The VIP Treatment

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High-touch service is not always straightforward with high net-worth personal lines clients

Brynna Leslie on January 13, 2012

The average premiums per client can start at $8-10,000 and go up to $300,000 per year. On the surface, it may seem like every broker would like to have one or two on their personal lines’ roster. But high net-worth clients—often called VIPs or high-value clients—are a niche clientele, requiring comprehensive, customized insurance coverage, and an individualized level of service that industry experts say cannot be matched by direct insurers or retail brokers.

“This is very different from the traditional approach to personal insurance as a transactional process,” says Paul Johnstone, senior vice-president of personal insurance at Chubb Insurance Company of Canada. “It would be a disservice to this type of client to apply a cookie-cutter policy with a cookie cutter solution. For us, it’s all about understanding who the insured is, their relation to the broker, their family needs, exposures, their history, the condition of the home and where the assets are located. The broker really needs to start by underwriting the client first.”

Clients in this category tend to have higher-than-average assets, including million-dollar-plus homes, secondary or international homes, collectibles such as art and antiques, multiple vehicles, and other high-value property. They also have a unique set of liability exposures, which may include everything from being potential targets for kidnap and ransom, to disability coverage for household staff, to having party guests slip and fall by their pools. Insurers rely on brokers to build intensely personal relationships with clients, to ensure they get the unique coverage they require.

“We’re acting as each client’s personal risk manager,” says David Moss, a partner at Jones Brown in Calgary, which has a team dedicated to high net-worth personal lines. “We have a lower ratio of clients to brokers than you would see in retail personal lines. The type of service we give to our clients is hard to duplicate on regular retail business from a financial perspective.”

Getting Personal

Unlike retail home and auto where clients are given generic coverage, often based on a questionnaire or standard application form, high-value clients are subject to intense scrutiny and appraisal, both of their assets and their lifestyles. It’s a relationship that brokers have to negotiate carefully.

“We have some clients that are extremely private and to get any information at all from them is challenging,” says Moss. “There are clients who would choose never to allow an appraiser into their homes. Our job is to get those clients to trust us with that knowledge, so we can work in their best interest.”

Brokers require in-depth knowledge of clients’ assets, starting with their primary homes and vehicles. And while contents don’t always have to be itemized, brokers generally have to account for any individual “toy” or collectible worth over $10,000. This can include everything from sports cars, motor boats and helicopters, to valuable works of art, jewellery or wine.

Brokers also have to be prepared to source experts from various industries to ensure clients are valuing their goods at appropriate levels.

“Art collections are an emerging trend,” says Diane Ram at HKMB HUB International in Toronto, which has a 16-person team dedicated to high net-worth clients and a separate team dedicated to handling their claims. “We’ve partnered with an art consultant to help clients catalogue their collections, and offer advice on values.”

There are also nuances in policies of which brokers need to be aware in order to have clients insured fairly against theft or loss.

“Many clients install vaults for their jewellery, for example,” says Moss. “If the vaults are in a bank, clients are entitled to a special rating. If the vault is in the home, they require a different type of coverage because the homeowner has a greater exposure to having someone breaking into the home, holding them up, and forcing them to open the vault.”

Understanding the location of assets, even homes, is essential, because it can also have a huge impact on liability coverage, which often requires brokers and insurers to have international expertise and reach. Brokers say there has been an upward trend toward international properties, for example, especially in the United States where savvy VIP clients are scoping out rock-bottom deals on real estate, particularly in places like Florida and Arizona.

“This brings a whole different aspect of risk to the client,” says Ram. “Liability insurance in Florida, for example, is expensive and hard to obtain, and Florida, especially South Florida, is extremely litigious.”

For high net-worth clients, liability exposures, both domestic and international, are largely contingent on lifestyle. Brokers have to be prepared to check in with clients on a regular basis, and ask tough and personal questions about changes in their situations.

“There’s no substitute for a good insurance broker who can guide our mutual clients to understand what their insurance needs are,” says Alex Walker, claims relationship manager at RSA. “A skilled broker will ask the right questions to find out what type of exposures the client has. Do they do a lot of entertaining in their homes? Do they have a dog which could lead to a bite scenario? A lot of these high-value houses have large frontage; are they telling their clients that the onus is on the homeowner to remove snow in the winter?”

Coverages

Unique to this segment of the market is the client’s willingness to self-insure.

“These clients don’t put through claims for frivolous things,” says Irene Dick, senior vice-president and regional personal lines officer at Willis. “We have clients who consider $25-50,000 deductibles reasonable.”

But Dick and others say it’s the broker’s job to counsel clients strategically to ensure the client is getting the most comprehensive coverage required.

