When a puff back in the chimney of the home of the CEO of a Rhode Islandmanufacturing company caused extensive damage throughout hisfamily's elegant 7,200-square-foot Colonial home, his claimsadjuster faced a complex case: The smoke damage to the decorativepainting on the living room walls would require carefulrestoration, while the cleaning of a collection of 19th-centurybooks would call for an entirely different expert.

The entire repair would take several weeks to complete, andwhile the home may have been technically “habitable,” it would notbe appropriate for the CEO's seven-year-old son who suffers fromasthma. Finding appropriate and comparable alternativeaccommodations would become one of the greatest challenges for theadjuster in this case.

Providing expert claims service to the high-net-worth niche canbe difficult. Few circumstances can be as daunting as helpingwealthy Americans maintain their expected quality of living after aloss. Following a year when more and more families were displacedfrom their homes, either because of mandated evacuation or damagecaused by unrelenting record-breaking catastrophes, loss-of-usecoverage is more likely to come under scrutiny by policyholders andagents than ever before. The way in which high-net-worthspecialists approach this coverage may offer some helpful insightsto all carriers. 

Living WithoutLimitations? 
Coverage can differ markedly,particularly between standard carriers that serve consumers withconventional needs and specialist carriers that cater to successfulfamilies with more sophisticated ones. Standard carriers generallycap “loss of use” coverage, or coverage “D” on ISO forms, at 20percent of the dwelling limit. Following a major or total loss,these funds can run out quickly, especially when impacted familiesare trying to maintain their normal standard of living.

Specialist carriers are less likely to cap limits at apercentage, and instead typically provide coverage for “reasonableexpenses” required for families to maintain their lifestylefollowing a covered loss. When a policyholder is accustomed to ahigh standard of living, however, it can be tricky to find thedefinition of “reasonable.”

Loss-of-use coverage is generally not precluded by a time limit,but rather is available throughout the reasonable amount of timerequired to repair the loss and/or make the home properlyinhabitable. The absence of a time limit can be costly when dealingwith high-value or unique properties.

Several years ago, an electrical fire caused substantial damageto an 18th-century home overlooking New York's Long Island Sound.Following the fire, the owner of the home, an accomplishedphysician, was quite reasonable in finding an appropriate home nearhis office and his daughter's school. 

However, the town's zoning commission and the local authoritiesresponsible for the approval of works on a historic property werenot as accommodating. Because of the additional regulatoryapprovals, a nine-month construction project resulted in an18-month stay for the doctor and his family in the rental home.

Tailored Coverage, TailoredSolutions
Specialist companies have begun to allowpolicyholders more flexibility to tailor limits for additionalliving expenses (ALE) to better reflect the fact that every familywill have unique needs and expectations following a claim. Forexample, in coastal areas—where premiums are typically at theirhighest—owners of second homes may be able to control premium costsby selecting a lower limit. These families may opt for lower limitsfor ALE, because of their ability to live in one of their otherresidences following a loss. Regardless of limits, however,policyholders in need of temporary living accommodations expect atailored response.

When the New York City cooperative apartment of an investmentbanker suffered significant water damage, repairs were estimated totake three months. While a comparable rental unit was available forthe time during which the apartment was uninhabitable, thepolicyholder had a better idea. As he and his family were spendingmore and more time at their Long Island house that summer, hepreferred an arrangement that allowed him to submit bills from alist 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 ofrestoration work, he gained the flexibility and service of NewYork's finest hotels at a lower cost than a short-term apartmentrental.

It is ideal when a tailored solution can create policyholdersatisfaction and cost less. Sometimes it does cost a great dealmore to serve the high-net-worth market. The scenario of one Dallasexecutive illustrates this. The executive suffered a kitchen firein his gorgeous six-bedroom home in Highland Park, Texas. PUREbecame responsible for finding a comparable home on the rentalmarket to enable the executive and his family to maintain theirlifestyle in a reasonable manner.

The company was able to locate a home that would provide acomparable living arrangement, and a monthly rent of $15,000 wasagreed upon. However, the owner of the rental property refused torent the home for a period of less than 12 months. While otherhomes on the market were more flexible in their terms, they did notmeet the needs and expectations of the policyholder and his family.Despite an estimated four- to six-month restoration project, the12-month rental home was deemed to be the most reasonablesolution.

