Module 11 | The Insurance Markets

Welcome to

The Insurance Markets

Risks Management

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Insurance Markets
Objectives

• On completion of this chapter you should be able to:
– Describe the workings of two of London’s Insurance
Markets
– Appreciate the Principle of spreading Risk
– Understand how cover for risks are obtained with
relation to Principle of Risk dilution.

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Insurance Markets

Introduction

• To the uninitiated, the insurance market may seem a
myriad of organisations, synonyms with the “Lloyd’s”
prefix, and with little comprehension of how these
organisations operate within the larger sphere of
insurance.

• In fact Lloyd’s of London is not an insurance company
but a market place and its relationship to Lloyd’s List,
the newspaper, and Lloyd’s Registry, the classification
society, is now only in name…

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Introduction

• There are many other market places or insurance
companies where risks can be placed…

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Insurance Markets

The Significance of London

• UK-based financial and related professional services
contributed 12% of UK GDP in 2013.

• Over 2 million people work in the industry across the
country, two thirds of whom are outside London.

• It employs 7% of the population.

In 2013 the number of insurance jobs in the City of London rose by
0.5% to over 70,000, according to a survey by TheCityUK.

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Insurance Markets

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Insurance Markets

Globally…

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Insurance Markets
Who are the Insurers, and
where are they located?

Lloyd’s of London
• Lloyd’s (of London)

function is just to
provide the premises
and regulate how
underwriters should
perform their business.

Insurance Markets
Who are the insurers, and
where are they located?

Lloyd’s of London
• The syndicates are

financed by either
names (private
wealthy individuals)
or by limited liability companies. Lloyd’s of London as a
market place provides a room where insurers can set up
their stalls (syndicates) and underwrite risks brought to
them by Lloyd’s brokers.

Insurance Markets

The Room @ Lloyd’s

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Insurance Markets

What is Lloyd’s ?

Please Wait… 5 seconds • A specialist
Lord Levene, ex-Chairman (2002-2011) marketplace

• Operating in 120
countries

• Backed by £18bn of
assets

• Innovative
insurance solutions
to meet every type
of risk

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How the Lloyd's market works:

• The Lloyd’s market is home to 57 managing agents and 94 syndicates,
which offer an unrivalled concentration of specialist underwriting
expertise and talent.

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Insurance Markets

Profit and Capacity
• Operating performance

remains strong: pre-tax
profit rose by 16% to
GBP3.2 billion in 2013,
representing a return on
capital employed of
16.2%.

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Insurance Markets

Insurance and the Economy
• The wider effect of insurance is its contribution

to the invisible earnings of a country.
• Money accumulated through insurance

premiums, brokerage and pension contributions
are a major source of investment for developed
countries..!

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Insurance Markets

Insurance and the Economy
• Insurance has a multiplier effect within an economy

which creates more wealth.
• Before claims are paid the money received from

premiums by insurance companies is used to buy
shares and invest in stocks which are in turn use the
money to fund research for the development of
new products for sale.

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Insurance Markets

Insurance and the Economy
• Sometimes insurance companies loan money to the

government for say, infrastructure development
(like road, building constructions, etc.), by way of
purchasing government bonds. These provide a
guaranteed return for a fixed period, say 10%pa
over 15 years.

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Insurance Markets

Insurance and the Economy
• In addition, the government can collect a share of

the insurance company’s profits through taxation.
• These are some of the reasons why some countries

have national laws prohibiting the purchase of
insurance from anyone but the state run insurance
company..!

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Insurance Markets

International Underwriting
Association (IUA)

• In 1999, the International Underwriting Association (IUA)
became the new name for the Institute of London
Underwriters (ILU). The ILU was famous because it wrote the
standard wordings still used in many policies e.g. Institute
Cargo Clauses A, B & C, Institute Time Clauses (Hulls).

• The IUA provides a similar setup as to Lloyd’s of London but
its members consist of companies (not individuals) who have
an office within the IUA building.

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International Underwriting Association (IUA)

(formerly knows as Institute of London Underwriters)

Insurance Markets
Insurance Companies

• Insurance Companies are limited liability companies
liable up to the value of their assets.

• They insure risks in the same way as
Lloyd’s syndicates or IUA members but
the difference is that they can be located anywhere
in the world.

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Insurance Markets

Parties in the Transport Chain and Insurance
• Why is it necessary to insure?

- Accidents still occur during transportation, goods
can be damaged due to careless handling, due to
bad weather goods or, simply stolen while in
transit.
• Carriers and forwarders accept only limited liability
which may be less than the value of the goods.

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The Shipowner & Insurance

Shipowner’s 90% of
Insurance international
trade is via

shipping

Hull & Machinery Liability Insurance
Insurance
Placed with either a mutual
Policies incorporating either Protection and Indemnity
Institute Time Clauses Hulls Club (P&I Club) or fixed

1983 or 1995 or premium insurer e.g. a
International Hulls Clauses syndicate at Lloyd’s of

2003 London

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Hull & Machinery Insurance

Hull & Machinery
Insurance

Loss / Damage to 3/4ths Collision Salvage
ship, equipment Liability towards General Average
damage to the
or stores
other ship

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Shipowner’s
Liability Insurance
(usually P&I Club)

Loss / Damage to Compensation for Oil Pollution
Damage to 3rd party illness /injury or
property death of crew, Including
cargo including clean up
1/4ths RDC* stevedores costs and

fines

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Insurance of the Road “Haulier and Railway Operator”

Insurance of the Road Insurance of the Railway
Hauler

Insurance for Insurance for Insurance for Insurance for
Truck third-party wagon third-party

liability liability

§Loss / damage to goods §Loss / damage to
carried goods carried

§Loss / damage / injury §Loss / damage /
to other property and injury to other
persons property and persons

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Cargo Insurance

Cargo Owner’s Exposure

Shipper / Receiver

Loss / Damage to Cargo owner’s contribution
goods towards cost of:

§ General Average
§ Salvage

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Conclusion

• In this presentation we have looked at
insurance in terms of its benefits to the
economy, where it is placed and briefly at the
exposure of different parties in the transport
chain.

• The next presentation we shall look at Cargo
Insurance in more detail.

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Questions & Answers

For further information on this and other Training Courses offered
by GMLS, please contact us on:-
Website: www.gmls.co.za
Email: [email protected]

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Tel: +27 44 813 0052
or +27 11 880 4342

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