Filed Under:Agent Broker, Personal Lines Business

Personal Umbrella Undersold?

Umbrella insurance provides peace of mind, especially for the wealthy

In addition to writing this column on a quarterly basis, I’m an avid reader of American Agent & Broker magazine. While keeping me abreast of industry trends and developments, it often provides me with ideas for future columns.

In its April issue, AA&B reported results from a recent survey of 168 households with more than $5 million of investable assets, conducted by ACE Private Risk Services (see Industry IQ article “Wealthy Fear Liability Lawsuits,” April 2012). According to the survey, more than 80 percent of the respondents fear their wealth makes them a target for liability lawsuits. Nearly two-thirds of the respondents said they believe public perceptions of the wealthy have grown more negative over the past 4 years. 

These survey findings were not all that surprising. If anything, with the relative popularity of the Occupy movement over the past year, I’d wager that if those same households were polled again right now, the numbers would likely be higher. What was surprising—shocking, even—is that in ACE’s estimation, only half of those wealthy families had adequate liability insurance and 21 percent reported having no liability insurance at all.

Related: Read another Matthew Marrone columne "Clear Compensation."

For purposes of this article, we’ll forgo an analysis of what it means to be “wealthy.” I thought it was obvious that people with assets need to protect themselves. However, based upon the results of the ACE survey, it appears this isn’t obvious at all to a great deal of very wealthy people.

Half of the people who responded to the ACE survey thought the worst-case lawsuit would be less than $5 million, but in reality, verdicts can often exceed that. Auto accidents in particular are a big area of exposure. Most primary carriers afford $300,000 of liability insurance or 250/500 on a split limit basis. Between medical costs, loss of income and pain and suffering, especially in a case involving catastrophic injuries, that’s sometimes just not enough. 

Related: Read the article "Record Retention" by Matthew Marrone and Danile Strick.

Having defended many significant personal injury cases, I can say with experience that plaintiffs’ attorneys’ demands are often in the millions. Moreover, the demands are frequently driven by the amount they believe they will be able to recover, and for this very reason I would certainly agree that wealthy folks are bigger lawsuit targets. The amount of available liability insurance often serves as a starting point for a demand, since insurance usually provides the easiest manner to collect on a judgment. However, my plaintiffs’ attorney friends (and clients) have candidly explained to me that lower-than-expected liability insurance limits do not guide their demands when it comes to wealthy defendants, since rich folks can satisfy judgments with their personal assets. 

Note that judgments do not only attach to current assets. Courts can garnish future earnings to satisfy big awards. This means if a client is not sufficiently insured and gets hit with a big judgment, he will have the choice of either using his own assets, or working the rest of his life, to satisfy a judgment entered against him. And when he’s faced with this prospect because he didn’t have sufficient insurance, who do you think he will blame?

Related: Read the article "Required Reading" by Matthew Marrone.

The current economic environment provides insurance brokers with an opportunity—and arguably an obligation—to discuss personal umbrella policies with their clients. Most clients like to keep their premiums as low as possible, and therefore agents need to take the lead on suggesting umbrella policies to their clients. Complicating matters is that many of your clients may have grown into wealth, but may not necessarily understand the current exposures to their assets. As baby boomers age and begin to transfer wealth to a younger generation, insurance limits may fail to keep pace with asset growth. 

In my opinion—as an attorney who defends insurance agents, personal injury claims, and personal injury lawyers—personal umbrella insurance is an obvious coverage brokers should discuss with all of their clients. The cost is relatively inexpensive (particularly for “wealthy” folks), and the peace of mind it affords alone should be well worth it. As always, if your clients choose not to purchase the insurance in spite of your advice, document your file as best you can to reflect their decision.

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