Lloyd's of London and World Maritime Traditions

Every seafaring man has heard of Lloyd’s of London and is aware that its insurance activities have helped the growth of the world’s seaborne commerce. Less well known, but nevertheless important, have been Lloyd’s connections with the Royal Navy and its role in fostering traditions of the sea. Of unusual interest is the dependence of this institution on some of the characteristics so important to navies—calculated daring, reliability, personal trust, and esprit. Cultivation of these qualities for nearly three centuries has made Lloyd’s important in maritime matters.

A visitor to this insurance market in the heart of the oldest section of London is immediately aware of sea-related activity which has its roots in the past. Underwriters sit four abreast at “boxes” which strongly resemble coffeehouse booths of the 17th century. “Waiters” in traditional scarlet costume carry messages. A goose quill is still used to make hand entries of ship losses in a large ledger. A ship’s bell with an interesting history is mounted over a rostrum so as to be easily seen and heard. A long wall is covered with reports of ships, many written in traditional script as they have been for hundreds of years and, within a few feet of the intense commercial activity that goes with insuring ships, cargoes, aircraft, and pianists’ hands, a small museum almost reverently emphasizes Lloyd’s connections with Lord Nelson.

A source of confusion about Lloyd’s is that several well-known but completely separate enterprises have similar names. Lloyd’s of London is not a bank or a shipping line. Nor does it establish construction and maintenance standards for merchant ships or publish a register of them, although a firm which does so shares common origins. Lloyd’s is a world center of shipping information and marine insurance. As an insurance market, it is somewhat analogous to a stock or commodity exchange; it is the means of bringing together those who seek insurance with underwriters who can provide it. Lloyd’s also supplies world-wide shipping intelligence as the basis for insurance decisions. Each policy at Lloyd’s is written on a competitive basis by an underwriter operating under his own firm name; the policy is not placed with Lloyd’s itself. It is no mere distinction without difference to say insurance is placed “at” Lloyd’s and not “with” Lloyd’s.

Lloyd’s of London is characteristic of so many British institutions—pragmatic, effective, and understandable only in terms of a long history of evolutionary development. Tradition which is so much a part of the government at Westminster is even more noticeable in the 17th century atmosphere at Lloyd’s. It is an outgrowth of the attempt to preserve the speed and certitude inherent in the simple procedures of an earlier era. The “room,” as the floor of this insurance market is called, may have several thousand brokers and underwriters in it at one time, all arranging insurance by seemingly archaic procedures. Insurance proposals for a ship or cargo are stated on folding cards known as “slips” which are carried by brokers from one underwriter to another until 100 per cent of the risk has been guaranteed. The underwriters initial the “slips” and make entries in their ledgers entirely by hand. These long- established procedures eliminate costly, time- wasting correspondence and clerical work. Many a modern enterprise is rediscovering the virtues of this uncomplicated way of doing business. And, at a time when standards of personal conduct seem subject to erosion, an insurance broker operating at Lloyd’s need only acquire underwriters’ initials on his “slip” to know that a bona fide claim will be honored even before the issuance of an actual policy.

A curious and interesting side-effect of the determined effort to maintain the mood of the 17th century is that Lloyd’s has remained a sort of men-only club; women are as assiduously excluded from the great “room” where insurance is transacted as they would be from an aircraft carrier on station. As one official drily put it, “Marine insurance is complicated enough already.”

Despite a fondness for tradition, innovation is welcome at Lloyd’s although it is usually mixed with something from the past. For example, an electronic calling system is now used to enable brokers to contact one another, but it developed from a system which had existed for hundreds of years and which began when Lloyd’s was still a coffeehouse. Richard Steele’s essay in the Tatter for 23 December 1710, written at Lloyd’s, describes the earlier system:

This coffee-house being provided with a pulpit for the benefit of such auctions that are frequently made in this place, it is our custom, upon the first coming in of the news, to order a youth, who officiates as the Kidney of the coffee-house, to get into the pulpit, and read every paper with a loud and distinct voice, while the whole audience are sipping their respective liqueurs.

