When a puff back in the chimney of the home of the CEO of a Rhode Island manufacturing company caused extensive damage throughout his family’s elegant 7,200-square-foot Colonial home, his claims adjuster faced a complex case: the smoke damage to the decorative painting on the living room walls would require careful restoration, while the cleaning of a collection of 19th century books would call for an entirely different expert.
The entire repair would take several weeks to complete, and while the home may have been technically “habitable,” it would not be appropriate for the seven-year-old son of the CEO who suffers from asthma. Finding appropriate and comparable alternative accommodations would become one of the greatest challenges for the adjuster in this case.
Providing expert claims service to the high-net-worth niche can be difficult. Few circumstances can be as daunting as helping wealthy Americans maintain their expected quality of living after a loss. Following a year when more and more families were displaced from their homes, either because of mandated evacuation or damage caused by unrelenting record-breaking catastrophes, loss-of-use coverage is more likely to come under scrutiny by policyholders and agents than ever before. The way in which high-net-worth specialists approach this coverage may offer some helpful insights to all carriers.
Living Without Limitations?
Coverage can differ markedly, particularly between standard carriers that serve consumers with conventional needs and specialist carriers that cater to successful families with more sophisticated ones. Standard carriers generally cap “loss of use” coverage, or coverage “D” on ISO forms, at 20 percent of the dwelling limit. Following a major or total loss, these funds can run out quickly, especially when impacted families are trying to maintain their normal standard of living.
Specialist carriers are less likely to cap limits at a percentage, and instead typically provide coverage for “reasonable expenses” required for families to maintain their lifestyle following a covered loss. When a policyholder is accustomed to a high standard of living, however, it can be tricky to find the definition of “reasonable.”
Loss-of-use coverage is generally not precluded by a time limit, but rather is available throughout the reasonable amount of time required to repair the loss and/or make the home properly inhabitable. The absence of a time limit can be costly when dealing with high value or unique properties.
Several years ago, an electrical fire caused substantial damage to an 18th century home overlooking New York’s Long Island Sound. Following the fire, the owner of the home, an accomplished physician, was quite reasonable in finding an appropriate home near his office and his daughter’s school.
However, the town’s zoning commission and the local authorities responsible for the approval of works on a historic property were not as accommodating. Because of the additional regulatory approvals, a nine-month construction project resulted in an 18-month stay for the doctor and his family in the rental home.
Tailored Coverage, Tailored Solutions
Specialist companies have begun to allow policyholders more flexibility to tailor limits for additional living expenses (ALE) to better reflect the fact that every family will have unique needs and expectations following a claim. For example, in coastal areas—where premiums are typically at their highest—owners of second homes may be able to control premium costs by selecting a lower limit. These families may opt for lower limits for ALE, because of their ability to live in one of their other residences following a loss. Regardless of limits, however, policyholders in need of temporary living accommodations expect a tailored response.
When the New York City cooperative apartment of an investment banker suffered significant water damage, repairs were estimated to take three months. While a comparable rental unit was available for the time during which the apartment was uninhabitable, the policyholder had a better idea. As he and his family were spending more and more time at their Long Island house that summer, he preferred an arrangement that allowed him to submit bills from a list of pre-approved hotel suites when he chose to visit the city. As he only spent 12 nights in New York during the 90 days of restoration work, he gained the flexibility and service of New York’s finest hotels at a lower cost than a short-term apartment rental.
It is ideal when a tailored solution can create policyholder satisfaction and cost less. Sometimes it does cost a great deal more to serve the high-net-worth market. The scenario of one Dallas executive illustrates this. The executive suffered a kitchen fire in his gorgeous six-bedroom Highland Park, Texas home. PURE became responsible for finding a comparable home on the rental market to enable the executive and his family to maintain their lifestyle in a reasonable manner. The company was able to locate a home that would provide a comparable living arrangement, and a monthly rent of $15,000 was agreed upon. However, the owner of the rental property refused to rent the home for a period of less than 12 months.
