The Ultimate Risky Business: How Lloyd’s of London Insures Its Own Future
Most Important Lesson From This Article (Via Wharton)
If this collection of brains can’t understand something, Ward figures, that’s reason enough to stay away from it. “When we don’t like a risk, we don’t write it.” It’s a lesson Lloyd’s learned the hard way in the years before Ward took the helm at the world’s most famous insurer three years ago. “In the past at Lloyd’s, we used to write a lot of financial institution risk,” Ward noted. “We provided a lot of cover to two great names, Enron and WorldCom. As a result of that, we paid out some really large claims.”
“It’s extraordinary how quickly reputations can be damaged and how long it takes to rebuild them,” Ward said. “At Lloyd’s, it has taken us 10 years to rebuild our reputation that was lost overnight in the 1990s and lost overnight [again] in the World Trade Center. We used to be the watchword for disaster. If I were standing here five years ago — well, I wouldn’t be standing here. You wouldn’t have invited me. You would have invited the CEO of Lloyd’s Bank, instead.”
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Introduction (Via Wharton)
As CEO of the venerable insurer Lloyd’s of London, Richard Ward oversees $33 billion in premiums each year, underwriting such valuables as actress Ugly Betty’s smile, soccer star David Beckham’s knees and singer Celine Dion’s vocal cords.
It’s all part of the tradition at the 321-year-old Lloyd’s, which is described as a British insurance market rather than an insurance company, because it serves as a meeting place for a variety of agents to pool and spread risk. Over its long history, Lloyd’s has written policies covering everything from the legs of 1940s movie star Betty Grable to the potential paternity liabilities of 1980s rock star David Lee Roth to the tongue of Gennaro Pelliccia, chief taster for the U.K.’s Costa Coffee coffee chain. Not to mention the first commercial air flight, the first commercial space flight, and all manner of bridges, oil rigs, fleets, real estate holdings in climactically dangerous regions and corporate investments in politically unstable countries.
As Ward noted during a recent Wharton Leadership Lecture, “It’s a very large and varied range of activities we get involved in. Basically, what we do is insure things other people can’t or won’t.”
Additional Excerpts (Via Wharton)
In the new world of Lloyd’s, Ward noted, “if you’re Company A and you’re writing risks inside Lloyd’s, we look at the risks that you’re writing, and then we look at how your risks plus everyone else’s risks add up together to what the aggregate exposure is [in order to make sure] that first, the capital you have is sufficient to support your business, and second, the capital the market has is sufficient to support the risks across the whole market.”
Click Here To Read: The Ultimate Risky Business: How Lloyd’s of London Insures Its Own Future
