insurance

World's biggest insurer takes on all risks

It all started over coffee.

Three centuries ago, merchants anxious to avoid financial disaster if their ships literally failed to come in met at Edward Lloyd's coffeehouse in London to insure their vessels and cargoes.

Today, Lloyd's of London is the world's biggest insurance market, but maintains a tie to its humble past. It's housed in a shining metallic building some say resembles a coffee percolator.

Its business has changed since 1688. It no longer deals with just ships and the sea, but with space stations, circus elephants, Bruce Springsteen's voice (for $5.6 million), the Loch Ness monster, the Olympic Games, earthquakes in Turkey and terrorist attacks.

Lloyd's covers everything, from Everest expeditions to the top of the world, to the foot of Miss Liberty. They have paid out for natural disasters, shipwrecks like the Titanic and the tragedy of the World Trade Center's fallen twin towers.

Who is Lloyd's anyway?

Its nine syndicates of insurance brokers are all sole traders, called Names. They gamble with their own capital, and are responsible for their own share of profits and losses "down to the last shirt button."

"Not even death ends the unlimited liability of a Name," says Lloyd's broker and mini-Name Edward Patrick-Roberts cheerfully.

"There are 2,800 Names, most of whom are wealthy, but not all are," he explains. "There are a couple of Royals -- Princess Alexander and Princess Michael of Kent, a dozen dukes and earls, a few dozen peers. There are actors, tennis players, publishers and racecar drivers. Names also include about 60 Members of Parliament, including former Prime Minister, Edward Heath.

"As well as the Names, there are more than 34,000 members who also underwrite risks and for the past 30 years, a mini-Name has only had to show about $60,000 in assets, depositing one-third of that at Lloyd's.

"It's not just for the rich and famous any more," Patrick-Roberts says.

Exotic and bizarre

But the rich and famous go to Lloyd's for their insurance. Some of it is mundane, some of it exotic, some bizarre.

"Cutty Sark, the Scotch whisky company, offered a reward of a million British pounds -- about $1.55 million -- to anyone who could capture Nessie, the Loch Ness monster, alive," says Patrick-Roberts, who lives in Scotland. "We at Lloyd's took on the policy to cover Cutty's liability if they have to pay up."

It isn't their most bizarre risk, though. The company covers 100,000 Americans against kidnap by space aliens, with double payment if the kidnap victim is impregnated by the extraterrestrials. Wine tasters insure their palates and 20 members of a "Whiskers' Club" once insured their beards against fire or theft.

The policies of performers are well known. Bruce Springsteen insured his voice for $5.6 million, Angie Dickinson and Jamie Lee Curtis each valued their legs at $1 million. The late great ballet dancer Rudolf Nureyev insured his legs, too: for a then-considerable $304,000.

"We even paid out $100,000 on a life policy James Dean took out one week before his tragic death at age 25," Patrick-Roberts says.

Fashion model Petra Morgan pays $86,000 a year in premiums to insure her breasts. If they are accidentally injured or disfigured, and end her career, her treasure chest will be worth $16 million, earning her a spot in the Guiness Book of World Records for having the world's most expensive body part.

They cover themselves

Underwriters do investigate their risks, said Patrick-Roberts. "When a 20-year-old merchant marine sailor wanted to float from England to France in his bath tub, the underwriter took on the $145,000 risk only after inspecting the tub and getting agreement that the drain plug would stay in place at all times."

Companies routinely insure themselves against the chance of employees hitting big lottery jackpots and walking out, leaving the firm without a staff.

"The usual terms are that a lottery syndicate must win more than $155,000 and the employees must resign within 14 days," said Patrick-Roberts. Employers can claim up to $750,000 to cover the costs of finding and hiring new staff.

Nevada broker Phillip Perry, who handles corporate business for Lloyd's, says that Lloyd's also insures the U.S. Army against having any of its international bases attacked by terrorists. U.S. insurers were reluctant to take on the risk, which covers about a dozen bases.

"We insure only the buildings, but not military equipment or loss of life," Perry says, "and we insure against attacks that exclude chemical or nuclear bombs."

Until the terrorist attacks of Sept. 11, 2001, such cover was virtually free, because the risk was deemed so low. But Lloyd's, who insured the World Trade Center, lost nearly $3 billion in the attack, and have had to look again at the possibilities.

For what the bell tolls

It's traditional at Lloyd's to sound the bell of the sunken vessel Tontine before important news is announced -- one chime for disaster, two for good news.

The bell tolled for the Titanic, for the World Trade Center and for the loss of the space shuttles.

It resonated often for major setbacks in the 1980s as Lloyd's lost $12 billion to hurricanes, earthquakes and claims for asbestos-related deaths. Other giant payouts that nearly scuttled the consortium were a North Sea oil rig explosion and the Exxon Valdez oil spill disaster.

But some policies seem unlikely to bankrupt anyone.

"We do have a few policies insuring the mythical unicorn against death or disease," says Patrick-Roberts. "We insure garden gnomes against theft or kidnap, brides against wedding cancellations, and a grain of rice with the Queen's portrait engraved on it against theft or accidental cookery."

"We can insure pretty much anything," says Perry. "It's just about how much people are willing to pay."

A lot of the wackiest policies are bought as a gag gift. Patrick-Roberts says some 40,000 people have insured against their homes being haunted by ghosts; another 250,000 are covered against a Yeti or Bigfoot attack and 60,000 people have taken out policies against being turned into a vampire or werewolf.

A race track in England paid about $400 to insure all race goers against being kidnapped by spacemen and having microchips implanted.

"The publicity alone was worth a fortune," laughs Perry.

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