Ana Paula Nacif examines how the increasing wealth of the super-rich, combined with a growing celebrity cult that blurs the boundaries between private and public lives, means that safety has become a paramount concern for these people and their insurers
The super-rich are getting richer. About 23% of the country's wealth is now in the hands of the top 1% of the population - 600,000 individuals own assets worth £797bn.
The high-net-worth market brings between £500m and £1bn in premiums to insurance companies every year but, while insurers enjoy the large premiums that this sector attracts, they also face additional challenges in assessing the security of their clients.
In recent months, such high-profile cases as the burglary of Ozzy Osbourne's house, where £2m in jewellery was taken, and the murder of Legal and General bond trader John Monckton during an aggravated burglary, have raised questions about what else the super-rich can do to protect themselves.
A report by market analyst Datamonitor has revealed that the UK is currently home to almost 750,000 individuals with more than £200,000 each in liquid assets. By 2008, this number is expected to jump to a staggering one million.
And, according to Tulip Financial Research, 335,000 people have an average of £435,000 in liquid assets, while another 135,000 have amassed a bundle of £3.85m each.
With so much money floating around, security is getting tighter and the super-rich are not sparing any efforts to make themselves safer. This is good news for insurers, who are also striving to ensure security remains a priority.
"Our clients are more willing to spend money on security systems," confirms Charles Dupplin, head of Hiscox's art and private client division. "Clients appreciate we are doing things to genuinely help them. They understand it is beneficial to all concerned."
Insurers agree that there are no hard-and-fast rules when it comes to devising safety measures for the super-rich. It depends on their lifestyle, the types of assets they hold and where they live.
"People in isolated country locations are more vulnerable," explains Richard Coles, branch manager at loss adjuster Carmichaels. "Assuming people have a central police station, burglars know that it could take half an hour before the police turn up. They know they have enough time to trigger the alarm, get what they want and escape."
Technology is catching up fast, however, and the systems available are as varied as the customers who buy them.
Most insurers working in the HNW market offer a technical advice service to clients to help them decide on effective security systems, taking into account their circumstances and personal requirements.
However, Tony Lumsden-Cook, director of Oak Underwriting, warns that there is a fine line between intrusion and security. "Our insureds are fundamentally very sensible people. They would not be where they are if they were not sensible and it is not for the likes of Oak to tell them what they should or should not be doing. When you talk about high-profile personalities, some of these people may not have the breadth of experience or are not used to having large sums of money; then you have to guide them."
He adds: "If you do not have claims, you do not have premiums. We are here to look after rich people properly and find the right balance between security and intrusion. We do not believe in intrusion."
Among the myriad security options available are state-of-the-art biometric access systems, which, until recently, were the domain of science fiction.
"Biometric access, through fingerprint and iris recognition, will become increasingly used," explains Nicola Amis, London appraisal manager at Chubb. "It is mainly used on commercial settings but, slowly and surely, it will become more common in private properties."
Panic rooms - already commonplace among wealthy Americans - are slowly climbing the list of 'must have' security systems in the UK. And the perception of panic rooms as vault-like boxes could not be more misleading. Advances in technology mean that, nowadays, some panic rooms look like any other room and cannot be distinguished by those unacquainted with the house they are in.
Apart from the usual strong doors, telephone line, mobile phone, panic buttons and closed-circuit television, some panic rooms have a central control panel that allows the occupant to see and hear what happens in every part of the house, as well as controlling alarm and smoke-detector systems and lights. Some even have a small kitchen attached.
"I do see quite a lot of panic rooms, some of which have been designed within the architecture of the house," explains Lorna Harrington, residential services manager at AIG private client group. "There will be a room in a house that has been built with that in mind, especially when people carry out gut refurbishment."
John Sims, European head of personal lines insurance at Chubb, adds: "We have many high-profile customers, particularly in London, spending about £30,000 on panic rooms. They are not the norm - but for the mega-wealthy this is not uncommon."
If spending £30,000 on a panic room seems a lot, some alarm systems can cost as much as £100,000, such as sophisticated clear-vision digital CCTV kits that are triggered by motion, record sound and have infrared for night vision. Some of them even allow properties to be monitored all over the world through online systems.
"Security has gotten a lot more sophisticated," says Mr Dupplin. "The old principle of perimeter defence still applies, but now there are some terrific pieces of machinery around."
