World’s Greatest Gambling House—Lloyd’s
NEW YORK TIMES
Lloyd's of London is the one place in the world where every vagary of fate may be discounted in cash. The brokers who gather in Lloyd’s great room in the Royal Exchange will write insurance against every conceivable human contingency or act of Provide ce which can be given an equivalent in pounds shillings and pence, betting on jury verdicts war, lives of monarchs and the dangers of the sea.
A WEEK ago the news was cabled from London that Lloyd’s had written a policy against Harry K. Thaw’s conviction for the murder of Stanford White, agreeing to pay a total loss, if the prisoner is executed, for the consideration of 30 guineas per cent.
This means that the brokers who gather five days in the week from 3.30 to 4 p.m., in the upper floor of the Royal Exchange, London, have deemed the fate of the slayer of Stanford White of sufficient doubtfulness to gamble in. Just as their predecessors m Lloyd's Coffee House in Cheapside, nearly a century ago, gambled on the fate of Napoleon; in 1871, on the fate of his nephew, Napoleon “The Little,” and five years ago as to whether Edward VII. would live long enough to be crowned King of Great Britain and Ireland and Emperor of India.
From a philosophical point of view, all insurance is gambling. On the risk hand is the underwriter betting that a certain thing will happen, on the other hand is the premium payer betting that it will not happen, or vice versa. As the difference between the amount of insurance and the premium widens the moral aspect naturally changes and the element of “protection” subdues all ethical misgivings, and the fact that in the case of a fire, a shipwreck, the loss of a limb, or life, a comparatively large amount of money is received for a comparatively small outlay, has come to be recognized as a modern social necessity .
The placing of insurance against the outcome of famous trials has been a common practice at Lloyd’s since the days when the underwriters first met in Lloyd’s Coffee House in Tower Street, London.
That these risks are taken at the behest of gamblers always, the Lloyd’s men deny, though as early as 1768 an
article appeared in the London Chronicle condemning the coffee house as a “meeting-place for all manner of illicit gaming,” and complaining that bets were made there “under the guise of insurance” on all the happenings of the day, from the outcome of elections to the trials of peers. It is said in defence of such risks as that placed on the Thaw case that thereby is furnished an insurance on the reputation of the lawyers engaged. The legal talent conducting a defence may by this means provide against the damage to prestige involved in an adverse verdict.
An example of the activity of the London underwriters in New York was the insurance taken out last Summer by the managers of the Vanderbilt Cup race on Long Island. It is not revealed what the amount of the policy was or the premium paid, but the risk was against suits for damages arising out of accidents. It can scarcely be contended
that Lloyd’s centuries of experience gave the underwriters any data of value on the relative danger of the Vanderbilt course, and it may be supposed that the premium was high. It will be recalled that it was during this race that the first fatality among the spectators occurred, when Elliott F. Shepard’s car struck a man who had stepped out on the course, killing him instantly.
The business of the Lloj7d’s agency as a corporation is marine insurance purely, but since the seventeenth century days, when the nucleus of the present organization was formed among the frequenters of the coffee house of Edward Lloyd in old Tower Street, the individual members of the group have been willing to take up any risk for a proper consideration. Then the safe return of a ship to port was a gamble at best, and insurance was, little more than a gamester’s business, but in these latter days the members of
Lloyd's, who have reduced marine risks to a science as exact as lire insurance, resent the likening of their trade to the betters, and make claim with some reason that with the experience of mare than two centuries it is possible to discount fate in every branch of human affairs with something like the scientific accuracy of the mortality table.
Of the thousands of odd insurances placed at Lloyd’s, one of the longest standing is that held by a tradesman on the Strand, whose shop stands in the shadow of the Nelson monument. He has carried a policy for a generation against the possible damage to his premises should the monument fall. A certain group of underwriters make a specialty of1 insuring against the calamity of twins or tripiets. This risk, it is claimed, has been reduced to a truly scientific basis, and the premium is arrived at only after a careful consideration of the family history of the insured and other data oci which long experience has proved dependence can be placed.
