broker ............. and Lloyds' Broker

An insurance broker acts as a bridge between the aspirant proposer and the Insurer.  Insurance broker represents the insurance buyer, and not the insurance company (insurance seller), though the remuneration of insurance broker is paid and borne by the insurance companies.        Insurance brokers have been introduced into the Indian market by IRDA.  A good Broker can provide expert advice on the policies, coverage suitable and negotiate correct rates and terms for the specific type of business.

The 1990s was a period of economic reforms – paving way for opening of financial sector including Insurance industry.  The phase saw many reforms being initiated.   The Govt adhered to the suggestions of Malhotra Committee which opened up the Sector to Private players enabling competitive market, created a Regulatory Authority [IRDA] and besides the Development Officers came into vogue, Broking firms who were to act as professional intermediaries as in other established markets.  The Insurance Regulatory and Development Authority (IRDA)  came into being in 1999 with the passing of IRDA Act of 1999.   IRDA enacted  newer rules and regulations, ushering in reforms in insurance sector.  The Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002  came into being in Oct 2002.  Now, there is considerable presence of brokers in Indian Insurance market. 
Lloyds Coffee House

This is a post about ‘ Lloyd’s Brokers’ …. Lloyd's of London, simply ‘Lloyd's’, is an insurance market located in London. Unlike most of its competitors in the industry, it is not a company but instead a corporate body governed by the Lloyd's Act of 1871 and subsequent Acts of Parliament.  Lloyd’s insurance market  consists of members, both corporate and individual. Lloyd's members conduct their insurance business in syndicates, each of which is run by a managing agent. Thus there are multiple Underwriters coming together to pool and spread the risk.

The insurance business underwritten at Lloyd's is predominantly general insurance and reinsurance, although in 2013 there were five syndicates writing term life assurance. The market has its roots in marine insurance and was founded by Edward Lloyd at his coffee house on Tower Street in the 17th century. Business is conducted face-to-face between brokers and underwriters in the Underwriting Room.  When we talk of Lloyd’s, we’re really referring to two distinct parts. The market, which is made up of many independent businesses, and the Corporation of Lloyd’s, which is there – broadly speaking – to oversee that market. These parts are distinct, but far from independent. Both work closely to maintain high standards of performance across the market.  

Outsiders, whether individuals or other insurance companies, cannot do business directly with Lloyd's syndicates. They must hire Lloyd's brokers, who are the only customer-facing companies at Lloyd's. They are therefore often referred to as intermediaries. Lloyd's brokers shop customers' policies among the syndicates, trying to obtain the best prices and terms.
Façade of Lloyds now.

A Lloyd’s registered broker is a broker who has applied and been approved by Lloyd's, having met certain minimum standards and is able to place business directly with any Lloyd’s managing agent subject to a terms of business agreement. This is the predominant route to place business into the market.  There are non-Lloyd's registered brokers too doing business.  

The  Registered broker will have the advantage of : being able to place business with any Lloyd's managing agent; market themselves as a registered "Lloyd's broker".  In a larger way, the directors of such registered brokers will be able to take part in the governance of Lloyd's (eg by becoming members of Lloyd's who can stand for election to Council and so take a role in shaping Lloyd's future strategic direction).

With regards – S. Sampathkumar

4th Feb 2015.

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