The purchasing power of the very wealthy is impressive. But what insurers really like is that these people tend to be fastidious.
High-end homes are very well maintained and have excellent security, says Ian Mabbutt, Group Executive for Specialty Personal Lines with Calliden Group. As for supercars such as Ferraris, Lamborghinis and Aston Martins: "They take unbelievable care of them - they generally only use them at the weekend."
Low kilometres and high care generally lead to low claims frequency, Mabbutt says. But there is one downside: "When they do have a claim, they tend to have a big one."
Take the collision between a Ferrari and a motorcycle in the Sydney beachside suburb of Bondi. The damage to the bike was $3000, Mabbutt says. The damage to the Ferrari was $60,000, "and it wasn’t a lot of damage". He'd know. The car was covered by Calliden's special vehicles division, Dawes.
Dawes insures more than 500 Ferraris and about 150 'Lambos', among other vehicles, says Mabbutt. The division covers up to $1 million in value as standard and higher values upon request.
Mabbutt says Dawes actually wrote more business during the global financial crisis, not less. "There's certainly been a proliferation of these vehicles being imported into Australia and that's a sign of the growth in wealth during the relatively prosperous period that preceded the GFC," he says.
In underwriting such vehicles, a key issue is where they are garaged overnight and even during the day. With very high-value cars, the insurer may insist on fire protection on site. If a car is driven into work, it will have to stay in a secure car park, not be left on the street. Driver age is another issue. "They have to be 30-plus for cars like Lamborghinis and Ferraris. They have to be mature, responsible drivers," Mabbutt says.
Dawes also insures prestige motorcycles, such as the Ducati Desmo, which will set you back six figures. Again, underwriting comes back to the type and frequency of use.
At the claims end, "the critical thing is repairing these cars quickly and properly," Mabbutt says. Dawes uses specialist repairers and clients have the choice of repairer.
Prestige homes
The Calliden Group also includes Mansions of Australia, which covers prestige homes. Typically, these homes would have a minimum insurable value of $500,000 (or $750,000 in the high-value states of NSW and Victoria) and contain contents easily valued at $150,000 but often much more.
"You're talking homes in the millions of dollars and very high sums insured for the contents," says Mabbutt. "These customers have a lot of highly valuable belongings, such as large jewellery collections, large art collections and antiques."
Some building materials may be expensive imports, while fixtures and fittings can be hard to replace. That may mean a fair bit of work assessing what's there, so the insurer can provide the right premium structure. By the same token, such customers tend to supply good documentation upfront. "The brokers that work in this segment all know the requirements and they supply all that information when they’re requesting a quote."
Such clients tend to guard their privacy and are sensitive to a third party visiting their home, he says. One of the main reasons for an inspection would be that the owner thinks the property is worth much more than the insurer does.
"With prestige home insurance, you generally don't have an issue with underinsurance – it's usually the other way round," Mabbutt says. "They'll be putting the market value on it," rather than the cost of replacing the actual bricks and mortar. This is where the broker is often the better judge, he says.
Sue Hutchinson, Manager of Summit Prestige Home Insurance (part of SRS Underwriting Agency), says the market in this segment has been competitive in recent years, but there are only a limited number of underwriters with the right expertise.
"There are less underwriters than there were two years back," she says. "Perhaps their books weren't large enough in that segment of the market and they didn't have experts in that segment of the market. You can't apply the same rules that you do to the bulk of the market ... No one prestige property is the same as the next."
Luxury possessions
The expensive possessions may not be limited to the house. Associated Marine, a division of Zurich, covers pleasure craft ranging from 'tinnies' [metal dinghies] to $10 million cruisers.
"The risk that is different with the higher-end vessels is that they tend to be built on consignment," rather than being a production-line vessel of known quantity, says Zurich's National Product Manager Shelagh Bock.
The underwriter will want to know who the builder was, the materials used in construction, whether the vessel has any special features - such as a helipad - what it's physically capable of and where it might go. It's not unknown for such vessels to carry artwork and contents such as valuable jewellery and Associated Marine operates in this field too.
With fine art, the key issue is security, whether that's on a boat, in a home or even at a site where the artwork is being hung on loan. "There's an awful lot of art theft in Australia," Bock says - $20 million annually at last count.
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