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The ownership organization of insurance carriers is one of the most debated subjects in the insurance business. Buyers and sellers alike are quick to express their views on the question. There are those who feel that the insurance business should be conducted entirely by proprietary interests.

Others insist that insurance should be a co-operative enterprise. Still others are convinced that insurance should be state owned and operated. Then, of course, there are some individuals within the business who may have no personal convic­tions at all but nevertheless officially favor whatever type of carrier they happen to be associated with at the time.

Classification of Carriers

As classified above, in the broad sense, carriers of insurance are either proprietary, co-operative, or state. However, within this broad general breakdown, there are many variations, regardless of whether the insurance type in question is health, home, or no medical exam life insurance.

When a going concern has a large number of units exposed to the same perils, it may carry its own insurance. This is called self-insurance; and by some stretching of the point, it could be classified and treated as a separate type of insurance carrier.

Proprietary Carriers—Llloyd’s Association

Throughout the early history of insurance, the individual under­writer was the dominant insurance carrier in the field. Because of the size of the potential maximum loss involved in many insurance contracts offered to private underwriters, it was not uncommon to find insurers banding together to share the risk. Twenty men, for example, would each agree to pay one twentieth of the insured loss in case of a claim.

The practice of dividing the risk among several private under­writers gave birth to associations of underwriters. These associations were the natural outgrowth of the insurance practice of the time. The most prominent of such associations is Lloyd’s of London, which even today is one of the most important insurance groups in the world, even among all the companies offering low cost life insurance.

Although Lloyd’s and insurance seem synonymous, Lloyd’s of London is not an insurance company. Lloyd’s Association itself as­sumes no risk. It is an association of over 1,800 persons, 1,400 of whom write insurance on an individual basis.

Each underwriter member is personally liable for the amount of insurance for which he is pledged. This liability is individual and not joint; that is, each underwriting member is separately liable for his share of the loss. There is no group liability. Lloyd’s of London might be classified as a “market place” like the New York Stock Exchange.

Functions of Lloyd’s

The Lloyd’s corporation serves several important functions. It is organized to obtain world-wide underwriting information on marine risks, and it maintains a complete record of losses. It also handles loss settlements and supervises salvage and repairs throughout the world.

It provides underwriting quarters for its members and affords a place for the transaction of insurance business by member under­writers. It regulates the transaction of this business, arbitrates dis­putes, develops policy forms, and issues policies for members. How­ever, it assumes no risks itself.

Operations of Lloyd’s

Proposals for insurance are placed before Lloyd’s Association members by brokers seeking to obtain insurance for their clients. The insurance is accepted by those underwriters who care to par­ticipate. Usually, the underwriting is done by syndicates, each man­aged by an agent who has the power to bind his participants.

Often, the managing agent organizes the syndicate himself. The members of the syndicate simply furnish the capital; the syndicate manager carries on the business. The stamp of a syndicate usually lists the individuals, showing the proportion of the risk assumed by each member; and the affixing of the stamp is attested by the signature of the agent in charge.

There may be any number of individual members in a syndicate, and any number of syndicates may be in­volved on any given risk, whether it involves term life insurance or marine insurance. Nonmembers can indirectly engage in the insurance business through Lloyd’s by risking their capital with members.

Each member of a syndicate is responsible only for his own share of the risk. The legal obligation is on each as an individual. Strictly speaking, enforcement of the contract in court, should that become necessary, can be obtained only by proceeding against each of the individual underwriters separately.

However, it is the practice at Lloyd’s for all underwriters to pay the claim if the court adjudges one of them liable. This, of course, facilitates the procedure for the insured in case of litigation.

Financial Strength of Lloyd’s

The strength of Lloyd’s lies not only in the fact that it has wide resources (it is not generally know what the resources of the organi­zation are, but they are considered to be extremely large) but also in the high degree of integrity of the underwriting members.

Lloyd’s of London has made an endeavor throughout the centuries to admit only underwriters of substantial resources who place no limit on their liability.

Applicants for membership in Lloyd’s of London are carefully “screened,” accounts of members are audited periodically, and the association sees to it that insurance contracts made by its underwriters are fulfilled.

Although there is no legal compulsion to do so, solvent members of an underwriting syndicate in the past have always assumed the liability of defaulting members.

Further­more, as an additional factor of financial strength, there is the asso­ciation’s own guaranty fund to take over the policy liabilities of any defaulting underwriter. This fund is maintained by deposits re­quired of members.

In addition to all these safeguards, members are required to hold in trust all the premiums collected and interest received thereon as a fund during the policy period to pay losses. As a further safeguard, members of Lloyd’s of London reinsure with one another in order to achieve the most favorable spread of risk available.

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