Professional Liability Insurance in the London Market

The fundamental differences between PL insurance from the U.S. when compared to London revolve around process and structure.

U.S. domestic underwriters work for companies based in many different cities (e.g., New York, Chicago, Hartford, Minneapolis, and Philadelphia are common headquarters for U.S. PL insurers). The underwriters themselves may work in a satellite office or remotely, which has become more typical after the pandemic. With these individuals spread throughout the county, the ability to see several underwriters to build relationships and assess options through an insurance renewal cycle can be challenging and usually involves a number of people traveling or calling into virtual meetings.

In London, there is an actual insurance market centered around the Lloyd’s of London building, with its cavernous stock exchange-like trading floor, and surrounding office buildings teeming with underwriters, brokers, regulators, and other insurance professionals. The aggregation of underwriters in the London market is partially due to the sheer volume of insurance business transacted out of London, which is where insurance first began as a business in the mid-1600s and where many global insurers remain based.

While there are also many U.S. insurance companies and offices, they interact and work together far less often than in London, where everyone is working in a tightknit market environment. In the space of a day over a series of meetings within walking distance, a firm can meet dozens of underwriters providing U.S. PL options.
London underwriters value in-person meetings to better understand the risk of a particular firm. While virtual meetings are acceptable, many firms find value in sending firm leaders to London for a few days to meet with underwriters. This process is distinct compared with what is more common in the U.S., and this relational approach fostered by geographic proximity is a key component of the London market.

The different market conditions in the U.S. lend themselves to different insurance placement structures. In the United States, PL insurance is typically placed with a single insurance company for an individual policy. If a firm buys higher limits or needs to increase its coverage in the U.S. market, it will likely purchase more coverage in layers from another underwriter in a separate policy with a different insurer.

These layered U.S. programs often have one insurer per layer and would rarely have more than two carriers sharing coverage equally. Insurer exits from the marketplace have an uprooting impact on their clients, who then must seek out full replacement for a layer. To address this, savvy brokers try to place excess layers with underwriters who are more likely able to “drop down” to primary in the future.

In London, most individual policies have multiple insurers on one placement — a structure known as syndication (the insurers who are formally under the Lloyd’s of London corporate umbrella are called syndicates). Coverage is divided vertically among the syndicates, and every company pays a set percentage of every claim after receiving the same percentage of the premium. A single policy is typically comprised of three to five participants.

Insurers enter and exit the London marketplace similarly to those in the United States, but there is one major distinction: With the syndicated approach to PL insurance, firms are not shouldered with the burden of replacing an entire policy, of say $10 million in coverage, if a carrier exits or they have a mega claim; they may only need to replace one syndicate’s share of 10% to 25%. This enables policy language and coverage rules to stay the same, and the firm experiences little to no disruption in their coverage year-to-year.