High Net Worth: Getting what you pay for?

A hand holding a bunch of 50 pound notes

Premiums in the high-net-worth space are huge compared with an ordinary household policy, but what can brokers do to assure their clients are paying the right price?

In exchange for the premiums high‑net‑worth (HNW) individuals pay to protect their homes and assets, they seem to get more out of insurers than the average Joe.

Possessing high levels of wealth and assets grants them VIP status in this industry and, as such, price comparison engines might short‑circuit if a wealthy person were to input their assets – which is why most HNW individuals turn to brokers for their insurance needs.

But for brokers and insurers alike, the challenges posed by this client base are changing, and firms are having to respond in kind. In June, for example, Zurich launched a home policy aimed at the UK’s wealthiest individuals. The policy increased tenant liability from £2m to £10m and added cover for unlimited energy expenses, as well as providing valuation services from auctioneers.

Matt Schofield, head of Zurich Private Clients, told Post the reason for introducing this new product came from a realisation of the need to cater for different types of HNW individuals.

He explains that Zurich employs an individual approach, in that it uses a client’s content as a proxy to categorise these individuals, but adds that flexibility of coverage is equally as important as this personalised approach. The company is combining both approaches in order to “firmly position itself in the HNW space”.

“Our customers want bespoke flexible underwriting, a good claims service and they are increasingly demanding a wraparound product,” Schofield adds.

Similarly, Clare Pardy, fine art and heritage development director at Ecclesiastical, says: “Most insurers are trying to find ways to broaden the cover to suit trends, which demonstrates that the HNW market is flexible. The most successful insurers in this area are those that give a professional service – the key is understanding the needs of your clients.”

Pardy also observes that most clients want to know the person underwriting them understands their lifestyle and that, if it comes to a claim, it will be paid – although, unlike the majority of insurance sectors, lack of confidence in insurance paying out is not something that has plagued HNW, according to John Sims, head of the private client group at AIG.

Sims finds that although the general public has a fairly low opinion of insurance companies because they feel firms look for ways to not to pay claims, with HNW insurers most of the policies don’t have any warranties. He says: “If you don’t turn your burglar alarm on when you go out, you’re still covered [by a HNW policy]. The claim would still be paid. We wouldn’t be thrilled, but that’s where it’s different from a standard insurance policy.

“We’re not strict at all about the claims side of things but we are strict about is making sure we have the right customer in the first place. We visit the homes we insure and make sure we get to know the clients well. We do this because we want to see what the true exposure is.”

As James Guthrie, head of broker development at Sterling, says: “The recession may have prompted awareness around asset protection. This has certainly made brokers work harder to retain clients who are being drawn to cheaper, mainly inferior products that are usually sold direct on a non‑advised basis via aggregator websites.”

Improving service
Others agree the HNW demographic is becoming increasingly price‑savvy, which has meant insurers and brokers in the space are upping their game in terms of service. John Finnigan, Infinity Agency’s underwriting and executive director, agrees there has been an increase in consumer knowledge – and the subsequent competition between insurers has resulted in clients demanding broader coverage from their policies, a better service and a hassle‑free claims approach.

He says: “While the challenging economic environment in recent years has had less of an impact on HNW individuals, customers within this space still want policies that provide value for money – and insurers must recognise this.”

Steve Hook, director of Bluefin’s private client division, says HNW insurers have consistently competed with each other on cover – and each has only minor advantages. “Unless someone comes up with something unique that, from a value perspective, is significantly different from the competition, it comes down to the fact clients don’t like change. They tend to stay with the same broker – the retention rate is much higher than within the general insurance marketplace,” he says. “There is very little difference between the high‑end products today. Almost all the insurers promote the quality of the product based on the claims service they use.”

Regulatory environment
Aside from a more aware client base, the other factor impacting how the HNW market operates is regulation. The environment appears to be changing for HNW policies across the board with regard to the exclusion of council tax Band H properties – worth £320 001 or more – from the initial Flood Re agreement, although this looks set to change following a U‑turn from the Association of British Insurers.

