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 seven-year-old son of the CEO who suffersfrom asthma. 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 Without Limitations?

Coverage can differ markedly, particularly between standardcarriers that serve consumers with conventional needs andspecialist carriers that cater to successful families with moresophisticated ones. Standard carriers generally cap “loss of use”coverage, or coverage “D” on ISO forms, at 20 percent of thedwelling limit. Following a major or total loss, these funds canrun out quickly, especially when impacted families are trying tomaintain 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 IslandSound. Following the fire, the owner of the home, anaccomplished physician, was quite reasonable in finding anappropriate home near his 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, Tailored Solutions

Specialist companies have begun to allow policyholders moreflexibility to tailor limits for additional living expenses (ALE)to better reflect the fact that every family will have unique needsand expectations following a claim. For example, in coastalareas—where premiums are typically at their highest—owners ofsecond homes may be able to control premium costs by selecting alower limit. These families may opt for lower limits for ALE,because of their ability to live in one of their other residencesfollowing a loss. Regardless of limits, however, policyholders inneed of temporary living accommodations expect a tailoredresponse.

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 Highland Park, Texas home. PURE becameresponsible for finding a comparable home on the rental market toenable the executive and his family to maintain their lifestyle ina reasonable manner. The company was able to locate a home thatwould provide a comparable living arrangement, and a monthly rentof $15,000 was agreed upon. However, the owner of the rentalproperty refused to rent the home for a period of less than 12months.

While other homes on the market were more flexible in theirterms, they did not meet the needs and expectations of thepolicyholder and his family. Despite an estimated four- tosix-month restoration project, the 12-month rental home was deemedto be the most reasonable solution.

ALE After Natural Disasters

In 2011, the impact of a slew of catastrophes has beenwell-documented. From the tornadoes in Joplin, MO and Tuscaloosa,AL to the widespread damage of 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 challengesthat lie ahead. While there are obvious challenges ofresponding to a disaster with claims professionals and restorationexperts, sometimes the greatest challenge is to find an appropriateplace for a wealthy family to live in the aftermath.

Providing A Service Touch Point

Loss- of-use coverage provides an opportunity for insurers toact as service providers, and to make a terrific impression ontheir policyholders during troubling times. Many companies arequick to put the onus of finding a rental or temporary property onthe policyholder, but high net worth specialist insurers havecreated a superior experience for their policyholders.

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 help high networth families deal with the administrative hassles that canaccompany 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 with policyholders.

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 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

The high-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 through word ofmouth advertising. Whether a family will be displaced for two orthree nights and a nearby hotel will serve them well, or a totalloss has forces a family out of their home for several months,hard-working and creative claims professionals can often findunique solutions and generate tremendous brandloyalty.