Quote: "And if Lee doesn't ultimately collect on the policy after the lawsuit, we could see fewer players start taking out loss-of-value policies. If a player has an incredibly hard time collecting on the policy, is it even worth it?"
If there was material misrepresentation on the part of Lee as Lloy'd's claims- that's his own fault, not the insurer.
I didnt know much about it until I interviewed for a job at a Lloyds insurer. Lloyds is not an insurance company, like AIG etc. It doesnt write policies -- it is just a market like the NYSE. There are companies that do business on Lloyds, but they are not Lloyds.
So as far as I can tell, what happens is that a company decides that it wants to be in a line of business, say Sports Insurance. They'll set up the 2015 sports insurance pool, get some investors to throw in money. Then they write policies against the pool investments and premiums. At the end of the year, whatever money is not paid out in claims is distributed as profits (usually they buy a reinsurance policy for claims that come after profits are distributed).
Why does this matter? It means that reputational considerations CAN be a lot less important to a Lloyds insurer than an American insurer. AIG, Chubb, etc will often pay out borderline claims just to preserve their reputation as companies that can be counted on. In some lines the considerations are purely reputational (e.g. D&O insurance, which is mostly for securities fraud claims that are uninsurable). Lloyds underwriters are often a lot more cutthroat, especially when they had a bad year underwritting risk. There isnt a concept of being able to take a loss for a year -- each year is a new pool, with different investors.
If there was material misrepresentation on the part of Lee as Lloy'd's claims- that's his own fault, not the insurer.
You are indeed correct i misunderstood that part about the premium
So as far as I can tell, what happens is that a company decides that it wants to be in a line of business, say Sports Insurance. They'll set up the 2015 sports insurance pool, get some investors to throw in money. Then they write policies against the pool investments and premiums. At the end of the year, whatever money is not paid out in claims is distributed as profits (usually they buy a reinsurance policy for claims that come after profits are distributed).
Why does this matter? It means that reputational considerations CAN be a lot less important to a Lloyds insurer than an American insurer. AIG, Chubb, etc will often pay out borderline claims just to preserve their reputation as companies that can be counted on. In some lines the considerations are purely reputational (e.g. D&O insurance, which is mostly for securities fraud claims that are uninsurable). Lloyds underwriters are often a lot more cutthroat, especially when they had a bad year underwritting risk. There isnt a concept of being able to take a loss for a year -- each year is a new pool, with different investors.