So, are systems having to get more sophisticated to cope with increasing risks? According to the Home Office, about one in every 100 households in England and Wales experience an intrusion each year in which the residents are aware of the offender's presence at the time of the crime. In about half of those cases, one in 200, the intruder is violent against the resident.
And police recorded crime figures indicate that the number of aggravated burglaries has risen 79% since 1991, with 4088 such offences recorded between 2002 and 2003.
Mr Dupplin believes that the fear of crime can be justified. "Thieves appear to be happy going in even when they know the occupants are in the house, whereas before they would tend not to enter the property in such circumstances. They know they can get hold of jewellery, for example, that would otherwise be in the safe."
Mr Sims adds: "The best way to secure a house is to live in it, but burglars are more inclined to confront individuals. That is why we assess all the properties to try to minimise risks."
Insurers agree that, once burglars are inside the property, it is too risky to try to stop them. "Our advice is, if they break in, let them take whatever they want and we pay the claim," emphasises Mr Sims. "A couple of years ago there was a case of a high-profile couple in an aggravated burglary and, while the burglar was holding a knife to the husband's throat, the wife was busy removing her £250,000 engagement ring and slipping it into her pocket. It is not worth it, we would prefer to pay 100,000 claims than one death benefit."
Alexander Rich, account executive at Heath Lambert's Blackwall Green division, says that, although aggravated burglaries have become more of a problem, art thieves still prefer a quiet job. "There were some unpleasant burglaries in the UK last year but, realistically, burglars tend to break in late at night, get in and out as soon as possible, taking the work of art they were looking for. They do not want a face-to-face situation with the occupants."
But burglars are not the sole concern of the super-rich. The risk of inside information falling into the wrong hands is not to be underestimated.
Insurers agree that checking references of prospective employees is still the best practice. They also warn that agencies - no matter how reliable - should not be left to their own devices when it comes to checking records.
"We advise our clients to have an alarm system that allows each employee to have a different entry code so we know who has been in the house and when," explains Ms Harrington. "If a disgruntled employee leaves the job we advise that the locks are changed."
Discretion also pays dividends. "We suggest to our very wealthy clients that they be more discreet and avoid appearing in glossy magazines, for example," says Andrew Jobson, managing director at Aon private clients.
"It is a good thing for their personal safety. If they are coming out of a club, they can cover themselves and turn their jewellery inside out. That way, they are much less likely to be noticed."
Kevin Wood, chief technical officer at loss adjuster Ashworth Mairs Group, adds: "People are more aware of risks, and celebrities tend not to discuss their security arrangements even with loss adjusters. The fewer people who know about them the better. Celebrities can be extremely private people."
Fear of crime and a desire to come and go without too much fuss are helping to set another trend - that of "gated communities". Like panic rooms, they are also an import from the US, where it is estimated that 15% of the population lives in self-contained complexes, with 24-hour surveillance systems and electronic gates. Some of these estates have leisure facilities, restaurants, doctors' surgeries and, in some cases, even their own rubbish-collection and road-maintenance services.
There are more than 1000 gated communities in England, many built since 1995, according to the Office of the Deputy Prime Minister. "The number of gated communities will continue to rise, people like to feel more secure," explains Mr Dupplin. "The private security market is also growing. We have seen an increasing number of communities hiring private security firms to look after their areas."
Security concerns apart, the HNW market is growing strongly, not only because the number of rich people is increasing, but also because a fair proportion of them are not currently insured by specialists.
And, in a society where almost everything can be customised, the super-rich will soon demand their fair share of VIP insurance service, with adequate cover and add-ons that cannot always be provided by a standard policy.
"There is an untapped market out there. A lot people with special insurance requirements are still insuring with standard companies that do not offer the breadth of cover they really need," explains Sonia Kowalski, account director at Holmans private clients.
Cross-selling opportunities to commercial clients is also a good way of attracting more customers. Christine Clark, director at commercial broker JL Manson and Partners, which has a growing personal lines division as a result of cross-selling, says: "Some people do not even realise these policies are available. The market potential is huge."
With another 250,000 individuals expected to enter the HNW bracket over the next five years, brokers and insurers wanting to increase their share of the market will not be short of business.
- 600,000 individuals, equating to 1% of the UK population, hold assets worth £797bn.
- 750,000 people have more than £200,000 in liquid assets. By 2008, this will increase to one million.
- 335,000 people have an average of £435,000 in liquid assets.
- 135,000 have £3.85m each in liquid assets.
Sources: Office for National Statistics, Datamonitor, Tulip Financial Research.
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