ALE After Natural Disasters 
Theimpact of a slew of catastrophes in 2011 has been well documented.From the tornadoes in Joplin, Mo. and Tuscaloosa, Okla. to thewidespread damage of Hurricane Irene, last year will be in therecord books as one of the worst. As thousands of displacedfamilies likely learned over the past 12 months, work onloss-of-use solutions is happening before, during, and after adisaster hits.

When a mandatory hurricane evacuation occurs, for example, thereis typically coverage in place. Standard and specialist carriersprovide additional living expenses for homeowners who are evacuatedfrom their homes at the request of civil authority—though standardcarriers typically provide coverage for two weeks; while specialistcarriers 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 SouthernCalifornia were trying to charge nightly rates of up to $1,000 aroom in the days surrounding a devastating wildfire. Thecatastrophe-modeling firms call this “demand surge.” The rest of uscall it “gouging.” Regulators and legislators have begun to takeaction where possible, but there is no denying that when an entireupscale community is impacted, the availability of comparablehousing may be limited, and the costs are going to rise.

Specialist insurers have become adept at negotiating in advancefor upscale hotel rooms at pre-determined rates, whilesimultaneously communicating to policyholders about the challengesahead. While there are obvious challenges of responding to adisaster with claims professionals and restoration experts,sometimes the greatest challenge is to find an appropriate placefor a wealthy family to live in the aftermath.

Providing a Service TouchPoint
Loss-of-use coverage provides an opportunityfor insurers to act as service providers—and to make a terrificimpression on their policyholders during troubling times. Manycompanies are quick to put the onus of finding a rental ortemporary property on the policyholder, but high-net-worthspecialist insurers have created a superior experience for theirpolicyholders. 

Following a loss, specialist carriers are committed to helpingtheir policyholders create a temporary living situation thataccommodates their lifestyle and needs. Each situation takes intoaccount where the adults work, where the children go to school,whether they have pets, what kind of accommodations their homeprovides them, and how long they'll be displaced. This kind ofattention to detail can make all the difference to a family facinga major loss and certainly elevates the level of serviceprovided.

For many successful families, their valuable time is often themost precious commodity. Locating a home that fits a policyholder'slifestyle and standard of living can require hours of collaborationwith local realtors and firms that specialize in facilitatingtemporary accommodations. Identifying and discussing the specificneeds of each family certainly takes an additional level ofattention—not to mention patience. Then add in working withspecialists to procure furnishings for a home that are aligned withthe requirements of the family, and you essentially have themakings of an entire job description. In fact, some insurers havededicated “advocates” whose primary purpose is to helphigh-net-worth families deal with the administrative hassles thatcan accompany a large loss. 

In a typical claim scenario, there is often a team of insurancespecialists working together to resolve the loss: a generalproperty adjuster, an auto specialist if a vehicle has been damagedas part of the loss, a water or fire remediation firm, and acontents specialist. While these roles are focused on settlinglosses promptly and fairly, the advocates aim to ensure thatpolicyholders receive “white glove” service throughout the process.These individuals manage the additional living expenses portion ofa loss from start to finish, including research, vendor managementand negotiations, and communication withpolicyholders. 

While adjusters focus on communication with contractors,contents handlers, and other service providers as they work toreturn homes to their original condition, it is often equally asimportant to ensure that families are cared for while repairs andreconstruction efforts are underway. The participation of theseadvocates also helps to expedite the claims process, increasingefficiency within the department and improving service for theinsured.

Creating Brand Loyalists
Thehigh-net-worth market is a demanding niche. By providingsuperlative loss-of-use services following an event that renders aresidence uninhabitable, carriers have the opportunity to wincustomers for life and engage additional customers throughword-of-mouth advertising. Whether a family will be displaced fortwo or three nights and a nearby hotel will serve them well, or atotal loss will force a family out of their home for severalmonths, hard-working and creative claims professionals can oftenfind unique solutions and generate tremendous brand loyalty.