Tag: Surplus Lines Insurance


What’s The Deal With Lloyd’s of London?

Last year, Underwriters at Lloyd’s of London wrote over $1.1 billion in premiums in Texas alone, cornering the market for commercial property insurance with a 23% market share, and making them the largest surplus lines insurer in the state. Despite this, many policyholders are discovering that their insurance claims are being unfairly denied. So what’s the deal with Lloyd’s of London?

What is Underwriters at Lloyd’s of London?

Underwriters at Lloyd’s isn’t actually an insurance company, despite the efforts to portray themselves that way. In fact, Lloyd’s is only licensed as an admitted insurer in one state, Kentucky, but nevertheless offers insurance in all other states. Lloyd’s gets away with this because it registers in these various states as a surplus lines insurer. In reality, not only is Lloyd’s not a real insurance company, it isn’t even one single entity. It is an investment market comprised of a number syndicates, each of which may be its own foreign insurance company, or just simply an institutional or even individual financial investor. These syndicates share the risk on a policy, or often a portfolio of policies, in return for the premium. When a business owner purchases commercial property insurance with Lloyd’s they are actually purchasing a policy with a cocktail of various syndicates rather than an actual insurance company itself. And most of the time, the insurance customer has no idea what they are getting into.

Consequences of a Lloyd’s Policy for Business Consumers

While the initial thought of your insurance policy being comprised of several entities might not sound too troublesome, this is far from the truth. Many of the entities that underwrite the policies aren’t even insurance businesses, but rather they are pure financial investors whose main focus is maximizing their return on investment. Fairly paying claims rarely helps the bottom line for these financial investors.

Additionally, the syndicates that are actual insurance businesses are often unlicensed, unauthorized foreign insurance entities using Lloyd’s authorization to conduct business they couldn’t normally do themselves. This allows insurance entities from all over the world to operate in the lucrative US insurance market, without actually having to comply with US laws or regulations. Basically, these foreign insurance businesses – from the United Kingdom, Germany, Bermuda, the Cayman Islands and other exotic locales – are borrowing a license to engage in the business of insurance when it would otherwise be illegal for them to do so.

It gets worse. Because Lloyd’s isn’t a real insurance company, they don’t have anyone to handle claims. So when a policyholder submits a claim, the various syndicates at Lloyd’s operate through managing general agents, third party administrators, and independent adjusters to address the claim. Lloyd’s relies on these third parties to decide on claims without ever assessing the damage for themselves, which often causes grossly undervalued or completely denied claims.

These insurance service providers only exist because the foreign syndicates at Lloyd’s don’t actually have a human being working for them anywhere in the United States, or they don’t have the requisite authority to do the actual work in Texas. Injecting these claims handling groups into the equation also costs money, which erodes the portion of premiums that are supposed to go back to policyholders when they have a claim. Sometimes these other insurance businesses even have financial ties to the syndicates or even foreign reinsurers who have the financial risk on the claim. It’s a real conflict of interest, and it takes money away from the payment of legitimate claims and injects inefficiency and waste into the insurance system at the worst possible time.

Is the Problem Limited to Underwriters at Lloyd’s London?

It is true enough that this has been going on for many years, but the problem is getting worse and the lack of regulation over these semi-legal entities is injecting chaos into the Texas insurance market. It used to be that surplus lines insurance, like what is provided by Lloyd’s, was the exception and not the rule. But today, the insurance industry in Texas is dominated by surplus lines insurers and entities like Lloyd’s of London. The top 50 surplus lines insurers in Texas wrote over $5 billion in premiums in 2015. With nearly a quarter of that market, Lloyd’s has quickly become the largest insurer for commercial risks in Texas, without actually being an insurer.

But they aren’t alone. Most of the major insurance companies have set up their own grey market surplus lines insurer subsidiaries to operate in Texas to get in on the action. AIG created Lexington Insurance Company and AIG Specialty Insurance, and in doing so, they ran about $500 million in premiums in 2015 through their surplus lines businesses. Zurich did the same, running over $110 million in premiums through its Steadfast Insurance Company. The list goes on, and at this point, most of the major insurance groups have set up their own surplus lines entities.