“We recommend people that are considering self-insurance to instead consider opting for coverage with the highest deductible—up to $100,000, in some cases—so they can lower their premiums,” says Moss. “But it’s pretty dangerous for someone with a $15-20 million home to self-insure entirely. It’s a very dangerous position for them to be in.”

With a specialized broker, high-value clients have access to a niche group of products that allow them extensive coverage, a wide range in deductibles, and customized add-ons.

Chubb is considered a pioneer in the high net-worth personal lines category. Chubb’s signature homeowner package includes unlimited extended replacement costs on homes, and pays cash for the replacement value of the home, should the policy holder wish to rebuild on a different property. Chubb also pays cash for replacement of lost, stolen or damaged property with no consideration of depreciation value. The policy includes unlimited additional living expenses for clients having their residence repaired or rebuilt, as well as extra funds required to conform to building codes or by-laws, particularly those governing heritage properties. The extensive policy provides additional coverage for family living away from home, and business property coverage of up to $25,000, as well as coverage for identity theft of up to $50,000.

“The product is one of the broadest in the industry,” says Johnstone. “These clients are paying a significant amount of premium and they’re on the upper end of exposure, and we want them to know that whatever happens, they’re taken care of.”

RSA is the most recent insurer to develop a new product for high-value clients. Key features in its home and auto policy include $25,000 for wine spoilage and breakage, $25,000 worth of business property coverage, and extension of coverage for contents stored at other locations. RSA also has a clause for premise liability on properties that are rented out, directors and officers (D&O) liability for those sitting on non-profit boards, and up to $100,000 liability on damage to a non-owned vehicle.

“We recognized a need in this space for more capacity,” says Walker. “We’ve set up a dedicated underwriting, loss control and claims team with the specific ability to respond to the need in the market.”

Within most policies, high net-worth clients are also given the option to purchase up to $18 million in excess liability.

“One of the most commonly requested add-ons in Canada is excess or umbrella liability,” says Dick, at Willis. “For a lot of people it’s dependent on their lifestyle. If they’re travelling a lot, this could mean worldwide protection.”

More sophisticated and niche products, like Chubb’s Family Protection plan, also respond to financial strain that could be caused by home invasion, carjacking, and kidnapping, exposures unique to the high net-worth client.

“These are not the type of innovative coverages you’re going to find in traditional property and casualty products,” says Johnstone. “We are constantly innovating our product and policies to address broker concerns and we are comfortable that our wording addresses the specialized needs of this client. Cyber-liability, for example, with the evolving use of social media, is something that has become top of mind for some clients. We don’t need to create a separate policy for this because it’s already addressed in our wording.”

Trends

There is discrepancy among brokers and insurers about whether or not high net-worth personal lines is a growing market. On the one hand, the ever-inflating values of property and the increased transfer of generational wealth indicates the market may be growing. On the other hand, not all wealthy individuals, like the up and coming “millennials,” are looking for the highly sophisticated level of insurance that brokers say is in their best interest.

“I think there’s probably the same number of clients,” says Moss. “But we’ve been better able to identify those clients. A lot of them that have been failed by 1-800 and direct insurers, we’ve been able to better educate these people and make them realize they need more than what these companies can offer.”

There is growth, however, among the number of insurers creating niche products in this area. Once the domain of large, international insurers like Chubb and Chartis, specialty underwriters and MGAs are emerging to take advantage of this lucrative, albeit specialized market, to create tailored policies governing specific or unusual exposures.

“There’s certainly a lot more players in the game,” says Moss at Jones Brown. “Ten years ago there was maybe one or two, and now there are maybe five that specialize. This is good for the client, but it puts more pressure on the broker because you have to balance your client’s needs to have the most competitive premium, with the loyalty factor to both a trusted insurer and a broker.”

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Broker Advice

“We had one client who for many, many years, was extremely price conscious,” recalls Diane Ram at HKMB HUB International. “One day, he said, ‘enough is enough, I’m going to the banks, to save money; goodbye.’ Six months later, our broker here got a frantic phone call. The client had been trying for three days to get through to someone on the phone to solve a problem for him at the new service provider. He was used to having a certain level of service that was now missing. We had built a relationship with him, and that relationship proved to be really important at claim time.”

1) High net-worth clients do represent a niche. They require an unprecedented level of customer service and care, along with a broker and claims’ team that understand the nuances of the business.

2) Most brokers admit there is a lot of crossover from commercial lines business to high net-worth personal lines. The broker-client relationship requires a high level of trust that has often been established through years of interaction with the firm on the commercial side. It’s not a market that a novice broker can easily dabble in.

3) Brokers act as both risk managers and claims advocates for high-value clients. They have to check in with clients regularly and be prepared to respond, day or night, to client challenges.

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