South Dakota Crop Insurance Practice Exam

In Lloyd's Association, what is the liability of individual members based on?

1. The total risk exposure they share

2. The portion of the risk they choose to insure

3. The profits generated by the association

4. The number of claims they have made

The correct answer is: The portion of the risk they choose to insure

In Lloyd's Association, individual members, known as "Names," have a liability that is primarily based on the portion of the risk they choose to insure. This means that each member commits to covering a specified share of a risk or group of risks, and their financial responsibility in the event of a claim is determined by that specific portion. The concept is rooted in the idea of underwriting, where members assess and take on risks that they feel comfortable or capable of insuring. In essence, the liability aligns with the principle of shared risk among members, but it is uniquely tailored to the risks they elect to underwrite. This structure allows for a diverse array of risks to be insured within the Lloyd's framework, as each member can selectively participate in different underwriting opportunities based on their expertise and risk tolerance. The other options do not accurately represent the nature of liability in the Lloyd's Association. Total risk exposure, profits generated, or the number of claims made do not dictate the individual liability of members as directly as the risks they choose to insure.