By Lindsey Holden
A combination of significant assets and complex lifestyles makes insuring high-net worth (HNW) clients a particularly challenging task for many personal lines insurers. As a company solely dedicated to servicing this clientele, we have witnessed first-hand the unique liability risks that threaten their existing wealth and future earnings. Whether they own multiple homes or employ domestic staff, HNW individuals require innovative policies and services that will make them smarter, safer and more resilient while protecting their financial future.
Insurers must look at the bigger picture when it comes to effectively serving the HNW. It’s not simply a matter of offering higher coverage limits. Instead, insurers looking to succeed in this space must have a deep understanding of the unique needs of, and risks facing, this niche, and be able to deliver specialized products and services crafted to address them. This includes charging premiums that are logical and that reflect the risk of loss a policyholder brings to the insurer. For example, in the average household, the number of cars in a family’s driveway is generally an accurate representation of risk. However, for many HNW individuals, the number of cars they own likely exceeds the number of drivers in the household — sometimes by just one or two and sometimes by many. So, a policy that reflects the number of eligible drivers instead of the number of vehicles is a much better assessment of risk.
At PURE, we recently launched a proprietary tool to help prospective members (policyholders) assess their personal excess liability coverage needs. It provides insight into the elements that increase their risk and provides greater transparency into pricing for various limits of coverage. To offer broader insight on protecting HNW individuals, we’ve identified other common risks that require dedicated coverage options.
High-value collections of jewelry are common among HNW individuals. Whether large and complex or just one precious heirloom, these collections often require dedicated coverage as most homeowners policies typically cap the amount of coverage they provide.
The unique nature of these items requires a policy that is flexible and assesses them based on true risk of loss, not just the highest price the market will bear. An effective evaluation of an HNW individual’s risk must accurately reflect responsible behavior. Factors such as updated appraisals, well-protected home safes and a diversified schedule should be taken into account and afford savings opportunities.
Jewelry is the most common type of personal property to be lost or stolen, with nearly 50,000 jewelry thefts reported in the United States each year, totaling nearly $1.36 billion in losses.1 Effectively insuring these items has led us to simplify and expand coverage under a homeowners policy, with affordable pricing on blanket and scheduled protection and services to assist with in-home appraisals and acquiring new pieces. Added value also comes in the form of recovery and replacement services to help find lost or stolen items or reproduce pieces that can’t be found, because often the true significance of an individual’s jewelry collection transcends its financial value.
Providing concierge-level services are essential to developing the tailored solutions that HNW individuals require. HNW insurers must be willing to continually expand their reach and offerings to meet the evolving needs and expectations of their customers.
As the Internet of Things continues to evolve, the line between cyber and homeowners insurance has become increasingly blurred. HNW individuals often make significant financial transactions digitally and many now own large sums of cryptocurrency, such as Bitcoin. As a result, they are prime candidates for cyber extortion or unauthorized wire transfers. Making matters worse, they don’t even need to be personally involved to be affected. One of our member’s personal assistants received an email requesting they wire $111,000 to finalize the purchase of a boat. The email appeared legitimate. As an authorized user on the member’s bank account, the assistant wired the money. However, the person on the other end of the transaction was an imposter, and the money was quickly lost.
Given the significant increase in and sophistication of cyber threats, HNW individuals need access to specialized coverage and risk management services for a broad range of fraud and cybercrime, including coverage for financial loss resulting from online and offline fraud, services to help assess and respond to cyber extortion threats and coverage to remove malware and reinstall software after an attack.
Excess & Surplus Lines
Prospective policyholders can be denied coverage from the traditional insurance market for a variety of reasons relating to their risk profile. For example, a beautiful home along the coast with stunning waterfront views is also at a significantly increased risk for severe storm damage. Homeowners in this situation will often need an excess and surplus (E&S) lines solution designed exclusively for high-risk profiles. These policies should include coverage options such as guaranteed replacement cost, which ensures the home will be rebuilt in like kind and quality even if the cost to do so exceeds the coverage limit, waiver of deductible in the event of a large loss and a loss prevention allowance to help cover the cost of preventing a loss from recurring.
Domestic Employment Practice Liability Coverage
HNW individuals also often employ domestic staff such as drivers, housekeepers or childcare providers, meaning they also require coverage to protect against injury to staff or wrongful employment allegations. Some insurers may even go a step further to provide crisis management services as a way to preserve the insured’s reputation.
The increased risk factors accompanying the particular lifestyles of high net-worth individuals can provide a challenge to insurers. However, those who consider these differentiators will ultimately succeed in this market. To effectively insure HNW individuals, insurers must be willing to develop the customized solutions necessary to meet their policyholders’ unique needs.
Lindsey Holden is president Eastern Zone, PURE Insurance.
This article initially appeared in the Standard on June 22nd. You can access the news magazine here.