Caroline Muspratt says the very wealthy who own planes, boats, classic cars and expensive jewellery need a wealth check as many are under-insured
It’s a hard life when you’re rich. You’ve got all those expensive possessions to worry about, the classic cars in the driveway and the yacht to insure… what’s a person to do?
In fact it’s not just the super-rich who are classed by insurers as “high net worth” clients. There is even a category of mid-net worth, which covers (according to one insurer’s description) people with home contents worth more than £75,000.
In this age of flat screen TVs, £400 computer game consoles (one for each of the kids) and a few antiques or original paintings, that level is well within the realm of imagination for many people.
Insurers and brokers are increasingly realising the breadth of the high net worth category and the number of people who they can target with more bespoke policies.
Hiscox estimates that there are around 2.8 million households in the mid or high net worth category.
Robert Hiscox, chairman, says: “We believe that only 25% of the people who are mid net worth have a specialist policy. The market is enormous. We are the market leader and we believe that we only have 1% of the mid worth market and 9% of high net worth, so there is plenty of room for growth.”
In fact, the UK is forecast to have the biggest concentration of high net worth households among the seven most developed countries in the world within 10 years.
There are a number of specialist insurance products available for this market. Classic cars are a popular past-time for those wealthy enough one and with a bit of time on their hands to potter around the country at the weekends.
Simon Clarke, chief executive of Towergate Underwriting Cherished Cars, reckons that in the UK there are about half a million classic vehicles.
With an average premium of about £200, these are vehicles that tend to be driven fairly infrequently, by more careful motorists. The market for insuring classic cars is worth about £100m.
Owners of classic cars tend to go to a specialist insurer, as getting cover is more complex. For instance, the value of the vehicle itself is more difficult to ascertain.
“‘The UK has a huge under-insurance
problem, especially with home contents’Ann Owen, AIG
Clarke says that classic cars are insured on an “agreed value” basis. At Towergate, customers are asked to send six photographs, which helps assess the age and condition of the car, and a value is agreed at the outset of the policy.
Furthermore, policies are sold on a limited mileage basis. According to Clarke, the average mileage done by a classic car is just 900 miles a year. Customers are offered mileage packages and tend to buy more than they ‘
‘ need. “This is a relatively lucrative area for insurers,” Clarke says. “The Incident rate is relatively modest. One in four or one in five vehicles in the normal car market will have an accident every year, giving an incident rate of 20%-25%. With classic cars it’s below 4%.”
Another ‘executive toy’ popular among the high net worth market is the private jet, used as a hobby and for business travel. And with increased waiting times at airports, due to the new security checks, Clarke says: “The executive jet market is going through a tremendous period of growth at the moment.”
AIG Private Client Group has just launched a new yacht product for the high net worth market to target this growing sector. A “one stop” combined product, it is the first of its kind to automatically offer employers’ liability cover for all crew members, helping to eliminate any potential gaps in cover.
Inside the home meanwhile, many insurers offer special high net worth policies to cover antiques, works of art, jewellery and so on.
Under-insured
It is believed that a large number of people are under-insured as they are unaware of the value of their belongings. It might be relatively easy to get an antique or a painting valued by a specialist, but if you have a wardrobe full of Manolos and Jimmy Choos (well, a girl can dream), do you actually know how much every pair adds up to?
Norwich Union offers a ‘wealth check’ service for high net worth customers, which values their home contents. It recently found from a survey of 100 customers that the average policyholder was under-insured by £85,000.
Ann Owen, vice president of AIG’s UK private clients group, says: “The UK has a huge under-insurance problem, especially with home contents. We have addressed that issue by giving 50% of the buildings sum to be insured for contents.”
In other words, the owner of a £1m house would automatically get £500,000 of contents cover – almost certainly enough to cover their possessions. “It saves the client having to go around the house and do an inventory, which is a huge selling point,” Owen adds.
“‘[Wealthy people] want a solution that meets their needs that isn’t necessarily the cheapest, but they do want it to be competitive’
Simon Clarke, Towergate
It’s not just belongings but the high net worth individual himself or herself who could be at risk. Some insurers offer kidnap and ransom policies, while more mundane but perhaps more important is income protection. A hot-shot fund manager or investment banker may find life suddenly becomes very difficult if he or she is made redundant from a high paying job, especially if they are tied into an expensive mortgage or have school fees to worry about.
Broker discretion
Alan Ferguson, director of marketing and channel development at Legal & General, says: “The sector is growing quite significantly in itself and as a part of overall protection sales.”
He says high net worth clients are more attractive to insurers as the lapse rate is lower and customers tend to stick with one insurer if they are happy with the standard of service.
Even more straightforward insurance cover has to be specifically tailored towards the high net worth market.
Nick Brabham, head of Zurich private clients, says its travel policies are “geared towards the higher-end travel market, who typically spend more on a holiday so there is higher cancellation cover.”
Brokers meanwhile are getting a significant share of the high net worth market. Many people who are “cash rich, time poor” would rather have a broker shop around on their behalf.
Towergate’s Clarke says: “They want a solution that meets their needs that isn’t necessarily the cheapest, but they do want it to be competitive without having to spend too much time on it.”
Personal relationships with the broker are also important – high net worth clients are often concerned with discretion, as well as a reliable service.
However, Zurich’s Brabham says: “It would be foolish to think that as things move on, people won’t be willing to buy from the internet. These people are very computer literate and embrace technology.” IT