In Steele’s day, “kidney” meant “waiter,” but at Lloyd’s Coffeehouse it had come to mean someone who assisted insurance men by reading shipping news and paging business contracts.

For it was as a coffeehouse in the 17th century that Lloyd’s had its beginnings. By the time it was described in the Tatter, it may have been upwards of 25 years old, because it was apparently well-established and widely known by 21 February 1688, when an advertisement in the London Gazette described a middle-sized man, pock-marked and wearing a “bever” hat who had stolen five watches from a Mr. Edward Bransby. A reward of a guinea was promised to “whoever gives notice of them at Mr. Edward Lloyd’s Coffee-House in Tower Street ...”

It may strike us as odd that so sedate and august an organization as Lloyd’s should originate in a public house open to anyone with the price of a cup of coffee. But London coffeehouses of the late 17th century performed several functions. In the newspaperless but burgeoning city of London, anyone of any consequence made a daily visit to his favorite coffeehouse or coffeehouses to hear the latest news and discuss events with those who shared like interests. The English language was modified and enriched in this atmosphere and our present prose style owes much to Addison, Steele, Pepys, and others who frequented the coffeehouses and wrote down what was discussed.

Coffeehouses multiplied rapidly after the first was opened in London in 1652. When, in 1675, Charles II began to fear their political influence and ordered them closed as “seminaries of sedition,” they already numbered in the thousands. Strong public reaction forced him to rescind the order within a few days. Although coffee gained its first real popularity in the West in London, the institution of coffeehouses soon spread to the New World where they were well-established by the latter part of the 17th century.

Not only were London coffeehouses a potent means of spreading the news, but each coffeehouse had its regular clientele and soon some of the establishments became known for the especially high level of their discussions on scientific, philosophic, political, or even religious subjects. Others were noted for specializing in commercial or maritime matters. One of the latter type, owned by Edward Lloyd, was located near the Thames River in the vicinity of the Tower of London. No one knows what other initial advantage it may have had besides location—perhaps an especially good cup of coffee, for that has long attracted seamen—but in any event, by the late 1600s, it was a favorite gathering place for those who were interested in seafaring matters, including London merchants who were willing to insure ships and cargoes. In time it became accepted that the most likely place to find merchants who were interested in maritime insurance was at Lloyd’s Coffeehouse. To encourage his customers and to gain new ones, Edward Lloyd arranged to have the latest shipping news always at hand, much as a modern local tavern operator in the United States might post baseball scores and league standings to attract baseball fans to congregate for a beer and a sports discussion—and another beer. To stay ahead of his competition, Lloyd hired runners to bring reports from the docks. This embryonic shipping news service was to develop into a comprehensive collection and publishing service. And the cracker barrel method of transacting business was to change to the precise insurance market of today with its sedulously maintained reputation for seriousness of purpose. But during Edward Lloyd’s lifetime (he died in 1713), marine insurance was still a highly personal business spread willy-nilly among many individuals. Pepys, for example, who did so much to improve the administration of the Royal Navy, dabbled privately and profitably in insurance.

At this stage in the development of marine insurance, agents for shippers arranged to cover risks by seeking out men of substance who could be counted on to meet their obligations. These men were asked to become underwriters, that is, to write the percentage of the total risk they would take, along with their signatures, under the insurance policy. These policies covered the fast growing worldwide trade of England, including that with the New World.

Edward Lloyd had founded his coffeehouse at a time when England, to use a modern phrase, was about to enter its takeoff period of economic growth. The “Glorious Revolution” of 1688 which overthrew James II and brought in William and Mary was followed by the Settlement of 1689 which ended absolutism, ensured parliamentary supremacy, and greatly enhanced the interests and position of the mercantile class. From this time onward, England’s economic rise was extremely rapid, and she subsequently embarked on the industrial revolution well ahead of other nations. At the same time, she achieved a vast empire held together by a Navy and Merchant Marine. Lloyd’s was to play an important role in support of these two elements of maritime power.

