Risky Business: An Introduction To The London Market
10 min read
You may have heard that London is financial capital of the world. It is home to important institutions
like investment banks, hedge funds and the London Stock Exchange. But it is also a global hub for
another important financial instrument: insurance. The insurance market in London has revenues over
£75bn annually 1 and it plays a crucial role in the world’s economy. It protects individuals and
businesses from financial loss. It also covers the most unique and obscure risks in the world. The
London Market is where you can buy alien abduction insurance and where popstars insure their voices
for millions of pounds. It covers satellite launches and has paid billions of pounds in claims after
terrorism attacks and natural disasters. In this introduction, we will explore what risk is, how insurance
works, and what careers you can find in the London Market.
The City of London is home to one of the world’s most important insurance markets
What is risk?
Before we venture into the London Market, first we need to understand the concept of risk. We can
define risk as:
The possibility of harm, damage, or loss.
The world is full of uncertainty and it is exposed to potential accidents and outcomes every day. Risk
constantly looks to the future – both the immediate and the distant – and defines the probability of
danger. Some risks are easy to identify. However, other risks can be difficult to imagine. Covid-19 is a
great example for exploring the complexity of risk 2. What are the risks of this contagious disease? Why
is it riskier for some people than others? How do these risks affect our behaviour? And how does our
behaviour affect these risks? How have the risks of the disease evolved and changed? Or have these
risks always been there and we are now just aware of them? Are there other risks we don’t know
about yet? It can be quite mind boggling, but we should never be constrained by the countless
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possibilities risk conjures up. There are numerous ways of managing risk and one important way of
mitigating the economic impact of risk is through insurance.
What is insurance?
Insurance is an important form of risk management. It is a financial product which provides protection
against uncertainty. It is a contract between an insured (the person or business buying the insurance)
and an insurer (the company accepting the transfer of risk). This contract will have specific terms and
conditions, but ultimately it ensures that if the insured suffers harm, damage, or loss, the insurer will
pay an agreed amount of money. The risk remains the same, but the economic consequences of the
risk should be less severe for the insured.
Here are a few examples of risks which insurance can provide financial protection against:
• Accident • Negligence
• Fire • Theft
• Flood • Disease
• Storm • Disablement
• Earthquake • Death
How do these risks affect different people or businesses? How predictable are these risks? How much
should an insured pay to cover these risks? How much should an insured receive if they suffer loss,
damage, or harm? How is this all calculated by an insurer? How does insurance actually work!?
How does insurance work?
We can answer some of the questions above by thinking about a mobile phone and the risks which
can affect it. A mobile phone can be a precious item for many personal and financial reasons. What
risks are there to the owner of mobile phone? They could lose it, they could accidentally damage it,
water could damage it, it could be stolen, the phone could stop working unexpectedly, or someone
could run up expensive calls without the owner’s permission. If the owner decides that they cannot
afford the uncertainty of these risks, they might decide to buy insurance and transfer the potential
cost of these risks to an insurer.
As an insured, the mobile phone owner will buy an insurance policy from an insurer. An insurance
policy will usually last one year and the money the insured pays for the insurance policy is called
premium. The premium is a technical calculation made by the insurer which factors in the risks the
insured wants covered and the cost of the mobile phone. The insurer takes this premium, adds it to
premium it receives for other insurance policies and creates a pool of money.
If the insured does suffer a loss during the policy period, then they submit a claim to the insurer. The
insurer then uses the pool of money to cover the cost of the claim. They may pay to repair, replace,
or reimburse the insured.
If the insured doesn’t suffer a loss during policy period, then the premium may be used to pay for
other claims the insurer receives from other insureds. At the end of the policy period, the insured then
decides whether to renew their policy and the process starts again.
If the insurer collects more premium than it pays out in claims, then the insurer makes a profit. This is
the simplest business model of an insurer.
