High net worth: Staying on top

The financial crisis appears to have done little to slow the growth of the high net worth sector in the UK. Most estimates put the size of the market at around 500 000 individuals, although Wealth Insight says the figure may be as high as 675 000.

This could be partly because equities struggled during the credit crunch, meaning many wealthy investors sought alternative, less traditional assets in which to invest, such as jewellery and fine art.

However, this popularity has caused an influx of new entrants to the HNW insurance market including banks and direct providers, threatening the dominance of intermediaries – the traditional market leaders. Retailer John Lewis led this influx with its Greenbee product, which was launched in 2007 and is underwritten by Sterling Insurance.

By early 2011, the retailer had been joined in the HNW market by Direct Line, as well as banks including Coutts, Natwest and the Royal Bank of Scotland, proving the popularity of the marketplace for providers.

“It has always been an attractive market because you have very good customers,” says Justin Gott, head of Hiscox’s art and private client business. “What we are seeing now is a lot more awareness of the size of the market. We talk about half a million people as the size of the HNW market, but we estimate that only 20% of those are insured with a ‘true’ HNW insurer. The rest are shared between banks, consumer brands, direct providers and big composites.”

Markham Private Clients managing director Giles Greenfield says client relationships provide the main incentive for banks entering the market: “The likes of Barclays Wealth or HSBC want to find different ways to round out that relationship with the client. Insurance may be a small part of their business, but the concept is to provide all services to all clients.”

However, some of the HNW market’s popularity may be due to the mistaken belief that the high premiums it attracts – the average is around £5000, but it can go into six figures and above – equates to profitability. John Sims, head of AIG UK’s private client group, says: “One of the popular misconceptions people have is that there are very high margins in the HNW world. The challenge with our business is that it’s very high touch, so it tends to be an expensive type of business to service.”

Much of the sector’s growth has been fuelled by the property market in London and the South East, which has seen foreign buyers enter the market. This makes operating in the HNW market attractive for insurers and brokers alike. Home & Legacy MD Barry O’Neil says: “People come in and buy property and they need insurance, but the people they have bought the property from retain the money in the UK. In addition, we have some impact from foreign-domiciled clients that are becoming clients of ours in the UK.”

But while insurers and other providers such as banks are benefiting from the HNW market growth, it is a different story for brokers. Between 2008 and 2012 the HNW home insurance market saw a 41% increase in the number of providers – but just 75% of the market is using a broker, according to Defaqto.

International opportunities could be key to helping HNW brokers re-establish their dominance in the market, according to Greenfield: “The key thing we are seeing in the UK now is more international money. Around 15 years ago the UK HNW market was very much UK clients, but now there are a lot of non-doms relocating here and they have homes in the UK as well as worldwide. That is a rapidly growing market that the direct providers and banks can’t really cater for. Only brokers can service that type of market.

“The crux of this is that, at the top end of HNW, there will always be a position for the brokers that offer advice. Direct entrants and the like will kick in at the lower end of HNW and mid net worth because it is more commoditised at that level.
“It is really about relationships at the top end of the market. The client will call their broker morning, noon and night and expect a response – and at the top level that happens.”

Greenfield points out if a client banks with Barclays Premier and they phone the bank, they are still going through to a call centre. He adds: “In the HNW insurance market, brokers will answer the phone within three rings and you will be speaking to the right person. The clients have our mobile numbers – it is that level of service. It is a concierge service that clients require at the top level. You have to provide that, and banks just can’t.”

O’Neill agrees that HNW clients – particularly considering the sums insured – are always going to need the attention of a specialist broker. “The biggest difference between the specialists and the general market is being able to recognise the habits of a HNW client, particularly where they have multiple properties and a busy lifestyle,” he says. “It is where you need to understand the security that is appropriate for a property. It is the ability to underwrite the risk in the context of the client’s lifestyle that differentiates the specialists.”

HNW practitioners say their clients tend to be cash-rich and time-poor, and that they can be very demanding. They want “simplicity, flexibility and certainty”, according to Gott, who adds: “If you don’t use a broker you won’t get that, because you have to make your own decisions. It is unclear until you have a claim that what you have bought is going to do what you expected it to do.”

