Providing home and contents insurance to wealthy clients has traditionally been a niche market for brokers, but that is changing as more recognise its potential.
What’s more, the average premiums generated by high-net-worth (HNW) insurance policies can easily surpass those generated by small businesses.
Neil Shackleton, AIG Australia’s Head of Private Client Group, estimates there are currently in excess of 200,000 people in Australia with more than $1 million in investable assets and this figure grows each year.
Different insurers classify HNW clients in different ways, but generally this insurance is suited to individuals who have accumulated assets such as a grand home, art, jewellery, wine or a yacht.
“It’s for clients who need bespoke advice and insurance cover tailored to their needs. We believe if you own a home with a rebuilding cost of $1 million or above and insured contents of $200,000 or more, you should be insured on a HNW policy,” Shackleton says.
Despite the value of assets accumulated by wealthy people, underinsurance is just as big a problem in this market as it is in other parts of the insurance market.
“If a HNW client is underinsured, usually the quantum of underinsurance is significant,” says Greg Hicks, Chubb’s Personal Lines National Manager.
For instance, Hicks says, many clients have homes with costly features that have been built by specialist craftsmen.
“Unless the client built the home themselves, they often won’t know how to value these features to work out the cost to rebuild,” he says.
Another problem is that wealthy people make frequent purchases that add to the value of the contents of their homes.
This can mean they often don’t know the true worth of their possessions. Jewellery may also not be properly valued because to the fluctuating prices of precious metals.
“If you’re not keeping an eye on the market on a regular basis you often won’t know what your assets are worth,” Hicks says.
Shackleton agrees underinsurance is an issue for wealthy clients.
“We estimate there is $90 million of premiums insured in the Australian HNW market, but that there is an additional $500 million insured on inadequate policies.
“According to data collected by our risk management appraisers, seven out of 10 of our clients have been underinsured in some way.
Last year we saw increases in excess of $100 million in sums insured for those clients who took a policy out with us.”
Breadth of coverage
HNW policies work in a similar way to mass market home and contents insurance, with significantly fewer exclusions and conditions.
They also have more features.
For instance, Chubb’s Masterpiece policy covers the cost of replacing assets, irrespective of the value for which the asset is insured.
It also covers people if they lose jewellery overseas.
This policy also has a cash settlement feature, so that if an item such as a sentimental piece of jewellery is lost, Chubb will give the policyholder cash equivalent to the value of the item, rather than pay for its replacement.
It’s up to the client whether they choose to accept a cash settlement or have the item replaced.
The policy also includes a comprehensive personal liability feature, that goes beyond ‘slip and fall’ cover.
It also covers policyholders worldwide for the instigation or defence of libel and defamation cases, and also comprises cover for identity fraud expenses and family protection cover (see breakout).
Policies also often include a home appraisal service to ensure the value of a property covered by the policy is correct.
“It’s a way of giving the client and the broker comfort about what the right level of cover should be,” Hicks says.
A premium version of the product for ultra- HNW clients includes a service where Chubb scans the home with an infrared camera to identify any ‘hot spots’ that could lead to future claims.
Factoring in the real costs of rebuilding after loss is essential. AIG Private Client Group Head Neil Shackleton says: “Once we have been to visit a client’s property we calculate and agree the rebuilding cost with them.
We then guarantee that we will rebuild the property in full in the event of a total loss, even if the rebuild cost ends up being more than the agreed sum insured.
“For valuable items, such as fine art or jewellery, we’ll agree upfront the amount we will pay in the event of a loss. This allows us to settle claims quickly,” he says.
Another important feature in some HNW policies is covering alternative accommodation, in some cases for up to four years, if clients suffer a loss that stops them living in their property for the duration of the repairs.
A good policy will also keep pace with the client’s purchases. In AIG’s case, new acquistions are automatically covered for 25% of their value.
“If a client buys an expensive piece of art or jewellery it is automatically covered and they don’t need to inform us immediately,” Shackleton says.
“This means that if they were to buy a piece of art or jewellery overseas it would be covered immediately with no need for them to inform us until they return from their trip.”
A stitch in time
Given the value of the assets being protected, some insurers offer clients pre-emptive protection when disaster threatens to strike.
In the US, some policyholders in AIG’s Private Client Group have been the beneficiaries of the company’s Wildfire Protection Unit.
When wildfires strike, AIG tracks their spread before dispatching crews where necessary.
As well as fighting fires, the crews can also visit homes ahead of wildfires, assessing vulnerabilities and applying fire retardant.
Although AIG has no current plans to introduce a similar service to these shores, the Australian operation is able to dispatch crews to sandbag insured properties at risk of flood.
Closing gaps in cover
Shackleton says jewellery, watch and art collections are sometimes not noted at all on domestic policies or are woefully under- insured, especially if the asset has not been valued recently.
The same applies to personal collections including fine art, antiques and wine. “We recommend professional jewellery and art valuations every three to five years to ensure clients are correctly covered,” he says.
If a HNW client has had a good claims experience with a residential claim, they are more likely to give the broker commercial business as well.