While other homes on the market were more flexible in their terms, they did not meet the needs and expectations of the policyholder and his family. Despite an estimated four- to six-month restoration project, the 12-month rental home was deemed to be the most reasonable solution.
ALE After Natural Disasters
In 2011, the impact of a slew of catastrophes has been well-documented. From the tornadoes in Joplin, MO and Tuscaloosa, AL to the widespread damage of Irene, last year will be in the record books as one of the worst. As thousands of displaced families likely learned over the past 12 months, work on loss-of-use solutions is happening before, during, and after a disaster hits.
When a mandatory hurricane evacuation occurs, for example, there is typically coverage in place. Standard and specialist carriers provide additional living expenses for homeowners who are evacuated from their homes at the request of civil authority—though standard carriers typically provide coverage for two weeks, while specialist carriers are more likely to pay expenses for 30 days, or up to $50,000.
When a major catastrophe actually hits, the drama is escalated. Stories in the newspapers indicated that hotel chains in Southern California were trying to charge nightly rates of up to $1,000 a room in the days surrounding a devastating wildfire. The catastrophe modeling firms call this “demand surge.” The rest of us call it “gouging.” Regulators and legislators have begun to take action where possible, but there is no denying that when an entire upscale community is impacted, the availability of comparable housing may be limited, and the costs are going to rise.
Specialist insurers have become adept at negotiating in advance for upscale hotel rooms at pre-determined rates, while simultaneously communicating to policyholders about the challenges that lie ahead. While there are obvious challenges of responding to a disaster with claims professionals and restoration experts, sometimes the greatest challenge is to find an appropriate place for a wealthy family to live in the aftermath.
Providing A Service Touch Point
Loss- of-use coverage provides an opportunity for insurers to act as service providers, and to make a terrific impression on their policyholders during troubling times. Many companies are quick to put the onus of finding a rental or temporary property on the policyholder, but high net worth specialist insurers have created a superior experience for their policyholders.
Following a loss, specialist carriers are committed to helping their policyholders create a temporary living situation that accommodates their lifestyle and needs. Each situation takes into account where the adults work, where the children go to school, whether they have pets, what kind of accommodations their home provides them, and how long they’ll be displaced. This kind of attention to detail can make all the difference to a family facing a major loss, and certainly elevates the level of service provided.
For many successful families, their valuable time is often the most precious commodity. Locating a home that fits a policyholder’s lifestyle and standard of living can require hours of collaboration with local realtors and firms that specialize in facilitating temporary accommodations. Identifying and discussing the specific needs of each family certainly takes an additional level of attention—not to mention patience. Then add in working with specialists to procure furnishings for a home that are aligned with the requirements of the family, and you essentially have the makings of an entire job description. In fact, some insurers have dedicated “advocates” whose primary purpose is to help high net worth families deal with the administrative hassles that can accompany a large loss.
In a typical claim scenario, there is often a team of insurance specialists working together to resolve the loss: a general property adjuster, an auto specialist if a vehicle has been damaged as part of the loss, a water or fire remediation firm, and a contents specialist. While these roles are focused on settling losses promptly and fairly, the advocates aim to ensure that policyholders receive “white glove” service throughout the process. These individuals manage the additional living expenses portion of a loss from start to finish, including research, vendor management and negotiations, and communication with policyholders.
While adjusters focus on communication with contractors, contents handlers and other service providers as they work to return homes to their original condition, it is often equally as important to ensure that families are cared while repairs and reconstruction efforts are underway. The participation of these advocates also helps to expedite the claims process, increasing efficiency within the department, and improving service for the insured.
Creating Brand Loyalists
The high-net-worth market is a demanding niche. By providing superlative loss-of-use services following an event that renders a residence uninhabitable, carriers have the opportunity to win customers for life and engage additional customers through word of mouth advertising. Whether a family will be displaced for two or three nights and a nearby hotel will serve them well, or a total loss has forces a family out of their home for several months, hard-working and creative claims professionals can often find unique solutions and generate tremendous brand loyalty.