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.

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