HNW Focus: HNW capacity enjoys ‘resurgence’ despite economic Covid constraints

One of the detrimental resulting impacts of the Covid-19 pandemic is undoubtedly economic, as businesses struggle to stay afloat during lockdown and staff are victims of redundancy.

Juxtaposed with this coronavirus-caused recession is a high net worth (HNW) market that is in apparent good health, with a “resurgence” in new market entrants - such as Munich Re and Brit -that are looking to grow and overall capacity remaining “consistent”.

John Lumley, chairman and managing director at Lumley Insurance, said: “It’s interesting, you’d expect there to be a crunch but it’s not looking like that at the moment.”

Lumley explained that when the market hardens following a crisis event, typically capacity is drawn away from “bread and butter” HNW to accommodate other market sectors that are under pressure, such as professional indemnity (PI).

“As such, the rates are drawn up to reflect the fact that capacity has been attracted away to the areas where [the market] needs to get its money back. That’s been expected to be happening now as quite a few sectors have been struggling, but we haven’t seen that yet,” Lumley said.

“We see that rates have been hardening and there’s still some hardening, but [there is not] a withdrawal of capacity – all the main players are still very much engaged in the market.”

Sara Simmons, head of HNW at Covéa, agreed with Lumley. She added: “Some capacity providers have re-entered the market this year and it’s rumoured that other markets will also launch HNW offerings later in the year.”

‘Glamourous and sticky’

For George Seatter, director and head of private clients at Vizion Private Clients, capacity has remained “consistent” and “static” due to the equal fluctuations of entrants entering and exiting the HNW market.

This view is shared by Horizon Underwriters’s sales director Mike Webley. He described the general size of the market as unchanged, but there are simply “more mouths” within it. “If you’re a broker, you’ve probably got more markets, but the actual overall size of the market hasn’t changed,” he explained.

Nick Wilmot, bespoke manager at NFU Mutual, takes a slightly different view. He said: “There has been a steady decline of capacity within the high net worth market; 2019 saw the lowest number of HNW products available for the past five years.”

Despite this, “the market has had a surplus of capacity for as long as I can remember,” he continued. “Whilst we’ve seen this shrink in recent times, there is still plenty of choice out there.”

The boomerang of capacity could be linked to HNW’s good image – Webley described the market as “glamourous” and “sticky”, while Seatter added that HNW has always been “pretty robust”.

Premiums in the market are generally higher and policyholders are less likely to make claims, so “loss ratios tend to be pretty good” Seatter said. Webley added that HNW policyholders are “cash rich and time poor”, which “means you could get a good renewal retention figure” too.

Simmons continued: “HNW is seen as an attractive sector due to its profitability, as well as potentially having a lower capital requirement than other business lines.

“Additionally, customer loyalty, with high retention rates averaging tenures of five plus years, customers frequently being early adopters of tech, and higher premiums make this sector perfect to trial new risk management, tech and [customer experience] approaches.”

But what is the market impact of this excess of capacity? Webley said: “It means that from a renewal point of view, all insurers need to be on their game because there are more people out there hungry and fighting for the business.

“It’s more choice for the broker; it allows the broker not to put all their eggs in one basket and ultimately it helps the client because more choice drives competition, which drives rate, so it allows the client to get the best option they can.”

Covid-19 impact

Although the HNW market overall has emerged relatively unscathed from the coronavirus fallout, there are still some areas of the sector that will be affected.

In terms of capacity, Seatter confirmed that the pandemic will naturally halt the flow of new entrants, unless an insurer was already under way with its plans to join the HNW market.

He said: “It would be a really strange thing for insurers to be deciding now to enter the high net worth market when I would imagine everybody’s going to be almost retrenching back to what they know and where they’re established and seeing if they can ride out the storm that’s going to happen to the market in general.”

Capacity could shift around the sector even more over the next 12 to 18 months, Seatter continued, as insurers affected by the onslaught of commercial coronavirus-related claims may find themselves having to make knock-on changes to their HNW offering – this could see the market’s new entrants steal business away from established players such as Hiscox.

“There’s definitely a negativity there. Hiscox is the one really to watch, to see what happens with them over the next six to 12 months,” he added.

Webley agreed: “It will be quite interesting to see what happens post Covid-19 because there are some insurers in high net worth that also do travel and commercial and the majority of Covid-19 claims happen in the commercial space and the travel space.

“If those insurers do end up paying large losses out, potentially there might be a re-price on their high net worth as well. So, it will be quite interesting to see what happens there.”

The other Covid-19 ripple effect making waves in the HNW sector relates to travel insurance, which is often a bolt-on product to an HNW household, contents or motor insurance policy. Seatter expects this practice to stop because travel policies will increasingly include coronavirus exclusion clauses and travel premiums on the whole will become more expensive.

He said: “A lot of insurers bundle travel into an overall portfolio with house and car and so on because it’s been relatively inexpensive to do it. I think you’ll stop seeing that happening and if clients want travel insurance, then they’re going to have to pay significantly more for it.

“It’s been pretty standard that you could bolt on a travel policy to a household policy for less than a couple of hundred pounds a year for a family of four and my feeling is that those premiums are going to double.

“Those high net worth insurers that can provide [travel insurance] themselves will be fine, albeit they’re probably going to have to charge an increased premium for it. But for those that don’t have it, where it’s been a bolt-on provided by somebody else, I think you’ll see it stop altogether.”

Differentiate

With more choice across the HNW market, Wilmot said the focus for insurers is on differentiating their offering – NFU Mutual, for example, added personal cyber cover to its home insurance product in June in recognition of increased home working.

He continued: “The footprint of high net worth has been evolving. Insurers are now targeting more mid net worth and non-standard household cases.”

Webley, on the other hand, has noted an increase in risk mitigation measures, as well as HNW specialties, such as fine art, heritage and listed buildings and jewellery.

He said: “If everybody’s the same, then you only fight over price. But if you’re offering something a bit different, you can actually win business due to your niche, which I think is healthy for everybody.

“If we’re all doing something a bit differently but playing in the same space, it allows everybody to try and attract the right clients.”