Insurance Loop
Risks:
Self-insure
• Loss
• Accidental Damage
Mobile Phone • Liquid Damage
• Theft
• Mechanical Breakdown Insurance
• Unauthorised Calls
Repair Loss, Damage, or
Harm
Replace
Policy Period
Reimburse
No Loss
The risks affecting a mobile phone are limited. They affect one object for one person. However, the
principles of this example apply to all forms of insurance. What happens if we consider the risks
affecting a large company like Amazon? What insurance does Amazon buy and how does Amazon buy
insurance? The risks for Amazon are much greater and broader than those affecting one mobile
phone. Therefore, Amazon’s insurance requirements are more intricate and complex. In turn, this
demand has created specialist insurance.
Specialist insurance
Amazon has revenues over $280bn a year 3,
300 million active users 4 and services
customers all over the world. Immediately we
can see that there are numerous risks to their
customers, employees, shareholders,
suppliers, distributors, products, physical
assets and digital assets. Even Amazon cannot
absorb the financial consequences of all these
risks, so it requires insurance on a large and
complicated scale. Unsurprisingly, Jeff Bezos
does not buy this for Amazon himself, but
Amazon will have a dedicated risk
What risks affect drone delivery?
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management department which buys specialist insurance through an insurance broker from the
insurance market.
An insurance broker represents their client and ensures that their insured gets the insurance they
need at the best price. An insurance broker has exclusive access to the insurance market. They
negotiate with different insurers over the risks covered by the insurance policy and the amount of
premium the insured must pay. They also manage and negotiate any claims for the insured. An
insurance broker will earn a fee or commission for these services.
Insurers in the insurance market receive premium, and pay claims, for a diverse range of risks. The risk
of financial loss is called liability. The process of an insurer accepting liability is called underwriting.
Since insurers underwrite liabilities of companies like Amazon, insurers play a crucial role in the health
of the world economy 5. One of the world’s most important insurance markets is on our doorstep in
the City of London and the London Market covers some of the world’s most complex risk.
The London Market
The London Market has a long, albeit tarnished 6, history which started in a coffee shop on Tower
Street in 1686. Sea shanty singing sailors, merchants, and ship owners would meet there, sharing
reliable shipping news and underwriting their marine liabilities. This has evolved into an £84bn
insurance market 7 and as well as shipping, over 150 insurers cover everything from energy
installations to aviation, space programs to construction projects, film stars to fine art.
The Underwriting Room at Lloyd’s of London, where brokers and insurers negotiate some of the world’s most obscure and
complex risks.
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The London Market underwrites liability for obscure and unpredictable risks such as cryptocurrency
theft, kidnap & ransom and terrorist attacks. Famously, Rihanna has insured her legs in the London
Market for $1m 8, food critics have insurance policies for their taste buds and Mariah Carey’s voice is
covered for $35m 9.
The London Market has also underwritten and paid billions of pounds in claims for catastrophes such
as the Deepwater Horizon oil spill in the Gulf of Mexico 10, the 2011 earthquake in Japan which
triggered a tsunami 11, and the recent California Wildfires 12. Other high-profile claims have included
the sinking of the Titanic 13, the Hatton Garden Heist 14, and the unexplained disappearance of
Malaysian Airlines Flight MH370 15. It may also have to pay up to £3.5bn in coronavirus-related
claims 16.
Damage caused by earthquakes can have Compensation for the Deepwater Horizon oil spill has cost
widespread and devasting effects nearly £47bn
The London Market is its own ecosystem, which helps spread the many risks facing the wider
economy. Brokers and insurers trade in risk and use their expertise and experience to cover
catastrophic, emerging, or intangible threats to their insureds. The London Market must constantly
adapt and look forward. It must ensure that the insurance it underwrites will protect against the
possibility of harm, damage, or loss, but also ensure that there is enough premium to cover every
claim. Insurance has a long tradition in our capital city, and it has created a multi-billion-pound
industry on our doorstep. In turn, the London Market offers a wide range of career opportunities and
entry level roles for those interested in risk.
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How has climate change affected the risk of wildfires?
What can individuals, businesses, and the insurance market do to mitigate these risks?