Another of the legitimate sources of Lloyd's profits is established through the agency’s information of the inside of European politics. During* the South African war it was the general belief in the grain trade that the Czar would issue a ukase against the shipment of Russian wheat from the ports of the Black Sea. After a quiet investigation of the situation, Lloyd’s established a premium rate against the contingency on which thousands of pounds’ worth of insurance was taken out by grain merchants who looked for large trade in Russian breadstuffs with the army in the Transvaal. Lloyd’s information that the ports w’ould remain open proved correct, and the premiums were clear profit.
In recent years one of the largest losses sustained by the agency was through the postponement of the coronation ceremonies at the time of King Edward’s illness. Thousands of stands had been erected along the route of the coronation procession, on which Lloyd’s had sold insurance. The policies were against the prospective profits, and a
rate of from 10 to 25 per cent, had been made on the stands, according to positions, the idea of the underwriters being that only heavy rain would prevent their being filled to the utmost and the gross receipts reaching full expectations. The postponement of the ceremonies fell heavily on the Lloyd’s underwriters, not only because of the losses on the stands, but out of the large number of policies sold to tradesmen on goods laid in against the expected holiday demand.
One item on which the loss mounted into thousands of pounds was the risk on their profits taken out by the dealers in the purple cloth, who had counted. on selling millions of yards tor decorations. The aniline dye used faded so quickly that the cheap cloths were worthless by thè time the coronation finally took place. At the same time Lloyd’s did a thriving business in the sale of policies on the King’s life, a means taken by tradesmen to insure themselves against the heavy curtailment of profits which would have resulted from a period of general mourning in London.
Another wholesale source of gain to the underwriters in recent years was during the smallpox scare in London in 1902. Policies w~ere issued not only against individual infection, but against the losses to shopkeepers in case of quarantine. The panic was widespread and the policies were in great demand at high premiums, against which the losses were inconsiderable.
War and the lives of crowned heads have always been the greatest sources of the Lloyd's policies outside of the agency’s legitimate business of marine insurance. It was during the period of almost continual disturbance in Europe between 1775 and 1815 that the Lloyd’s brokers took their place as the leading underwriters of Europe. Never a cargo went to sea that was not insured against capture, and the success of the British navy in taking care of its own made profits great. In later times, though premiums have gone down with the diminished risk, a war cloud always means money in the pockets of the underwriters. During the Japan
ese-Russian conflict the shipments ot contraband to both parties were inevitably insured at Lloyd’s.
Lloyd’s part in marine affairs is as wide as the seas. The rooms in the Royal Exchange are the news centre of the fleets of the world. There are kept the records of every ship’s master in the service of commerce, and the character of every hull fit to sail the seas The beginnings of the intelligence service which has given the agency its fame and has reduced marine insurance to a science were in the gatherings of men of affairs in the coffee house of Edward Llojrd in Tower Street. The first mention of the little public house appears in an advertisement printed in the London Gazette in 1688, wherein Edward Lloyd offers a reward for the apprehension of a certain tall, dark, pockmarked individual who "had lifted a watch or two. The proprietor himself, whose name is now known to the ends of the earth, wherever ships touch, was not concerned in the gambling business which was then all that marine insurance could be called. His patrons gradually made the place a general exchange for news of the outside world, and in 1692, when the coffee house moved to Lombard Street, the proprietor undertook to gather the intelligence that came to his tables in the form of a printed gazette. In Lloyd's News, which he started about that time, was printed not 011I37 shipping news, but general information, and it was his dabbling with outside affairs that brought down the Government censorship on his little sheet and stopped its issue after a brief existence.
Lloyd’s List, which is the name still retained by the official organ of the agency, was founded in 1726, confining itself wholly to marine intelligence, and the paper continues to this day the oldest newspaper in England except the London Gazette. During the first century of its existence Lloyd’s was conducted without any organization, but in 1774, after a succession of financial scandals inseparable from the eighteenth century fever for bubble speculation and insurance gambling, an association of insurance underwriters
and brokers, calling itself the “ New Lloyd’s,” took up its headquarters in the Ro37al Exchange, the predecessor of the present building, which is as much of a show place in financial London as the Bank of England or the Stock Exchange. The form of policy adopted by these associates continues unchanged to the present da3r but for the substitution of the more prosaic formula of “Be it Known That” for the pious opening phrase of the original form, “In the name of God, Amen.”
