The missing market

While the very rich have bespoken solutions for their insurance needs covered by the high net worth market, insurers are now also looking to bridge the gap between the average customer and the rich-to-be.

The mid net worth market is growing and many insurers are already catering for a clientele who sometimes don’t even know how much they are really worth.

According to David Thompson, head of Crawford Esteem, there is no consistent definition of mid net worth.

“If you ask 10 people, you would probably have different answers. While some insurers would treat someone as HNW, others would see them as MNW.”

Tara Parchment, UK broker development manager for Chubb, agrees that the classification of MNW and HNW does differ between insurers. She adds: “At Chubb, we define our Masterpiece Initial product as upper-end MNW or lower-end HNW, as it is not targeted at what most insurers would call the mass affluent MNW market.”

These are people who are relatively young, usually 35 plus, and who are progressing up the career ladder.

“A fairly typical initial policyholder will be a partner in a law firm or a City futures dealer,” says Parchment. “However, we also cover those who may not be young high flyers, but still have considerable sums insured.”

According to John Lawton, director of home and legacy at Allianz Insurance, definitions of HNW are better understood in terms of liquid assets, but this measure does not easily relate to insurance.

“You can be very rich and live in a rented apartment with minimalist furniture and travel everywhere in taxis, for example,” he says. “For the insurance of assets the tendency is to look at HNW as being where the values to be insured exceed £1m.”

Regardless of how insurers define HNW and MNW, this is a growing market and many people who would benefit from such products are still under-insured.

“‘This is a growing market, you just have to look at the Sunday Times rich list’

Austyn Tusler, Hiscox

“This is a growing market, you just have to look at the Sunday Times rich list,” says Austyn Tusler, head of art and private clients division at Hiscox. “This is new money. People are working harder to work their way up. There are also a lot of women getting wealthy through a successful career.”

Crawford’s market research shows that only 20% of people who would either fall within the MNW or HNW categories are insured within this market.

So it could be argued that insurers are missing an important and profitable market.

“It is amazing that this is still an immature market. If you take our research, 80% of people are insured outside this market,” says Thompson. “They are probably grossly underinsured under standard household policies.”

But insurers are not that far behind, with large composites pushing into this market. “Increasing numbers of insurers are developing products these customers that are clearly affluent but do not quite meet the criteria of HNW,” explains Lawton.” Recent entrants have been NIG with its Elite product and AXA with Exclusive.”

Zurich launched its MNW product last year. This covers clients for up to £100,000, and according to Nick Brabham, head of private clients division, the move was to bridge the gap between the standard and the HNW offering.

“We are seeing more segmentation across the board,” says Brabham. “The whole insurance market is looking at different segments in more detail. The over-50s, buy-to-let landlords and MNW customers are in such segments.

“What we need to do is to get clients to understand their needs. For example, if they buy an expensive watch or ring, or if they travel a lot, the standard cover they have may not be suitable.”

MNW products are evolving to include more benefits normally associated with HNW products.

But the main difference between a standard and MNW policy is that it covers all risks rather than just perils, as well as having higher limits for single items, which means expensive pieces of jewellery and art are fully covered.

“‘There are two clear challenges here – the old problem of under-insurance in that many customers do not really understand what it would cost to replace the contents of their home, and the comparative lack of awareness of MNW products among the general public’

John Lawton, Allianz

Some policies also offer add-ons such as support around identity fraud, and comprehensive travel insurance with a higher trip limit and higher levels of medical expenses.

Tusler explains that Hiscox offers two different products, one that covers up to £50,000 and another with a limit of £150,000. However, he points out that the real difference between HNW and MNW is the complexity of the client’s needs.

He says: “For example, we can insure property kept in the open or perhaps the client has a son or a daughter who is at university, so we can make sure their possessions are covered anywhere they go.

“This kind of policy gives them an extra degree of flexibility.”

Although there are products out there which cater for this market, the challenge for brokers, wholesalers and insurers is penetration. “The majority of customers qualifying for a MNW product, typically contents over £50,000, are covered on standard products,” says Lawton.

He says: “There are two clear challenges here – the old problem of under-insurance in that many customers do not really understand what it would cost to replace the contents of their home and the comparative lack of awareness of MNW products among the general public.”

The solution, he says, is to target these customers through customer profiling and direct marketing campaigns or through affinity arrangements where the affinity has a mid-high net worth profile.

But before trying to expand their client base, insurers can also look in their own books for suitable MNW customers.

As Thompson puts it: “Most insurers already have these policyholders in their books, which is an opportunity to up-sell within the business.

“By offering a more comprehensive product to these clients they can grow their business and increase their profits.”