The Lloyd's of London insurance market announced a plan yesterday to limit the potential losses of its members, a fundamental departure from the way the 304-year-old institution has done business.
Until now, Lloyd's has gathered its capital from wealthy individuals, known as "names," who have pledged their entire fortunes to pay off claims. Many members have been hit by huge losses recently, and many have filed suit and publicly criticized the market.
At a news conference in London, Lloyd's Chairman David Coleridge said that beginning Jan. 1, losses of names would be limited to 80 percent of the insurance premiums they agreed to accept.
For example, if a member agreed to accept $1 million in premiums and then had to pay out $1.8 million to cover claims, Lloyd's would then pay for additional losses. That payment would be covered by a fund of contributions from Lloyd's members.
"This is historic," said John Snyder, a senior vice president at A. M. Best, one the leading insurance rating services in the United States. "The intention is to stop the loss of confidence, which is seriously threatening the future viability of Lloyd's."
In January, a Lloyd's advisory task force recommended a higher loss limit of 100 percent, but after months of bad publicity, reports of continued losses and worries about ebbing public confidence, the market's governing council determined that the lower limit of 80 percent was "more appropriate."
The plan will limit the losses of members in the future, but Mr. Coleridge said the market's council had determined that Lloyd's could not afford to limit losses members sustained through 1992.