Lloyd’s Coffeehouse continued to function in support of growing insurance needs, but in 1769 many of the merchant insurers felt that Lloyd’s reputation as a meeting place was suffering because there was a gambling element among the customers. The group which was devoted to insurance and which valued its reputation induced one of the waiters, Thomas Fielding, to set up a New Lloyd’s Coffeehouse to which they transferred their patronage and which soon overshadowed the former premises.

Since this was a time of rapid growth for insurance of seaborne commerce, space at Lloyd’s soon became a problem and a committee to find better quarters was selected from among the 79 merchants, underwriters, and brokers at the coffeehouse. This was the first committee of Lloyd’s and the predecessor to the important body which today guides its fortunes. The first committee, however, must have had some of the problems of certain ad hoc groups familiar to us all—it was unable to accomplish its main purpose. Despite an impressive sum for the time, 7,900 pounds Sterling, which was paid into the Bank of England by the 79 individuals for the purpose of acquiring an adequate place of business, nothing materialized except plans and schemes. Finally, John Julius Angerstein, not a member of the committee, arranged for rooms at the Royal Exchange where Lloyd’s moved in 1774. This move was significant in two respects. It marked the first of the great contributions of Angerstein, who was to become known as the Father of Lloyd’s for his work in raising the reputation of the organization to a high level despite problems of growth, change, and world crises. It also meant that henceforth the activities of Lloyd’s would be controlled by the customers who wrote the insurance, not by the man who made the coffee.

To this period of growth and development belongs Lloyd’s policy form of 12 January, 1779 which is still in use with only a few changes. As the London Economist points out, a policy today on the contents of a registered letter from London to Manchester might anachronistically state that the policy is “upon any kinds of goods and merchandises, and also upon the body, tackle, apparel, ordnance, munition, artillery, boats, and other furniture, of and in the good ship or vessel called the Registered Post.”¹ But this is not an attempt to preserve the mere form of the past; rather, it is a retention of the useful essence of the past, since Lloyd’s marine policy form has been thoroughly tested juridically and, on the basis of long experience, is known to be dependable and predictable. To emphasize the durability and tenacity of maritime customs, Lloyd’s standard marine policy form is in turn traceable to a Florentine policy of 1523.

Another event in the formative period resulted in a custom which to many has become synonymous with Lloyd’s—the ringing of the Lutine Bell. The bell was originally on the French frigate La Lutine which was captured in 1793 by the British at Toulon. In October 1799 as HMS Lutine, she sailed from Yarmouth with a cargo of specie and bullion to settle commercial obligations at Hamburg. The shipment, valued at 1,400,000 pounds Sterling, was insured at Lloyd’s and became a total loss when the ship went down near one of the entrances to the Zuider Zee.

In spite of representations by a delegation from Lloyd’s, the Dutch government declared the Lutine to be a prize of war. Meanwhile, local Dutch fishermen, happily unconcerned about the niceties of international law, had already seen an opportunity to reap a glittering harvest from the sea. As it turned out, the fishermen had the best chance because shifting sands made salvage increasingly difficult. The enterprising Dutchmen managed to bring up about 83,000 pounds Sterling worth of gold, silver, and coins in the first two years after the sinking, while subsequent efforts over the years have produced a somewhat smaller amount. From the shallow resting place of the Lutine off the West Friesian Islands, someone may yet recover well over 1,000,000 pounds Sterling.

Salvage operations have recovered many interesting relics such as cannon, the watch of Captain Lancelot Skynner (the Lutine's last commander), and in 1859 the ship’s bell which was taken to Lloyd’s. For many years, it was sounded to indicate that an announcement was to follow relating to an overdue vessel. To this day, the Lutine Bell hangs above the caller’s rostrum in the underwriting room at Lloyd’s, but is rung now only for very important announcements—two strokes for good news and one stroke for bad. Popular belief has it that the bell is sounded for every loss at sea, but this was never the case.

While the bell now has a largely ceremonial function, it serves as a reminder that as early as the late 18th century Lloyd’s could absorb a shock of this magnitude. The loss of the Lutine and the other blows of the Napoleonic Wars which Lloyd’s weathered did much to consolidate its reputation for solvency, courage and integrity.