As a result of the potential exclusion plans HNW insurers have been encouraging clients to have water‑preventative work done to make their premiums more attractive. Sims explains AIG planned to send out a weather warning to HNW clients in areas that might be affected and contact them offering help.

“We put up sandbags and inflatable walls because that’s the preventative side of what we do,” he says. “One client was away on holiday and we went round and did that for them. It’s about targeting the right customer and what they expect from their insurer. Offering to help if there’s likely to be an issue goes down really well and it’s borne out of the feedback from clients when we get them to rate our service. It really comes down to the service and the attitude behind it.”

Five ways for HNW clients to avoid underinsuranceWater damage is a “big‑ticket item” at AIG and the firm advises clients to install water‑leak detectors that cut off the main water supply if a burst pipe is detected. HNW clients who fit these detectors pay lower premiums.

This more tailored approach to flood prevention for HNW properties is also popular at Sterling, with Guthrie saying: “Sterling now offers a benefit to fit leak‑prevention detection devices on both Executive Home and Executive Plus policies where the client has suffered an escape of water in excess of £20 000.”

All this suggests HNW insurers are adapting their home policies to make them flood‑friendly, indicating the initially planned Band H exclusion would have been less of an issue had it gone ahead.

But Barry O’Neill, managing director of Home & Legacy, says it is “unfair” that Band H properties were set to be excluded from Flood Re when properties in Band G are just as much at risk. 

“It’s outrageous. It’s just unfair that these clients [may] be paying into the fund and [potentially] not receiving any benefit from it. It should never have been excluded, in my opinion. Many of our clients are in Band H properties and most are not in flood areas. The issue will only be for clients who are in Band H properties in a non‑flood area.”

He continues: “There [has been] some uncertainty over how insurers would deal with Band H properties in flood‑prone areas and we want clarification, but we’re still a year away from it going live. We will discuss each case with our insurer panel before Flood Re goes live to ensure we have the best cover available for our clients.”

Evolving processes
And as policies change, processes need to change too. Hook thinks brokers will move to an online transactional model – but firmly believes the broker will still have a place in the market. He predicts that “as technology grows more flexible and more capable, brokers will develop their own portals”.

“The portals will upgrade records of a client’s policy, and clients will be able to review their policy details online, look at claims and receive renewal invitations, and they will understand what they’re paying for,” he continues. “Forward‑thinking brokers will be developing their servicing platforms.”

Finnigan believes the future represents opportunities for brokers: “The future is bright for this sector. We are seeing the number of HNW individuals rising each year and this presents a number of opportunities.

“As in all industries, technology is very important and moves quickly. Brokers and insurers need to make sure they are ahead of the curve or at least constantly up to speed with the latest developments, whether they be social media, apps or having a streamlined back office.”

But Sims suggests brokers may be on borrowed time. “I don’t think many of the next‑generation clients would necessarily use a broker,” he says. “They’re so used to doing everything on the internet. Brokers need to think five to 10 years ahead and offer the same sort of service but through different mediums. What are they doing to capture these new clients?” Only time will tell.

Protecting your bottled-up investments

Common oversights
Don’t assume a collection is protected under the household policy. Most home policies specifically exclude cover for perishables and fragile goods, such as wine.

Don’t store a collection in the garage. Gas and exhaust fumes can permeate the cork, causing spoilage. 

Keep an up-to-date inventory. Inaccurate inventories can leave the collection open to theft and undervaluation. 

Connect the wine cellar to temperature and moisture alarms. Catching dramatic changes to cellar conditions can avert a major loss.

Advice
Insure a wine collection with a blanket policy with one overall limit. Blanket coverage is the best choice for the vast majority of collectors. They give flexibility to add and remove bottles without having to notify the broker or the insurer – unless the value of an individual bottle exceeds the limits under the policy.

Alternatively, if customers own high‑priced bottles and intend to hold onto their collection, a scheduled policy is a better option. With this policy, each bottle is listed and insured individually.

This article was published in the 11 September edition of Post magazine.

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