The Lloyd’s, after a long period of prosperous underwriting of war risks during the troubled 3^ears between 1775 and 1810, was investigated by Parliament and in 1811 was again reorganized. In 1871 the associates were incorporated for the threefold purpose of “carrying out marine insurance,” “protecting the interests of its members,” and “the collection and diffusion of intelligence and information with respect to shipping.” At about the same time the “intelligence and information” branch of Lloyd’s was separated from the insurance business in the formation of “Lloyd’s Register of British and Foreign Shipping,” whose rating is now the standard of all classification among the ships of the world’s coni'merce.
Marine risks are the one class of insurance officially recognized at Lloyd’s. The underwriting members of the body, who number about six hundred out of the total of 2,500 members, each deposit with trustees upon admission security to the value of $25,000. This fund, amounting in all to about $15,000,000, is the security corresponding to the capital and surplus of an insurance company. It applies, however, only to marine risks, and all of the strange policies issued by the underwriters are backed only by the credit and good faith of the men who underwrite them. Every coast that commerce touches is watched b3r an agent of Lloyd’s, and all the marine insurance companies of the world depend upon the intelligence flashed to London from these outposts and on the information as to vessel and master supplied by the Lloyd’s Regis-, ter. It is from Lloyd’s rating symbol
for the best in hull and equipment that the familiar “A—1” is derived.
Besides the underwriting members, who are the bankers of the association, Lloyd’s has two other classes of members, the brokers who get the business and the subscribers who want information only. At the door of the underwriters’ room is the great register of shipping, in which the history of every registered hull afloat is set down. Not only the dry facts of its condition and worth of hull, but its casualty history, for the luck of a vessel, as well as its material worth, enters into the calculations of the underwriters. Another book contains the story of every skipper in the commercial service, his birth and antecedents, his commands, and what has befallen them. The inexorable register hangs over the head of every master mariner, and he knows that the eye of Lloyd’s is ever watching and that every mishap to his command will be surely recorded against his name in the book in London.
Carefully guarded from the public is the “Confidential Index,” whose contents, too" are a large factor in the estimation of risks. Here the shipowners are tagged and billeted, their financial standing is duly rated, and their past dealings with the underwriters are kept track of. It is in this index, too, that the records of disgraced captains are kept, mercifully removed from the knowledge of all but the members of the agency.
When a broker has a policy to write he takes his memorandum to the underwriters’ room, where they scrutinize it individually and decide how much, if any, they will take of the risk. It is an individual bargain between the underwriter and the broker. Each underwriter is the representative of a group of the underwriting members, who, as has been said, are the bankers of Lloyd’s. These men, after looking over the policy individually, will put down their initials for whatever amount they choose. The broker goes from one desk
to another until the entire amount of the risk has been initialed on the slip. When the policy is made out the signatures of the underwriters are filled in, with the amounts taken, and the members of each banking group also attach their signatures to back up their underwriters. In this way the liability is taken personally by all concerned, and the profits also are divided individually. The security fund of the agency is used only to make good the failures of members, should such occur.
Among the underwriters Those who make specialties of other forms of insurance are well known, and it is these men who take the odd risks, for which the agency is the world’s market. The security for the payment of such policies is entirely a matter of good faith and credit, and Lloyd’s as a body assumes no responsibility.
One of the famous attributes of Lloyd’s is the ship’s bell which hangs above the crier’s rostrum. The news of every disaster at sea or the safe arrival in port of a ship long overdue is announced from this pulpit by the tall, red-cloaked crier of the Exchange. As he mounts the platform the bell is struck for silence, and when this bell, from the old ship-of-war Lutine, is tolled as the crier announces the sinking of a ship or the decision of the board that a vessel long overdue must be lost, under English law all aboard become officially dead. Th# name of the ship and all that is known of the casualty is then put on record in a room which has been given the name of the “Chamber of Horrors.” Hope is not abandoned, however, without taking into account all the contingencies which experience has taught the directors to look for. Unless there have been eyewitnesses to the sinking of the ship, Lloyd’s waits until the owners as well as the committee agree that no hope is left; even then the rule requires that a bulletin praying information of the missing ship be posted for a week before the Lutine’s bell is tolled in signal that losses will be settled.