sector themselves, they find their factories and real-world businesses starved of investment and their professional skills automated.
Even so, it isn’t really a conspiracy. It is a peculiar twist of the way our economy has become unbalanced towards financial products rather than real ones, and it is a real phenomenon. It is a practical acceleration of the division between two worlds – one where money is infinitely elastic and where mistakes get bailed out, and the world of the rest of us, including the indebted middle classes, for whom money is concrete and unforgiving. There is something about the frenetic generation of outsourcing, streamlining and offshoring, and the whole business of permanent restructuring, that has quietly shifted power and profit away from the middle classes. ‘Instead of democracy widening and deepening as we had hoped,’ writes the eminent Conservative writer Ferdinand Mount, ‘power and wealth have slowly and unmistakably, begun a long migration into the hands of a relatively small elite’.26
When 1 per cent of the world owns a quarter of all the wealth, leaving the middle class scrambling for the crumbs that fall from the rich man’s table, then a different kind of lifestyle becomes necessary. Over the past generation, it slowly began to dawn on the English middle classes – who believed with some reason that the financial service professionals and their institutions were firmly on their side – that it wasn’t like that at all. Something had shifted, very quietly, very dangerously, and actually the signs were there a generation back.
Christopher Stockwell was a successful businessman and property developer. He was the very model of middle-class success, the son of a clergyman and an innovative campaigner for development causes in his youth. But in the mid-1980s he began to be sucked into the peculiar – and now largely forgotten – story of financial incompetence and staggering callousness (and probably worse) at the ancient insurers Lloyd’s of London. Within a few years, he had been made bankrupt, lost his home and found himself at the head of a campaign to unravel what had happened to so many ordinary middle-class families, and get them some kind of redress.
Even now, two decades after the events of the Lloyd’s Scandal became clear, it has a shock value which seems to speak to the plight of the middle classes today. It is somehow the sheer respectability of the families caught up in the scandal that gives it such a peculiar edge, drawn in because they trusted this apparently respectable financial institution, when actually the world had changed.
Stockwell is a tall, imposing presence, six foot six inches in his socks. His upbringing was impeccably middle-class: born in the shadow of Romsey Abbey. As a young man, he was a Labour councillor in Letchworth and one of the founders of the World Development Movement, but he was also one of those people who seemed hardly able to stop himself making money. He had an antiques business, a reproduction furniture business, up to forty properties and much else besides. He describes his property skills as like a sixth sense, being able to ‘see through walls’. ‘I can see the possibilities of spaces,’ he says.
It was also the property boom, as it was with so many other people, that brought him into contact with Lloyd’s of London, which he found had a highly unusual, even archaic, structure. Lloyd’s is made up of a whole number of syndicates, known usually by the name of the underwriter in charge, and each one was supported by a whole range of ordinary investors known as ‘Names’. These Names would need at least £37,500, a third of which would have to be deposited with Lloyd’s, but they would accept a bank guarantee based on the value of your home (£37,500 was worth about £150,000 today). You didn’t have to be rich, and this explained why people whose wealth was almost entirely made up by notional increases in the value of their home became caught up in the scandal.
All this meant that becoming a Lloyd’s Name was within the reach of anyone with some equity in their homes. It was also considered a safe investment. Thousands of ordinary people signed up to become Names after a recruitment drive in the early 1980s. The problem was that the new recruits were actually signing a guarantee that they would underwrite losses as well as profits made by their syndicate. It included the wholly irrational concept of ‘unlimited liability’.
This was a fiction. How could such a thing exist? But the newly recruited Names were assured there was no risk. Nobody had ever been bankrupted and you could sign up for an insurance policy of your own to pay any debts up to £135,000.
‘There they were, sitting on a house which had gone up hugely in value,’ said Christopher Stockwell. ‘They were asset-rich, while their retirement income was going down. They were wheeled around Lloyd’s and the agent got a commission and they would get a five per cent return on the value of their house. It seemed totally secure. This was Lloyd’s, after all, not a bunch of shyster gangsters.’
Stockwell became interested in Lloyd’s as an investment and joined in 1978. The way that Lloyd’s works meant that years had to be ‘closed’, with no more claims expected, before they could distribute the profits. Of course, there might be liabilities to pay for previous years as well – and Names were responsible for previous years before they joined – but, all being well, he would expect his first cheque some time early in the 1980s.
The problem was that all was not well with Lloyd’s. What Stockwell had not been told was that underwriting mistakes were about to threaten the very existence of Lloyd’s – based on a combination of their collective failure to understand how the world was changing, combined with a fatal clubbishness that preferred to shove bad news under the table. Nor had the twenty thousand ordinary Names recruited after 1982 been told either. The establishment had consistently closed ranks to prevent proper regulation of Lloyd’s, and this was about to guarantee financial misery for many of those middle-class investors who had been assured that being a Name might be a good way of helping out with the grandchildren’s school fees. It was also providing a strange dress rehearsal for the far greater banking scandal and collapse in 2008.
The immediate trigger of disaster was the asbestosis insurance claims in the USA, though there were other disasters as well, natural and predictable. Asbestosis should have come as no surprise either to the companies or their insurers. The fact that exposure to asbestos fibres might cause cancer was first noticed way back in 1918 and confirmed in a series of medical studies in the 1920s. But it was a test case in the US Supreme Court in 1969 that made this directly relevant to the Lloyd’s Names and their ‘unlimited liability’.
The case concerned a former asbestos worker called Clarence Borel, and was brought by his widow, Thelma. He had been told so little about the little white asbestos fibres that were to kill him that he used to bring them back to decorate the Christmas tree at home. The Supreme Court found in favour of Thelma Borel, and, as a result, the asbestosis claims began to mount and the ultimate insurers – those with the unlimited liability – turned out to be some of the Lloyd’s syndicates which specialized in reinsurance. In 1979, the US courts ruled that the insurers were liable for all the years between when the workers were exposed and when they fell ill.
Perhaps Lloyd’s could not have reasonably predicted this extension of their liability, or the rise in hurricane damage, though it was clear in the world outside that both cancer liability and climate were changing. But the real problem was how the senior officials at Lloyd’s responded. Exactly who was aware of what, and who was informed of what, was to be the subject of a series of legal actions in the UK, but Lloyd’s bankers NatWest could see, and wrote a warning report – known since as the Armageddon report – about the terrifying implications for their clients. All copies later disappeared. The losses were small by then, but the line on the graph showing their rising impact was terrifyingly steep and getting steeper.
The appeal court ruled later that there had been a gross misrepresentation to the Names, but not fraud, and – although more evidence has come to light since – that is where matters now rest. The decision was important because the Conservative government of John Major had by that stage rushed through legislation giving Lloyd’s immunity for negligence but not for