For the large insurance groups, writing insurance through their surplus lines subsidiaries, rather than their legitimately admitted market insurance companies, is a great deal. It means higher profits, less regulation and accountability, and the ability to use any type of manuscripted insurance policy language they desire. Since these are usually wholly owned subsidiaries, the money flows up to the parent company anyway. It’s a great deal for the insurance industry, and one permitted by our regulators as the law stands today.

Think about that the next time someone tells you that insurance companies are fleeing Texas because of hail storms or trial lawyers.

Until regulators address the inherent abuses in the surplus lines insurance industry, many policyholders will continue to suffer unfairly denied insurance claims. And until regulators fix the problem of unauthorized foreign investors using a Lloyd’s badge to sell insurance on our shores, Underwriters at Lloyd’s London will continue to operate its grey market for insurance to the detriment of Texas business insurance consumers.

Raizner Slania Represents Lloyd’s of London Policyholders

Surplus lines insurers like Lloyd’s of London can be aggressive when handling property damage claims, but the experienced trial attorneys at Raizner Slania have successfully helped many Lloyd’s policyholders get the compensation they are owed under their policies. Based in Houston, Texas, Raizner Slania handles large commercial insurance claims throughout the country.

Corruption Inside Commercial Property Insurance

The Corruption Inside Commercial Property Insurance

From costly hail damage to a devastating water loss, a commercial property insurance plan is crucial in protecting your business from a variety of incidents; however, finding the right commercial property insurance for your business isn’t as easy as you’d think. Corruption inside commercial property insurance has left many business owners high and dry after a loss. This is particularly true in states like Texas, where the grey market surplus lines insurance industry has virtually taken over the entire market despite regulatory protections to the contrary. The best way to protect yourself from buying a bad insurance plan is to understand how, when, and why corruption happens during the insurance procurement process.

Insurance Infographic

When a business owner needs commercial property insurance, they visit a retail agent, who typically is just a sales group that does not have any authority to bind an insurance company. So, the retail agent contacts a producer, typically a licensed surplus lines broker, and this producer has the authority to bind an insurer. Under the law, the producing broker must conduct a “diligent effort” to obtain insurance from a legitimate, admitted and licensed insurer. Unfortunately, due to a lack of true oversight and financial incentives, the producing broker either skips the “diligent effort” process or just gives it a superficial lip service without truly complying. The result is that the producing broker most often obtains the policy from a surplus lines insurer, which is usually more costly and is an unregulated grey market that lacks financial guarantees.

Surplus lines insurers are typically really just a front – file drawer entity –and most or all of the true insurance risk is ceded to unauthorized foreign reinsurers that are neither licensed in the state nor legally authorized to conduct the business of insurance in the state. They are little more than offshore investment schemes. Because of this, there is no one locally available to do the work on behalf of the surplus lines insurer once a policyholder files a claim under his or her policy. The surplus lines insurers must use local managing agents, independent adjusters, and third party administrators to address the claim and any one of these individuals could have financial ties back to the surplus lines insurer or even the the foreign reinsurer.

The potential for conflicts of interest under these circumstances is rampant, and this can seriously impact whether a commercial property claim is paid or denied. Because of the parasitical structure of these financial investment schemes masquerading as insurance companies, the money flows to the various entities who all have their hands in the process instead of the business insurance customer who paid their premiums and expect protection when a catastrophe occurs. Policyholders insured through surplus lines carriers are subject to predatory practices by the insurers, they pay higher taxes and premiums, get policies that are not approved by state regulators and contain far less coverage, and their claims are often evaluated by unqualified, and sometimes unlicensed, out of state adjusters.

The market for surplus lines insurers is largely unregulated and has virtually no oversight. Many business owners unknowingly purchase policies with these insurers and suffer economic hardship when their claims are later delayed, denied, or underpaid. The various insurance entities and investors profit handsomely from this grey market structure, while business policyholders are left without the protections they have paid for.

Raizner Slania: Commercial Property Insurance Lawyers

Raizner Slania is experienced in fighting insurance companies who operate in bad faith. We handle all commercial property insurance litigation on a contingency fee basis, so you owe us nothing unless we help you recover financial damages. If your commercial property insurance claim has been denied, delayed, or underpaid, call the lawyers at Raizner Slania today for a free consultation.