Wealth management has long used life insurance products as a way to help high net worth clients manage their wealth and meet their long-term goals. The value of insurance in wealth management, however, doesn’t stop at life insurance.
Property and casualty coverage also plays an essential role in wealth management. Commercial insurance helps protect these clients’ business and professional interests, while policies tailored to their unique circumstances can help cover private dwellings, vehicles, art collections and other important items of personal property.
The Importance of P&C Coverage for High Net Worth Clients
High net worth individuals vary widely in their choice of lifestyle, their personal and professional goals, where they live and how they make and maintain their money.
Apart from their net worth, many high net worth individuals have only one trait in common: They’re underinsured, writes Michael Costonis, executive vice president and chief operations officer at CNA Insurance.
“Industry analysts estimate that seven of ten luxury homes are underinsured. Furthermore, many HNWI [high net worth individuals] don’t adjust their coverage limits in accordance with the value of the assets or risks,” writes Costonis.
Unique Coverage Needs for High Net Worth Clients
Although high net worth clients may be skilled at making and investing money, they don’t necessarily have the expertise to grasp the nuances of insurance, especially when applied to a complex network of homes, vehicles, family heirlooms, businesses and other assets. As a result, these clients often have less coverage than they need, and some of the things that matter most to them may not be covered at all.
For example, many high net worth individuals and families have valuable collections, antiques or family heirlooms that may not be covered by a standard homeowners policy. Some of these can be particularly difficult to cover, because their value is so unique.
For these clients, valuable articles insurance can help cover items that a homeowners policy does not. These policies are often highly adaptable, covering everything from collections to inherited articles to treasured athletic equipment, says Charlie Graham, national high net worth business development executive at Orchid Insurance.
High net worth clients may need specific coverage for cybersecurity and data protection as well. “High net worth individuals tend to have a large amount of very sensitive and confidential information. Because their reputations are significant, even stuff that has no economic value can cause significant harm,” says cybersecurity attorney Mark Rasch.
High net worth clients offer a largely untapped market for insurance companies. The top three insurers specializing in high net worth individuals’ insurance needs cover less than 15 percent of the premiums. Meanwhile, 75 percent of these clients work with independent agents and brokers, says Costonis.
P&C Insurance as a Wealth Management Tool
For high net worth individuals and families, asset management offers a beginning, but it may not go far enough to protect their needs while achieving their goals. Instead, these clients often benefit from working with wealth managers, who “take a broader look at their entire financial circumstances in order to optimise their money in a way that achieves individual goals and ambitions,” writes Daglar Cizmeci, CEO of Red Carpet Capital.
One of the topics often covered in this broader view is that of property and casualty insurance coverage.
Protecting Wealthy Clients from Unique Risks
Property and casualty insurance for high net worth clients often must consider both personal and business angles — as well as grey areas that may not be a concern for other insurance customers.
For example, a high net worth individual may seek coverage that protects a building or property from cleaning accidents, thefts by staff, or lawsuits from employees or service agencies, writes Sean Ross at Investopedia. This coverage may have little value for other customers, but it can help protect the wealth of high net worth individuals.
Many high net worth families manage their family affairs via family offices. These offices handle a wide range of financial, scheduling and other matters. According to a 2017 report by Edward V. Marshall, managing director at Boston Private, about 15 percent of family offices have experienced a cyber attack event. Coverage for these events, as well as for a family office’s physical premises and contents, can help protect a high net worth individual’s or family’s assets.
How Insurance Helps High Net Worth Individuals Make Better Investment Decisions
Proper P&C insurance coverage can help high net worth clients make better investment decisions as well. For example, Morgan Stanley recently began offering property and casualty insurance coverage to high net worth clients through brokers like Hub and Willis Towers Watson.
By offering P&C insurance tailored to these clients, Morgan Stanley seeks to improve their customer experience and to position clients for more effective wealth management, says Joseph Toledano, managing director at Morgan Stanley Wealth Management.
“If an advisor knows that a client’s risks — like a second home, a boat, or a fine art collection — are effectively hedged, that their liabilities are taken care of, financial advisors can be more aggressive” in recommending wealth management solutions that help high net worth clients grow their wealth, says Toledano.
P&C Insurance and Wealth Management in a Digital World
The COVID-19 pandemic has also spurred insurers and wealth managers to reconsider their work and the tools they use to execute it on behalf of clients. While the pandemic is a crisis, it is also an opportunity for insurance and financial institutions to make long-needed improvements, write Anna Zakrzewski and fellow researchers at BCG.
One way insurers can expand their offerings to high net worth clients is by establishing or partnering within a digital ecosystem that offers one-stop solutions for these clients’ unique needs. For example, high net worth individuals often require the assistance of an appraiser to obtain adequate coverage for valuable items or collections. A digital ecosystem tailored to these clients’ needs could help them find an appraiser while also recommending the best coverage options.
“Everything is insurable; it’s just going to be priced out differently,” says BB&T’s Toni Davies. When property and casualty insurers work together with appraisers and other professionals within a digital ecosystem, they make it easier for high net worth clients to understand and purchase the coverage they need.
As wealth management moves into the digital space, companies with well-established digital presences and infrastructures are examining ways to become competitors for relationships with high net worth clients. For example, companies like Alibaba and Amazon are expected to expand into digital wealth management in the next few years, writes Stefan Wagstyl in the Financial Times.
These companies bring unmatched experience in digital services to the table, but they don’t have the depth of expertise that insurance and wealth management companies offer. For high net worth individuals, the offer of expertise is often more valuable than the offer of savings, says Annmarie Camp, head of Personal Risk Services at Chubb Europe
Camp notes that reaching high net worth clients means considering how insurers “cut through all of that clutter and reach people to say, ‘you’ve worked very hard for what you’ve achieved, and we know you’re very busy, let us bring in an expert to help you sort it all so that you will never have the worry about being under insured.’”
Many P&C insurance companies have made it easier than ever for customers to shop for and place insurance digitally. By considering the unique needs of high net worth clients, insurers can build digital ecosystems that attract these clients as well.
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