Yale and Quinnipiac universities are 10 miles apart. Their tuition differs by only about 10%. They both offer economics courses. They even use the same textbooks. Yet they are worlds apart when it comes to whose degree is most desirable.
They both illustrate how intangible elements created by branding, innovation, people and ideas can often defy quantifiable measurements such as cost and product features.
This holds true for property and casualty insurance just as it does for the world’s places of higher learning. As a recent ad put it, “Who insures you doesn’t matter. Until it does.”
Wealthy families need to be able to discern between the Yales and the Quinnipiacs of the insurance market, which is why wealth managers should, with the help of qualified insurance specialists, play a central role in assessing their clients’ property and casualty insurance needs.
Advisors reap several benefits from taking the lead on client insurance issues. It helps the practice by strengthening client relationships and underscores the advisor’s role as a source of unbiased, personalized advice. You will also be aligning the client’s insurance with their specific needs, while potentially weeding out insurance agents who haven’t been serving them well.
Unlike wealthy families that cobble together insurance coverage through multiple agents and policies, clients who rely on a lead advisor can better assess whether they’re wasting money on overlapping policies or have liability gaps that need to be filled.
Moreover, wealthy clients simply need special, expert insurance advice because their dependence on liability coverage becomes more vital as their wealth and prominence grow.
The Big Five
Advisors should consider several questions when deciding on an insurance agency. Does the agency have multiple professionals who can assist with service and technical questions or is it a one-man band? It’s important that someone familiar with the client’s account is available whenever help is needed. In that respect, a team of professionals may provide more comfort than a sole operator.
As for insurers, there are five companies in the U.S. that specialize in insuring ultra-wealthy clients: ACE Group, AIG, Chubb, Fireman’s Fund and PURE Insurance. Many Main Street insurance agencies represent one or more of these carriers and may even have a handful of high-net-worth clients. However, they typically serve a broad audience and do not specialize in working with wealthy policyholders.
Agencies that truly specialize in serving wealthy clientele represent all five high-end carriers. They have experience in dealing with issues particular to the wealthy, such as insuring multiple homes and fine jewelry and other valuable collections. They are also adept at dealing with clients who have complex insurance issues.
These insurance firms, through their familiarity with wealthy clients and their lifestyles, typically can provide the intangible element.
Insuring wealthy clients requires a well-educated team of agents with special coverage knowledge and a deep understanding of potential risks. If the insurance is placed with one of the top carriers, these experts can conduct a personal insurance review that can confirm the accuracy of the coverage and verify that the pricing is correct.
Insurance plan modification is often overlooked. Insurance should be reviewed and examined regularly. It is critical to confirm that personal liability limits are adequate, correctly configured and maintained. Among the questions advisors should be considering is, are new trusts and LLC owners of personal and real property included in the liability schedule of the insurance program?
Wealthy families and their advisors must remember to name trusts and LLCs specifically set up to shelter properties and financial assets on the appropriate insurance policies or risk exposing their financial assets to lawsuits. The use of insurance to provide financial protection against potential lawsuits and liability exposures is critical protection for families with established wealth. Too often, affluent clients and their advisors take too lightly the potential expense of a lawsuit and fail to take advantage of reasonably priced excess liability insurance policies.
Advisors also need to evaluate whether personal trusts and other legal entities should be used in conjunction with a client’s insurance. Parties or entities exposed to the risk of loss created by trusts must be protected to avoid unintended financial losses. When property is transferred from the original owner to another legal entity, such as a trust, the insurance policy covering that property must be modified to recognize this change of ownership. To avoid gaps in coverage, the policy must be structured to protect the interests of all parties who have an insurable interest in the event of a property or liability claim. As the use of trusts in estate planning has grown, the insurance industry has developed appropriate endorsements to handle the most common varieties of trusts. It takes skill and experience to accurately assess coverage requirements.
Insurance carriers specializing in serving the wealthy also offer home insurance solutions designed to take tax issues into consideration. An experienced insurance agency will work to identify the parties at risk so that they can properly structure the insurance program to protect both the entity and the individuals.
Don’t wait until your clients have a claim, or an unpleasant situation, to discover that there is a deficiency in the insurance that should have been discussed. When individuals have insurance epiphanies, they seek experienced advisors for help; however, it is often on the heels of a mishandled claim, an inadequate policy or the failure to secure coverage.
Never assume your client’s insurance is adequate until it has been properly evaluated. That way, an advisor should have no regrets about what could have been done in advance to properly protect a client’s assets from a catastrophic event or lawsuit.
Heather Maki is a personal insurance specialist and an advisor at Darton & Co.