Lloyd's of London is a little bit more than a plain old insurance provider: it's the institution that underwrites most other insurance companies worldwide; more than that, it's where the whole concept of insurance originated from.

With the rise of the worldwide spice trade and the European merchant navy fleet in the 17th Century, a number of merchants were concerned about the losses they could suffer should one of their ships be lost at sea. Other wealthy businessmen saw the opportunity to gamble some of their money, and offered to underwrite the risky voyage: in other words, on payment of a sum of money (a premium) they would guarantee to cover any losses suffered.

For a variety of reasons, a number of these wealthy underwriters started gathering at Lloyd's Coffee Shop in the City of London, which had opened in 1668. The coffee shop was established by Edward Lloyd who chose the site for his shop so as to be convenient for the merchants who owned the ships. As the shipping trade became more and more important to the English economy, greater numbers of insurers were required, and eventually a business called Lloyd's of London was established to sell maritime insurance.

Today Lloyd's still provides insurance for the vast majority of the world's merchant ships, as well as underwriting the assets of most insurance companies. So if Lloyd's insures the insurers, who insures Lloyd's? Amazingly, Lloyd's itself is insured by private individuals, called Lloyd's Names. These incredibly wealthy people (don't even think about it unless you've got £10 million lying around that you can afford to lose), guarantee to meet the cost of any insurance payout out of their own bank accounts. Why do they make such a magnanimous gesture? Because under normal circumstances they don't have to pay out nearly as much as they get in return.

This system worked perfectly well for a couple of hundred years, but in the late 1980s things started to go wrong. A series of massive insurance claims in the US (amongst other things: class action lawsuits over asbestos, the Exxon Valdez disaster and the San Francisco earthquake) caused Lloyd's to not only pay up all its profits but billions of dollars more than that. The Names were called upon to fund the shortfall, which many claimed would ruin them.

Some of the Names sued Lloyd's, claiming that the underwriters had been negligent when writing insurance contracts and setting premiums. Much of the legal action is still ongoing, and with most of the Names likely to take out of court settlements the true extent of the damage may never be known.

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