An Explanation of Lloyd’s Slips
Lloyd’s statements were originally sheets of paper containing all the details of a risk to be placed on the Lloyd’s of London insurance market, although today they are accepted electronically. Lloyd’s statements are documents in a standard format that are intended to assist not only the insurer in considering the risks presented to it, but also the policy writer and those responsible for verifying and accounting for the premium. The voucher must be compiled correctly or it will be rejected.
The voucher provides a summary of the risk, but an insurance broker passing the voucher on behalf of a client must be well informed with additional factual figures and have all relevant material available such as survey reports, maps, plans, detailed records of claims and any other documents or information that may be related to the risk. The insurance broker, in preparing the voucher, must assemble a balanced and accurate representation of risk and should anticipate as far as possible questions that may arise and disclose them on the voucher. However, if a question is asked to which the broker does not know the answer, it is your duty to say so and ask for more information. The need to disclose all material facts should always be kept in mind when completing a Lloyds voucher.
Where a risk needs to be shared between several syndicates, in order for a rate to be agreed upon which is likely to be acceptable to other underwriters, the main, or ‘lead’, underwriter must have the confidence of other underwriters. Knowing which leader to approach first is an important part of the Lloyd’s broker experience, although it does not mean that the first underwriter contacted is necessarily in the lead. If large amounts are required to be insured and a large number of syndicates must be involved, there are fewer opportunities for competition. For smaller risks, the broker can find a higher rate or better terms by shopping around. The primary subscriber is not necessarily the one who can subscribe to the largest line, although they will typically subscribe to a substantial line.
A good insurance broker needs to be a good negotiator. Tenacity is required, but not to the point of preventing the conclusion of the deal. The goal is to bring the discussion to such a successful conclusion that both the underwriter and the broker along with their client are reasonably satisfied that the best possible arrangements have been made. There are times when a Lloyd’s broker needs to obtain almost unfair competitive terms. A cooperative underwriter can provide them, provided there is a large part of the business that has been concluded at reasonable rates.
After obtaining a lead (which may be only a few percent), the broker must complete the placement. It may be that the risk can be placed using only Lloyd’s underwriters, for which a slip will suffice, but sometimes the size of the exposure may require the use of insurance companies in London or even overseas.
A binding authority or ‘coverage’ provides the coverage holder with the authority to accept risks within the limits and terms set forth in the voucher. The brokerage operation here is to negotiate binding authority, limits and agreed terms. No referral to subscribers is required once the agreement has been established, although the binding authority will need to be renewed annually.
Line slips, on the other hand, do not give full authority to the titleholder of the cover. If a risk is going to be placed under a line slip, it is normal that the two or three main subscribers have to be seen, and they have to accept the risk and its terms and conditions. The remaining subscribers, however, comply with their agreement under the line sheet for their declared proportion.
Once a subscriber has signed the proof of acceptance of the risk as of a certain date, the insurance is effective as of that date. As soon as placement is complete, the client will be notified and the voucher and their document will go through the policy issuance and accounting process.
The Lloyd’s broker who has assumed the risk may sometimes be forced to negotiate with the insurer regarding a claim. However, with the exception of smaller brokerage firms, it is more common for a special claims broker to be appointed whose sole responsibility it is to deal with these items. If the underwriter employs loss adjusters or other evaluating and negotiating parties, then it may be the broker’s duty to deal with them as well. In the event of a claim, the receipt will be examined very carefully.
In the recent past, vouchers had to be sent to Lloyd’s own underwriting room, but today this would be totally impractical for Lloyd’s to transact insurance business in this way. Many auto insurance syndicates at Lloyd’s have overcome this problem by allowing brokerage firms to bill them directly. Some of these auto unions have set up offices in cities across the country and local auto insurance brokers deal directly with these offices, passing them receipts to complete the deal. This method now allows Lloyd’s syndicates to easily compete with large insurance companies on a national scale.