Careers in the London Market
We can split the London Market into 6 key areas:
1) Broking
o advise and represent clients’ insurance interests
o negotiate with insurers
o secure the best terms and price for your client
2) Underwriting
o accept risk on behalf of insurer
o set policy terms and premium required
o generate revenue and profit for insurer
3) Claims
o manage and pay claims for insurer
o sometimes complex claims must be negotiated
4) Business Operations
o support functions for broking, underwriting, or claims
o ensure operational efficiencies and competitive advantages
o develop and nurture people within the business as well as its processes
5) Tech
o disrupt the traditional insurance market
o innovate new processes, products, or markets
o enhance the insurance value chain
6) Regulatory / Legal
o preserve the integrity and fairness of the insurance market
o resolve any disputes
o create, test, and adapt regulation to strengthen the insurance market
It is important to note that there are various entry points into the London Market and each person
you meet will have had a different experience. You do not need to have gone to university and got a
specialist degree. You do not even have had to studied maths beyond GCSE. Naturally, there will be
different entry points for school leavers and graduates. Starting salaries will range from £22,000 to
£35,000, plus the prospect of an annual bonus 17. Insurance is also a global industry. London may be
an important hub, but a career in insurance can take you worldwide. You could have meetings with
international clients or trade in other markets such as New York, Singapore, or Bermuda, as well as
emerging markets.
Academic success can be important to starting any career, but commonly employers in insurance are
looking for candidates to demonstrate key skills which are specific to the job role and career
progression.
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Skills
The skills required for an entry level role in the London Market as broad ranging and bespoke to each
career. However, the most common skills that employers look for are as follows:
• Relating and networking – building and maintain strong relationships
• Adapting and responding to change – accepting new ideas and make positive use of the
opportunities change presents
• Delivering results and meeting customer expectations – high standards of quality and focusing
on customers’ needs and satisfaction
• Commercial thinking – analysing and evaluating information to make smart and informed
decisions
• Creating and innovating – producing new ideas, thinking outside the box, and seeking
innovative solutions to problems
• Achieving goals and objectives – working hard to improve and achieve goals
What next?
If the insurance market sounds interesting to you, then there are a few steps you can take to develop
it into a career.
1) Build your understanding
What specifically has interested you? Is there a particular area, skill, or process that caught your
attention? If so, indulge that curiosity! You can start your research by using some of the resources
below. Be guided by what grabs your attention and allow it to start building a picture of the insurance
market. This will spark more questions for you to explore, whilst demonstrating you have a genuine
interest.
2) Develop your skills
Can you think of any examples where you have demonstrated any of the skills above? Sometimes they
can be hard to acknowledge yourself, so ask friends, family, teachers, coaches, or other people in your
community. You’ll be surprised at how many of these skills you have already. Some of these will be
developed with experience and career progression, but many you will already have from your
schoolwork, social life, hobbies and other interests.
3) Build your experience
The next step is to focus your understanding and skills on the insurance market. There are insight
weeks held by brokers and insurers, as well as some wider market bodies. Each provide work
experience and content supporting this development.
4) Apply for opportunities
The final step is to apply! These may be internships, graduate schemes, or entry level roles. Using your
detailed understanding, specific skills and specialised experience, you can be confident about your
prospects of starting a career insurance. And if it doesn’t happen first time, keeping trying! This is a
significant part of the process and you will understand yourself better. If you’re ever in doubt, go back
to the first question: what specifically sparked your interest? Has this changed for you?
Resources
There are some great online resources for you to explore insurance further.
@londoninsurancelife – this is a social media account for entry level opportunities in the London
Market.
[Link] - this is written in
partnership with the Chartered Insurance Institute. It explains specific roles and requirements for
various roles in insurance.
[Link] - this is an interactive explanation of risk and insurance. It
also has interview tips and insurance specific career advice.
[Link] - this organisation is running virtual work experience programs through
Easter, Summer and Autumn 2021.
[Link] - Lloyd’s of London represents a significant
proportion of the London Market. It offers work experience, apprenticeships, internships, and
graduate schemes every year.
[Link] - this is a careers advice service, which has a number of career profiles,
insights and work experience:
Underwriter - [Link]
Broker - [Link]
Claims - [Link]
Loss Adjuster - [Link]
Risk Surveyor - [Link]