The Great Underserved Niche: High-Net-Worth Clients

BUYER'S MARKET

With the worst of the economic downturn seemingly over, insurance leaders are seeing an uptick in luxury purchases.

Frank Godfrey, managing principal of insurance-brokerage Integro, says some HNW clients are snatching up second and third homes at bargain prices. There is also an increase in art, airplane and boat purchases.

But the last recession was so deep and so scary that it's continuing to have an effect on spending behavior for at least some HNW clients.

For example, Ray Condon, president of Aon Risk Solution's Private Risk-Management Practice, notes some clients are opting to purchase a used airplane instead of a new one.

And Ross Buchmueller, president and CEO of PURE Insurance, a reciprocal insurance company (a company whose policyholders are also owners, thereby insuring one another), notes that the economic lessons of the past four years have led buyers to become smarter consumers and to ask more questions than in the past.

Condon agrees: "Clients seem to be more willing to spend more time going through their coverage. Meetings last longer. What was done in 10 or 15 minutes now may take an hour.

"They want to understand they have the best program," Condon adds. "You have to understand someone's philosophy of risk. Some will say 'I want the best coverage available,' others will at the least say 'show me my options.'"

Mary Boyd, senior vice president and COO of ACE private risk services, says for too long property or assets coverage was based on assumptions—"either a rough guess by the client or agent, or a default percentage of the home's structural value set by the insurance carrier" because a thorough catalog of everything was "overwhelming."

She says research by ACE of high-value homes found about half had insufficient contents coverage. On a home with structural values between $2 million and $7 million, the average level of underinsurance for contents came close to $600,000, says Boyd.

So ACE developed the Home Contents Valuation program that involves sending risk consultants to the home to ensure adequate coverage for the structure. These consultants can gather additional information when visiting and use a special application to analyze the contents' value.

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As many Americans accrue wealth, they don't think about moving their insurance program—and often end up remaining with the same insurer for years. Direct writers and captive agents still hold the lion's share of this market, and often do not provide sufficient coverage for their clients' risk.

Encompass Insurance, whose program is dedicated to the affluent client with assets between $100,000 and $1 million, is still working to educate these clients and convince them to work with independent agents.

"The independent agent is important because they understand these customers' needs and what they need to purchase," says Tom Ealy, president of Encompass. Well-to-do potential buyers, he adds, have a "need for the independent agent as there has never been before."

Lee Roth, president of Chartis' private-client group division of North America, which writes HNW individuals of over $1 million in assets or premium payments of over $10,000, agrees. Roth says the key to his group's success is partnering with independent agents able to explain the advantages of being in a specially tailored insurance program.

"The greatest challenge is directing potential customers to independent agents," says Roth. "When these clients are handled by direct writers, [the necessary] services are not offered—and a lot of [clients] don't know what they don't know."

"A lot of these clients buy on a transactional basis," adds Condon. "They never understand that they have a real hodgepodge of coverage. That is one of the best reasons to take all the separate policies and put them a single plan. Most have never done that before."