Over the three-year period in which I have written this column, I have focused each article on a single area of financial risk for high-net-wealth families and individuals. I've decided to break the mold this time, instead, focusing on several risks of concern to the affluent.

To help in this undertaking, I reached out to four insurance professionals whose agencies specialize in serving a wealthy clientele and asked each one to relate a particularly worrisome risk cited recently by several of their clients. 

Interestingly, each agent noted a different risk facing their high-net-worth clients.

Sleep disruption No. 1: Cyber crime

Eric Gordon, president of Denver Agency, located in that city's upscale Cherry Creek neighborhood, told me that his wealthy clients have contacted him for advice on managing cyber liabilities, not particularly surprising in today's hacking environment.

"They're concerned about the volume of their personal information that is now online and their risk of identity theft," Eric said. "These are people who prefer a low profile, which is increasingly elusive." 

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His clients are worried that cyber thieves will accumulate enough personal data about them to hack into their bank accounts; expose them to defamation, slander and libel lawsuits; damage their reputations; and hold them hostage to ransom. "Why do you think hackers go after the personal information on sites like Neiman Marcus (a high end department store)?" Eric said. "The reason is because wealthy people shop there." 

He affirmed the importance for high-net-wealth families to discuss these cyber risk exposures with their insurance agents, who can provide risk mitigation and loss prevention recommendations and, most important, secure insurance coverage with an insurance company that offers post-incident credit monitoring and legal and public relations services. 

2 wealthy couples drinking champagne

(Photo: Thinkstock)

Sleep disruption No. 2: Social liability

Jeff Kaplan, senior vice president and family office practice leader at Risk Strategies Company in Boston, cited that his clients' worst nightmare is the risk associated with hosting a social event, which can produce a large-dollar liability scenario. 

"Several clients have called me to say they're planning to host a fundraiser at the local museum or at a political event," Jeff said. "They mention that liquor will be served, and are worried that someone will drink too much and get in a devastating accident on the way home. Horrible stuff can indeed happen." 

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These horrors are exponentially higher for affluent individuals, who host such occasions often and lavishly, with dozens if not hundreds of people in attendance. If the fundraiser is at the host's home, guests also can trip, fall and sustain serious injuries.

To mitigate such possibilities, Jeff advises his clients to hire a catering service that employs and insures its bartenders against liquor-related liabilities. "`That's your first line of defense,' I tell them," Jeff said. "Require the company to list you as a certificate holder under the policy, adding you and all guests as additional insureds." 

The second line of defense, he added, is a broadly written homeowner's insurance policy with high financial limits. And the third is an umbrella liability policy with very high limits as well. When events are hosted outside the home, Jeff recommends that clients have their agent contact the venue to peruse the site's insurance policy.

One final caveat—whether the event is at home or outside it, hosts should never mix and serve drinks to guests, as this may negate the protections afforded by the other parties' insurance policies. 

wealthy couple with their household staff

(Photo: Thinkstock)

Sleep disruption No. 3: Staff exposure

Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners in Tampa, said the biggest worry expressed by her clients is their vicarious liability for the actions of household staff. "If the housekeeper is running an errand for you and she gets into a terrible accident in her car, you can be held liable for the damages," Laura explained. 

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There is a good chance that the financial limits of protection provided by the housekeeper's car insurance policy will be insufficient to address the potential losses. "An attorney will go after the domestic employer, fully aware they have deep pockets," Laura said. "The problem is that not all insurers cover vicarious liability. It's a very gray area." 

She recommends that her clients work with their attorney to consider forming a limited liability company (LLC) for the intent of purchasing a so-called "hired and non-owned" automobile insurance policy, a commercial policy that absorbs losses caused by non-owned vehicles, such as vehicles owned by household employees.   

"Clients also can have their domestic staff drive the client's car, or clients can require their domestic staff to carry a minimum limit of liability coverage," said Laura. 

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