Lloyd’s of London is the most important insurance market place in the world. Its origins date back to 1687, when Edward Lloyd opened a coffee shop in London. How did a humble coffee shop grow into the world’s leading market place for insurance?

During the seventeenth and eighteenth centuries – the ‘age of mercantilism’ – Britain set out to maximise trade within its empire and weaken its rivals. Daily, ships arrived in England carrying raw materials from the colonies, including cotton, sugar, spices, tobacco, porcelain, tea and coffee. Indeed, in the London of that time hundreds of coffee houses sold the popular brew. In the absence of the modern mass media, coffee houses became agencies for the exchange of news, information and rumour. One such coffee house near London’s docks was a favourite haunt of ships’ captains, merchants and ship owners who exchanged news over a ‘cuppa’.

This was the London coffee shop that Edward Lloyd had opened in Tower Street, in 1687. It was, apparently, ‘spacious, well built and inhabited by able tradesmen’ and a staff of five served tea and sherbet as well as coffee to patrons who sat at tables ‘very neat and shined with rubbing’. Lloyd’s business expanded greatly and in 1691 he moved into larger and more central premises in Lombard Street. But Lloyd was not only a purveyor of fine coffee. Noting the demand for information, in 1696 he established ‘Lloyd’s List’ that included ships’ arrival and departure times and news of conditions abroad and at sea. Lloyd placed agents in European and English ports to gather the information. He also allowed his coffee house to be used for ships’ auctions and he reserved one corner for ships’ captains so that they could exchange information about new routes and hazards.

Companies who wished to insure against hazards used the services of brokers who would hawk the risk to people prepared to accept it, for a premium. When the deal was completed, the risk-taker would sign underneath the terms of the contract. These ‘underwriters’ worked in the Royal Exchange or coffee houses such as Edward Lloyd’s. Lloyd’s Coffee House became the headquarters of marine underwriters because of its first-rate mercantile and shipping connections.

Edward Lloyd died in 1713 and his son-in-law continued the business. In 1769 a breakaway group of underwriters formed New Lloyd’s Coffee House in Pope’s Head Alley and business expanded. In 1771, 79 merchants, bankers, shipowners, underwriters and brokers each subscribed £100 ($200) towards the cost of a new building and formed the Society of Lloyd’s. These original members of Lloyd’s – members were known as ‘Names’ – personally guaranteed that they would cover customers’ losses, a commitment that underlined the following rapid growth of business underwritten at Lloyd’s. Nine subscribers were elected to form a committee and Lloyd’s was no longer a coffee house. In 1774, Lloyd’s moved to the Royal Exchange.

Lloyd’s has never sold insurance: it is not an insurance company. Lloyd’s is a market place where people buy insurance from syndicates, or groups of Names. These days, the underwriting of insurance occurs in ‘The Room’, where brokers acting for clients present risks to syndicates that underwrite them and set premiums. If the clients accept, they are insured at Lloyd’s. Today, Lloyd’s caters for all risks. All syndicates that operate at Lloyd’s contribute to a ‘central fund’. If a syndicate is bankrupted then the Names and the central fund pay any claims against it. In this way, Lloyd’s has never failed to pay a claim.

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