An Explanation of Lloyd’s Slips and how they are used to place Insurance Risks on the London Market
By Dave Healey
Lloyd’s slips were originally pieces of paper containing all the details of a risk to be placed on the Lloyd’s of London insurance market, although today these are accepted electronically. Lloyd’s slips are documents in a standard format which are intended to assist not only the underwriter giving consideration to the risks presented to them but also the policy drafter and those responsible for checking and accounting for the premium. The slip has to be correctly compiled or it will be rejected.
The slip provides a precis of the risk, but an insurance broker passing the slip on a clients behalf needs to be well briefed with additional facts figures and to have available all relevant material such as survey reports, maps, plans, detailed claim records and any other documents or information which may have a bearing on the risk. The insurance broker when preparing the slip, is required to assemble a balanced and accurate representation of the risk and should anticipate as far as possible questions which are likely to arise and disclose this on the slip. If, however, a question is asked to which the broker does not know the answer, it is his duty to say so and refer back for further information. The need to disclose every material fact must always be borne in mind when completing a Lloyds slip.
Where it is necessary that a risk be spread among a number of syndicates, for a rate to be agreed that is likely to prove acceptable to other subscribing underwriters the lead underwriter, or ‘leader’, must have the confidence of other underwriters. To know which leader to approach first is an important part of the Lloyd’s insurance brokers expertise, though it does not follow that the first underwriter approached will necessarily lead the slip. If high amounts are required to be insured, and a large number of syndicates have to be involved, there is less opportunity for competition. For smaller risks the broker may find a keener rate or better terms by shopping around. The lead underwriter is not necessarily the one who can write the biggest line, though normally he will write a substantial line.
A good insurance broker needs to be a good negotiator. Tenacity is required but not to such a point as will prevent conclusion of the business. The aim is to bring the discussion to such a successful conclusion that both the underwriter and the broker together with his client are reasonably satisfied that the best possible arrangements have been made. There are times when a Lloyd’s broker needs to obtain almost unfairly competitive terms. A co-operative underwriter may provide these, so long as there is a bulk of business which has been concluded at sensible rates.
After obtaining a lead (which may be for only a small percentage), the broker needs to 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 necessitate the use of insurance companies in London or even overseas.
A binding authority or a ‘cover’ provides the cover holder with authority to accept risks within the limits and terms set out on the slip. The broking operation here is to negotiate the binding authority, the limits and the terms agreed. No reference is required to the underwriters once the arrangement has been set up though the binding authority will need to be renewed annually.
Line slips, on the other hand, do not give full authority to the cover holder. If a risk is to be placed under a line slip, it is normal that the two or three lead underwriters have to be seen, and they have to accept the risk and its terms and conditions. The remaining underwriters, however, abide by their agreement under the line slip for their stated proportion.
Once an underwriter has signed the slip as accepting the risk from a given date, then the insurance is effective from that date. As soon as the placement is completed, the client will be advised and the slip and its document will go through the policy issuing and accounting process.
The Lloyd’s broker who has placed the risk may sometimes be required to negotiate with the underwriter regarding a claim. However, except for the very smallest broking companies, it is more usual for a special claims broker to be appointed whose sole responsibility is to deal with these items. If loss adjusters or other assessing and negotiating parties are employed by the underwriter, then it may be the broker’s duty to negotiate with them as well. In the event of a claim the slip will be very carefully scrutinized.
In the recent past slips would have to be sent to the Lloyd’s underwriting room itself, but today this would be totally impractical for Lloyd’s to transact insurance business in this manner. Many car insurance syndicates at Lloyd’s have overcome this problem by allowing insurance broker firms to pass slips directly to them. Some of these motor syndicates have actually set up offices in towns around the country and the local motor insurance brokers deal direct with these offices, passing the slips to them to complete the deal. This method now enables Lloyd’s syndicates to easily compete with the large insurance companies on a national scale.