By the time of the crises of the Napoleonic Wars, Lloyd’s was a sufficiently large and sophisticated operation and its news service was so well developed that the former coffeehouse would know better than any other organization, including Admiralty, what was required to protect Britain’s lifelines at sea. Lloyd’s unhesitatingly addressed memoranda to Prime Ministers and dealt directly with the Lords and Sea Lords of Admiralty, as well as commanders afloat.

In 1803, at a time when governments did not provide for war victims, Lloyd’s formally established its Patriotic Fund to do just this. Previously, collections had been taken up informally from time-to-time, but with the creation of the Patriotic Fund, families of sailors killed or wounded while on active service were provided for on a planned basis from funds donated by those connected with Lloyd’s. This established a valuable precedent and although its function is now a normal part of naval administration, Lloyd’s Patriotic Fund to this day continues the work for which it was founded.

The Fund also made awards, often of great value, to officers who distinguished themselves in battle. Nelson, for example, received two elaborate gifts of plate, each worth 500 pounds Sterling; one was presented after the Battle of the Nile in 1798 and the other after the Battle of Copenhagen in 1801. For many years, underwriters, brokers, and friends have repurchased Lloyd’s gifts to Nelson, along with swords, telescopes, and many of his letters. Some of the most striking and significant of these mementos of Nelson and the Patriotic Fund are on display in the Nelson Room at Lloyd’s.

One exhibit of particular interest to naval men is the log-book of HMS Euryalus. At Trafalgar, the Euryalus was commanded by a 35-year-old “prince of frigate captains,” Henry Blackwood, whose skillful handling of the reconnaissance effort against the combined opposing fleets enabled Nelson to come to grips with them.

Beneath colorful murals depicting the British ships which took part in the Battle of Trafalgar, the canvas-bound log of HMS Euryalus lies opened at a page dated 21 October 1805, on which is written what is believed to be the only first-hand record of Nelson’s famous flag signal, “England expects that every man will do his duty.”

Between 1793 and 1815, Lloyd’s had a beneficial effect on naval operations as they related to maritime trade. For one thing, Lloyd’s used its influence with the Admiralty to institute convoys. No doubt Lloyd’s was reflecting the concern of merchants, brokers, and underwriters for premiums and profits, as well as patriotism, when it insisted that merchant ships have signal flags and good sails and when it asked for close co-operation between the Merchant Marine and the Navy. But, intuitively or pragmatically, it was stating that unless both these elements of sea power were looked after wisely, Great Britain could not maintain herself, let alone achieve greatness.

Today Lloyd’s comprises an incorporated society (The Corporation of Lloyd’s) made up of underwriting members. The Corporation exists to provide the buildings in the City of London where the insurance market operates, as well as all the other things that the U. S. Navy would call “housekeeping” and staff support functions. In U. S. Navy terminology, it would be a Headquarters Support Activity. The affairs of the Corporation are regulated by a Committee of 12 elected from among the members. The committee members in turn elect a Chairman and a Deputy Chairman from among themselves. It is a signal honor to be a chairman or a committee member and a great deal of authority and responsibility is involved; still these 12 men are in no sense czars of the Lloyd’s market. The Committee concerns itself with the financial position of the underwriting members, the reputation of Lloyd’s, and the efficient operation of the Corporation’s services. It sets only the broadest policy and normally does not get involved in the day-to-day work of the underwriting members, preferring to encourage the long-established tradition for individual enterprise and unlimited personal responsibility on the part of the underwriters.

In addition to support functions, the Corporation is organized and staffed to provide the vital and timely information needed for making commercial decisions. Over the centuries, Lloyd’s of London has become a world center for maritime and shipping intelligence. This is intelligence in its original meaning—the patient collecting and sifting of information which is available to everyone. Hard work and efficiency are the necessary conditions of this activity, rather than brilliant coups. Information is collected from a wide variety of sources, including Lloyd’s own agents, of whom there are 1,500 throughout the world.