Hiscox is in an unusual position in terms of the differing capabilities of brokers and providers, as it writes HNW policies for both broker-led clients and direct business. So how does it maintain acceptable standards through both channels? “We have an internal customer training centre,” says Gott. “The training of those people is top class and so is the advice they can give. If there is a claim, the loss adjuster used is the same as it is for our broker-led customers.

“But what you also tend to find is that brokers’ real value comes when people show complexity in their insurance needs. We draw those people out and hand them off to brokers. Our direct business has actually become quite a good support and new business engine for a number of our biggest brokers.”

Claims crucial
Distribution is, of course, only one part of the insurance picture, with the ultimate product in all forms of insurance being the claim. Gott continues: “When it comes to claims, brokers are absolutely critical. That’s probably where they demonstrate their value more than at any other time. A broker will have a personal relationship with that client and will help them settle that claim in their best interests.

“The reason these other markets [such as banks and consumer brands] have a share of these customers is that it’s only really when something goes wrong that people start looking around for alternatives to brokers.”

Brokers can also add value in terms of providing add-on services such as loss recovery insurance, which acts as an extension of a broker’s claim department. Lorega MD Neill Johnstone says: “Traditionally, loss adjusters are appointed by the insurer to act on the insurer’s behalf. So, while they help the claims process, they tend to err on the side of the insurer. But our insurance product pays for the fees of a chartered loss adjuster to work for the policyholder.

“Our loss adjusters get to the site quickly, typically within 24 hours, and they fully project-manage the insurance claim on behalf of the policyholder. They will prepare, submit and negotiate the claim with the insurer or its loss adjuster.”

Areas of opportunity
International reach is another area where brokers feel they can differentiate themselves in the UK HNW market, particularly at the top end where clients may live international lifestyles or be domiciled elsewhere. Access to global insurers such as AIG and Chubb is vital if a client requires a one-stop shop for worldwide cover.

Greenfield explains: “London has become a hub of uber-wealthy clients who are coming in and buying property although they have homes elsewhere. The UK market is changing because of those demographics. There are only two underwriters that can service clients like that, so [the clients] are restricted in who they can use. There’s no way they are going to go to a direct insurer, as it is too complex.”

Another advantage for brokers is that they can use data they already have on clients to sell them cover in different classes of business. “The biggest opportunity for brokers is the cross-sell, and you’re starting to see some brokers doing it very well,” says Sims. “There are a couple of major London brokers that have invested heavily in a HNW division, specifically to go after people for whom they already write professional indemnity or kidnap & ransom cover, for example.”

This is an area where technology also has a role to play for broker and intermediary alike, says Jason Moseley, head of e-trading at SSP: “There are going to be entities within a broker’s database that it is not even aware of – or people who are not even aware they are a MNW or HNW client.

“There is a great, untapped wealth right on brokers’ doorsteps that they could utilise. Big data allows you to target those people and market them for HNW carriers. If you have a medical student who takes 10 years to become a doctor, they are moving from the student lifestyle into wealth. Over a short period of time they acquire wealth, but their cover might not fit that.”

Technology also has other benefits, such as reducing distribution costs and improving data sharing between insurer and broker. Moseley adds: “The key thing from the technology perspective is the availability of data, and sharing that data between the source of the request and the recipient. It is about the insurer being able to understand that risk and respond efficiently to the request.

“That shouldn’t dilute the service a HNW client expects. It is not about taking away underwriter control, but allowing them to concentrate on the risks that need to be reviewed. Where there is a portion of business that can be on the ‘no touch’ model, allow it to be no touch. But enable other types of risk to be reviewed by the underwriter and support additional conversations between the underwriter and the broker.”

One major challenge for HNW insurers and brokers alike is finding strong employees with the right knowledge to service the clients. Greenfield says: “There is a dearth of good staff, and that is a challenge for brokers and insurers. Because of this, it is quite tricky for new entrants to get the expertise they need. It is not a complex business, but you do need staff who know what they are doing and know how to cater to these types of clients.”

For firms that can find the right staff and provide the required service, the HNW market’s future is bright – and despite a current lack of take-up, this applies to brokers as well as insurers. As Gott says: “HNW specialists have always offered an exceptional service, and brokers are crucial to that service.”

This article was published in the 21 November edition of Post