Other assets brokers need to ensure are covered include soft furnishings, outdoor furniture, gardens and landscaping and clothing, shoe and handbag collections.
Greg Hicks, Chubb’s Personal Lines National Manager, says HNW policy claims usually fall into two distinct camps: very easy and very complex.
“Given the value and features of homes, claims can be significant.
So some claims can be difficult to assess.
Also, some claims can be out of the ordinary – for instance, homes can have unique fixtures and fittings, which can make the claims process complex.”
In contrast, if a client loses a piece of jewellery and opts to take a cash payment, all the insurer needs to do is write a cheque for the value of the asset.
According to Mike Hooton, Calliden Agency Services Group Executive, brokers also need to ensure cover for costs such as removal of debris and professional fees are included in policies.
Hooton also points out HNW clients can choose their own repairer, something many prefer, especially if they have built the home themselves.
“There is also less onus on producing receipts if items are lost as usually these clients have catalogues and valuations of their expensive contents.
Typically, smaller claims under a large policy limit threshold are paid without the need for a loss adjuster,” he says.
Opportunity for brokers
The broker is a critical part of the HNW insurance equation.
As Shackleton notes, it’s essential clients who have amassed enough assets to be classed as HNW seek independent advice.
But he cautions that brokers who sell to HNW clients on price will not win the business.
“If they do, they are likely to lose it on price in the future.”
He suggests brokers provide clients with real-life examples of how a HNW policy responds to a claim in comparison to a mass- market policy to help get clients across the line.
In terms of generating new business, Shackleton points out a large proportion of MDs, CEOs and business owners will fall into the HNW category and they’ll have a home and possessions to insure.
He suggests brokers go through their portfolio of commercial clients and specifically target these existing client relationships.
“Brokers regularly take the time to visit their clients’ business but many don’t really get to know their client’s personal insurance needs,” he says.
Brokers need to take the time to visit their clients at their home and really get under the skin of their clients’ needs and wants.”
Chubb’s Personal Lines Manager Greg Hicks says average premiums are in excess of $5000, the equivalent of a mid-level commercial policy.
“Most brokers see home and contents policies as a necessary evil when they’re writing commercial cover. But the more successful brokers see this as a way to get access to commercial cover,” he says.
Protection for all the family
One of the newest extensions available on the Australian market is family protection cover.
Chubb Personal Lines National Manager Greg Hicks says the feature covers the policyholder and family members involved in a traumatic event, helping defray the costs of recovery from events such as car jackings, home invasions, child abduction and stalking.
“When something like this happens the defrayment costs can be significant,” Hicks says.
“Payouts cover things like counselling services and employing a security consultant to come in and inspect the home.
“Fortunately, we haven’t had too many of these losses in Australia but the incidence of these types of events in Australia is increasing. When they do happen you really need the right cover.”
Going the extra mile
The unifying feature of high-net-worth polices is how insurers will go above and beyond normal expectations to make good in their clients’ losses.
Case study 1 – Jewel in the crown
An AIG client was an enthusiastic collector of jewellery but was less astute when it came to valuing the items.
When a risk management appraiser visited the family home, she found some of the jewellery had not been valued in more than 10 years, nor had some antique and unique pieces bought overseas.
The client collected the jewellery over many years but he had no idea of its true value.
A trusted specialist jeweller was recommended, who subsequently valued the collection and established the true value was $1.2 million.
The jewellery had previously been insured for only $730,000 and had been insured at that level for many years.
Following the valuation the jewellery was specified on the policy.
Six months later, the client’s home was burgled and the jewellery collection stolen.
Thanks to the AIG’s risk appraisal, the claim was settled swiftly and within five days the client received a cash settlement directly in to his bank account for the full value of $1.2 million.
Case study 2 – Diving deep
During a day out at the marina, one of Chubb’s clients accidentally dropped a Rolex watch into the water.
Chubb arranged for a diver to search the scene, who managed to recover it. After a service and repair, the watch, which had deep been assumed to be lost forever, was as good as new and the client was reunited with his treasured possession
Case study 3 – When it rains it pours
When one of AIG’s clients was facing an impending flood, the insurer contacted the client to flag that his property was at risk of flood.
AIG then sent in a crew to sandbag the property and ensured the client and his family were safe in alternative accommodation when the flood hit.
Although the sandbagging proved ineffective, the response crew managed to move a number of valuable pieces of antique furniture from the ground floor to the property’s second floor, saving the items.
AIG then managed the entire rebuild of the property, including engaging interior decorators and designers so the client could simply move back in once the work was complete.
Case study 4 – After a flood, as good as new
A flexible hose in an en-suite bathroom failed at a property owned by a Chubb client, causing significant water damage to both levels of the client’s home, with the carpet damaged beyond repair.
Given the considerable time spent originally sourcing the carpet, the client wanted to replace it with carpet that exactly matched what existed prior to the loss.
Although it was not possible to source a suitable replacement carpet within Australia, Chubb located a company in Hong Kong that was able to manufacture an exclusive batch of the carpet specifically for the client’s home.