Chapter 10: Nature of the Insurance Industry

History of Insurance

Nature of the Industry

Lloyd's of London was an early player in the insurance game. It is not actually a company, but an association of people willing to take on insurance risks. It started in the late 1600s when men with the means to underwrite shipments to the New World gathered at Lloyd's coffeehouse. The coffeehouse became known as the place for mariners to go to insure their cargo. Its history of insuring ships was evident in the writing of its first auto policy in 1904. The automobile was described as "a ship navigating on land." Today, Lloyd's of London is known for the specialized insurance it offers. For example, it insures Bruce Springsteen's voice and other celebrity body parts.

Lloyd's of London started out underwriting marine policies. But by the 1880s, it broadened its scope considerably. They were writers of the first burglary policy, and the first to offer earthquake and hurricane insurance. It even insured against zeppelins in World War I. (Zepplins were airships the Germans uses as bombers and scouts during the war.)

By this time, Lloyd's had crossed the Atlantic and was underwriting policies in America. Lloyd's had underwritten many earthquake policies in San Francisco. When an earthquake devastated the city in 1906, Lloyd's paid all of their policyholders in full, even if the policies did not cover the claims. Lloyd's best-known claim is the sinking of the Titanic in 1912. The losses were exceptional, yet Lloyd's paid all claims in full.

Lloyd's of London remains a significant player in the global insurance industry today. Perhaps it is best known for the unusual policies it writes. For example, Lloyd's sold a comedy troupe insurance against the risk that its audience might die laughing. Lloyd's also insures America Ferrara's smile.