The lure of the high net worth market has attracted many new entrants, leading to an increase in generic products that fail to meet the differing needs this niche market. Bob Trott urges experienced players to keep faith with the personal touch
It would be unusual for the strategic focus of any business organisation not to have the development of a customer culture at the top of its agenda. Insurance is no exception, and the high net worth market has a unique need for customer orientation - where the specialist HNW broker and insurer play a crucial part. Nobody gains from the curse of underinsurance - especially the homeowner - and its elimination remains a strategic goal.
The HNW sector has witnessed rapid growth since its conception in the late 1980s. At that time, the qualifying minimum sums insured were around £250,000 for buildings and £75,000 for contents. This has been increasing over the years and rising wealth in an expansive, ageing population will see rapid growth continuing.
Not that any of the experienced players in the market have an easy ride ahead. Every thriving niche acts as a magnet to imitators and success has already attracted an influx of new entrants. Some attempts to cash-in have already had a destabilising effect on the market and sown the seeds of confusion as to what HNW is really about.
There have been attempts to commoditise HNW so that it can be sold 'direct' over the telephone or internet, using price as the main driver. The product content has also been watered down to form the so-called mid-net worth offering.
But these attempts to climb aboard the HNW bandwagon miss the point: genuine HNW property owners are increasingly turning their backs on products that fail to meet their needs. The direct writers' 'one-size-fits-all' approach is not appropriate and the remote call centre is not the ideal place to go for bespoke advice, especially as no two HNW risks are exactly the same.
The big insurers are currently shedding hundreds of experienced staff and many have moved customer contact offshore to save money - with indifferent results. There seems no doubt that service standards across the whole industry will fall dramatically over the next few years.
The genuine HNW owner will undoubtedly be one of the first to rebel against falling standards - and many already have. Customers have no desire to be forced to talk to a multiplicity of departments, or to people who read from a script and whom they will never be able to find again on the next call.
HNW clients will only put up with poor service if nothing else is available. Their message to insurers is: "I want to deal with people who give me their 100% undivided attention. They won't pass me on to someone else, or promise to ring me back and never do so. I want to speak to someone who gives me their full name, someone I know I can ring back and speak to in a week, a month or a year's time. Someone I can meet if the need arises, who takes the trouble to visit me in my home to advise and counsel."
A crucial element for the HNW policyholder is the avoidance of underinsurance, since their policy item limits are considerably higher than a typical household policy. The threat of underinsurance penalises everyone in the chain - client, broker, and insurer. Standard buildings and contents cover can be sold successfully by direct methods, but accurate valuation is just one of the major stumbling blocks when it comes to delivering HNW by these methods.
Underinsurance is a major problem for the insurance industry and, proportionally, the HNW homeowner runs a greater risk. When they decide to take up the services of a specialist HNW team, many affluent households find they have not been properly insured in the past and it is not unusual to find cases where buildings and contents are completely underinsured, especially when they have previously been insured through a channel where the driving force is price and the buying process decisions are left largely to the buyer.
Without proper advice, most HNW homeowners will make valuation errors on a potentially significant scale. Significant because most policies, even some of the supposedly HNW contracts, can reduce claim payments if the property is underinsured.
One of the perennial problems for the home insurance buyer is working out the buildings sum insured; who really knows how much a home costs to rebuild? Assessing rebuilding costs can be a complex process, particularly with older homes or listed buildings. Period features, upgraded bathrooms and kitchens, swimming pools and quality materials, such parquet flooring, all need to be professionally valued.
Most clients know the importance of correct valuations for fine art, antiques, jewellery and valuables, but HNW contents also require a specialist appraisal, such as top-of-the range audio, TV equipment and designer clothing. Getting the sums insured correctly at the outset is a building block to a happy client relationship and ensures peace of mind. If a claim arises, the effort will drastically improve the time taken to settle the claim, which means that everyone wins.
The insurance broker is key to the future success of the HNW market, easing the relationship between the client and those insurers who recognise that each client is different. The broker must be dedicated to insuring high-value homes and committed to providing an all-embracing service.
The emergence of the specialist HNW broker or department with a niche approach will offset the erosion of brokers' market share in standard personal lines products, such as household.
The traditional generic household insurance broker is disappearing fast. The view of the future is that successful brokers will factor on particular products and structure themselves so they have a concentrated niche approach to specific products. The process of succession and acquisition has led to a leaner, fitter broker sector that is more aware of the need to build relationships with both their customers and the insurers who value the partnership approach.
Naturally, strategic focus for HNW business over the next few years will also feature policy cover enhancements and access to other services, such as valuations. The successful partnership of broker, insurer and valuation expert is a relationship that many new entrants will find difficult to copy. When it comes to establishing the client relationship, HNW is probably unique in presenting the opportunity at the outset. A good appraisal service not only gets the sums insured agreed, it can be the start of a 'beautiful friendship'.
The continuing message that needs to be broadcast to HNW clients is that brokers can help them identify their need for specialist advice, personal contact and help with risk management. By taking this option they can avoid much of the service hassle associated with life today - difficulties an increasingly ageing and wealthier population are becoming less enchanted with. That, in turn, places a strong onus on the broking channel itself to ensure that HNW buyers are aware of the range of services on offer.
Brokers are the ideal partners for HNW insurers. They know their clients; they are the eyes and ears and carry out all the essential fact-finding. Their client relations are based on long-term profitable trading. Unlike most risks in personal lines, a HNW broker usually knows a lot about the properties being insured. This can prove useful when looking at hazards, such as flood, where disaster avoidance planning becomes an important part of the service, and where HNW insurers apply detailed bespoke underwriting techniques rather than the broad-brush approaches more common in standard home cover. Above all, the broker maintains the relationship of trust with the policyholder, who can then rest assured that their home will be properly protected.
HNW also gives brokers the ideal opportunity to promote their own high net worth to the client - the value of the services they offer amid the falling standards found elsewhere. The opportunities for selling other products and services increase once the basic relationship of trust is established. Brokers can involve all eligible insurance buyers within the whole family.
HNW sits nicely with other covers, such as commercial, small- and medium-sized enterprises, and personal lines like travel and private car, where clients can benefit from bespoke underwriting, single point of contact, single service experience and premium finance options if necessary. Meanwhile, the broker and insurer secure better retention and more realistic risk assessments.
This could be a very exciting time for ambitious brokers looking to grow their business - provided, of course, that they have furnished themselves with the required skill-sets. Meanwhile, HNW insurers will continue to enhance their policy cover and range of services. The automatic appraisal services will continue to assist renewals while helping to cement the relationship. Keeping in touch with the client on crucial issues will remain an ongoing theme.
Bob Trott is managing director at Oak Underwriting
Oak Underwriting specialises in high net worth insurance solely dedicated to high-value homes, fine art, antiques, collections, silver and jewellery. The management and staff have many years' experience in the HNW market and, with the backing of Lloyd's Underwriters, this puts it in a strong financial position to provide a broad range of products and continually develop its high standards of innovation. The company offers a rare combination of tailor-made policies, experienced underwriting, quality service and worldwide protection.
Oak products are distributed exclusively through brokers and independent agents. Oak is focused on a policy of real commitment to its broker partners. To ensure this partnership works, Oak provides assistance with risk management, advice and marketing - enabling brokers to define, implement and improve their niche business in HNW. Oak offers greater flexibility in underwriting terms by working closely with its brokers. They all have direct access to its dedicated team of underwriters, and Oak also offers a commitment to provide personal, flexible underwriting and broker underwriting visits.
Oak's strategy is based on its perception that its clients, who are all HNW, are entitled to the best service in the industry.
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