The high drama of day-to-day life at sea is brought out in Lloyd’s complete reporting of marine casualties. During the first three months of 1965, there were 65 ship losses— an average of about five per week—and a great many more ships and cargoes sustained damage. But this is only part of the story; the casualty boards in the “room” may display over a hundred reports on a stormy day.

Less dramatic, but still of significance is the detailed coverage of world wide maritime developments in Lloyd’s comprehensive daily and periodical shipping publications. Lloyd's List and Shipping Gazette, a highly specialized newspaper which is published daily, contains news of general interest to the commercial and maritime communities, full coverage of marine and aircraft casualties, and arrivals and sailings from most ports of the world. Another daily publication, Lloyd’s Shipping Index, gives the latest known position of some 16,000 ships listed in alphabetical order, together with the type of vessel, owner, flag, gross and net tonnages, and when built. There are other publications whose intrinsic worth can be understood from their titles. Among them are: Lloyd’s Weekly Casualty Reports, Lloyds Loading List, Lloyds Shipping Index Voyage Supplement, and Lloyds Maritime Atlas.

The Shipping Editor and the Head of Intelligence have had long careers at Lloyd’s as a result of which they have knowledge and a feeling for world shipping which is almost second nature. Techniques and procedures developed and tested over a long period enable a relatively small group working under them to process the vast input of information and edit publications not only rapidly, but extremely accurately. The entire permanent staff of the Corporation of Lloyd’s numbers about 2,000 and is headed by a chief executive officer known as the Principal Clerk. Like the Shipping Editor and Head of Intelligence who, among others, are part of his organization, he is a dedicated professional who has come up through a variety of positions and derives great satisfaction from being heir to a long tradition.

The raison d'être for the Corporation is, of course, to support those who accept insurance at Lloyd’s—the upwards of 6,000 underwriting members. Each member is personally responsible for any transaction in which he is involved, even to the extent of his personal estate. Under modern conditions, however, only a rare individual could personally shoulder a significant share of the loss of large ship, factory, or jet aircraft. For this reason the underwriting members are formed into syndicates varying from a few to several hundred members. There are now about three hundred syndicates of underwriters active at Lloyd’s. An underwriting agent acting for a large syndicate can take a sizeable proportion of even a huge risk, since he is backed by the resources of many members. Underwriters at Lloyd’s do not deal directly with the public, but only through approved Lloyd’s brokers. These brokers, who number about 220, represent the assured, advise him, and obtain the most favorable possible terms. In the event of a claim, the broker arranges a prompt and satisfactory settlement. An approved Lloyd’s broker need not restrict himself to the Lloyd’s market, but is allowed to approach competitive underwriters.

Lloyd’s is not without problems today, any more than it has been without them throughout its past. For example, a shiver of distaste was apparent at Lloyd’s when the British Government blocked all transfers of funds to Rhodesia after that colony made a unilateral declaration of independence. The default was technical, since the funds which would have been paid to recipients in Rhodesia were put in London accounts for later payment. Nevertheless, members of Her Majesty’s Loyal Opposition raised the issue concerning Lloyd’s in Parliament at question time, implying that failure to pay claims was a black mark against an institution which strives to be the very symbol of British financial integrity.

Today, less than half of Lloyd’s business derives from marine insurance. Aircraft, motor, and other insurance have risen to great relative prominence. And, as one result, Lloyd’s has acquired the reputation of a highly flexible market where anything can be insured. Before the war, a circus owner, in order to gain publicity, offered a cash prize to anyone who could bring him the Loch Ness Monster. The prize was not small and the circus owner came to be concerned lest someone actually produce the Loch Ness or some other monster. He therefore asked a broker at Lloyd’s to see if a policy covering this eventuality could be arranged. One of the underwriters agreed to insure on the condition that if the “monster” were produced it would have to be over six feet long and of a species unknown to the zoological society.

Despite excursions into the unusual and exotic and despite the changing nature of Lloyd’s over-all business, it is still a major factor in the world of merchant shipping. This is not merely because it receives upwards of a billion dollars a year in premium income, but because its methods and traditions are part of the heritage of the sea which all may share.