An explanation of Lloyd’s slips

Lloyd’s slips were originally pieces of paper containing all the details of a risk that would be placed on the Lloyd’s of London insurance market, although today they are accepted electronically. Lloyd’s receipts are documents in a standard format that are intended to help not only the insurer to consider the risks presented to them, but also the policy writer and those responsible for verifying and accounting for the premium. The voucher must be compiled correctly or it will be rejected.

The voucher provides a summary of the risk, but an insurance broker passing the voucher on behalf of the client must be knowledgeable with additional factual figures and have all relevant material available, such as survey reports, maps, plans, detailed records of claims and any other documents or information that may be related to the risk. The insurance broker, when preparing the voucher, must gather a balanced and accurate representation of the risk and should anticipate as much as possible the questions that may arise and disclose it on the voucher. However, if you ask a question that the broker does not know the answer to, it is your duty to say so and consult it for more information. The need to disclose all material facts should always be taken into account when completing a Lloyds receipt.

When a risk needs to be spread across multiple syndicates, for a rate to be agreed that may be acceptable to other underwriters, the primary underwriter, or “leader,” must be trusted by other underwriters. Knowing which leader to turn to first is an important part of the Lloyd’s broker experience, although it doesn’t follow that the first underwriter you turn to will necessarily drive the slip. If large amounts need to be secured and a large number of unions have to participate, there are fewer opportunities for competition. For smaller risks, the broker may find a higher rate or better terms by comparing prices. The main subscriber is not necessarily the one who can write the longest line, although he will normally write a substantial line.

A good insurance broker must be a good negotiator. Tenacity is required, but not to the point that it prevents the conclusion of the business. The objective is to bring the discussion to such a satisfactory conclusion that both the insurer and the broker, together with their client, are reasonably satisfied that the best possible arrangements have been made. There are times when a Lloyd’s broker needs to obtain almost unfair competitive terms. A cooperative insurer can provide them, as long as there is a large part of the business that has been concluded at sensible rates.

After obtaining a potential client (which can be only by a small percentage), the broker must complete the placement. It may be that the risk can be placed using only Lloyd’s underwriters, for which a slip will suffice, but sometimes the size of the exposure may require the use of insurance companies in London or even abroad.

A binding authority or ‘hedge’ provides the hedge holder with the authority to accept risks within the limits and terms set out in the sheet. The brokerage operation here is to negotiate the binding authority, limits and agreed terms. No reference to subscribers is required once the agreement has been established, although the binding authority will need to be renewed annually.

Line slides, on the other hand, do not give full authority to the holster holder. If a risk is to be placed under a slippage, it is normal that the top two or three underwriters have to be seen, and they have to accept the risk and its terms and conditions. The remaining subscribers, however, abide by their agreement under the line slip for their stated proportion.

Once an insurer has signed the proof of acceptance of risk as of a certain date, the insurance becomes effective as of that date. As soon as the placement is completed, the client will be informed and the voucher and its document will go through the policy issuance and accounting process.

The Lloyd’s broker placing the risk may at times be required to negotiate with the insurer regarding a claim. However, with the exception of smaller brokerage firms, it is more common for a special claims broker to be appointed whose sole responsibility is to deal with these items. If the insurer hires loss adjusters or other appraisal and negotiation parties, then it may be the broker’s duty to negotiate with them as well. In the event of a claim, the slip will be examined very carefully.

In the recent past, the slips had to be sent to Lloyd’s underwriting room, but today this would be totally impractical for Lloyd’s to conduct business insurance transactions in this way. Many Lloyd’s auto insurance unions have overcome this problem by allowing insurance broker firms to pass the receipts directly to them. Some of these auto unions have established offices in cities across the country and local auto insurance brokers deal directly with these offices, passing them the slips to complete the deal. This method now allows Lloyd’s unions to easily compete with the large insurance companies on a national scale.