Household Insurance for the
High Net Worth Customer
Mervyn Albon
Class Underwriter Property Schemes
Broadgate Syndicate 1301 at Lloyd’s
29th September 2011
High Net Worth vs. Standard Insurer
– An Overview of the Insurance Market
• The high net worth (HNW) market has evolved in the UK
over the past 20 years
• Now there is a good choice of insurers for the HNW
individual to choose from
• There is still a high proportion of HNW customers who
insure with “household name” companies purchasing a
standard type of insurance policy
• Lack of customer & insurance agent education and
awareness of specialised products available
The Key Differences
– HNW vs. Standard
• The ease of reading and understanding
• The core coverage provided
• How a claim is paid – the basis of settlement
• Specialised coverage extensions
• Warranties and conditions – the “small print”
• Value added services
Know ye that we the underwriters ...
• HNW policies should be in clear and easy to understand
plain English
• A customer should know what is, and what is not
covered
• Defined words – the meaning of language used in the
policy
• Lack of ambiguity for customers and underwriters
entering into an insurance contract
Warranties & Conditions
– the “small print”
• Standard policies often carry “conditions precedent to
the liability of underwriters”. These may include:
– Average
– Protection and alarm/safe warranties
– Item specific clauses such as “clasp and settings” or “onus of
proof of value”
• A HNW policy should be warranty free. This is based on
trust and the understanding of a HNW customer’s
lifestyle, however some risks do need special terms
• For a HNW underwriter, the best customer is:
• Rich
• Honest
• Careful
What is “Average”
• Average is a method used by insurers to protect
themselves against under insurance
– If a property is insured for less than the actual
reinstatement/replacement value of the item(s) then
underwriters do not receive the correct premium for the
risk
– An under-insured claim is therefore subject to proportional
settlement
– Most insurers use 20% under-insurance as a trigger point
before applying Average
Core coverage – All Risks Vs. Perils
• “Peril” – “a cause or pain, or injury, or loss”
• Peril based policies are still purchased. Typically
covering the perils of:
– Fire, lightning, explosion, aircraft/vehicles/animals, storm, flood,
weight of snow, escape of water/oil, theft, riot, subsidence,
heave and landslip
– Accidental damage option for an increased premium
– Contents only covered within the home unless an additional
premium paid; sum insured limited
• “All Risks” – “all risks of physical damage or physical
loss”
– HNW policies will cover contents etc. on a world wide basis
Buildings Insurance
– Standard Insurer: reinstatement of the property
• Subject to “average”
– HNW Insurer: reinstatement of the property.
• Not subject to “average”
• Extended reinstatement available after property
surveyed by insurer
Buildings Insurance cont.
• HNW policies give full reinstatement cover with no
“average” condition for under insurance
• Cost of alternative accommodation/loss rent – mostly
unlimited in monetary terms and given for 12+ months
• “Trace & Access” cover
• Replacement locks – most HNW policies have no limit or
deductibles
• New acquisitions; some HNW policies give automatic
coverage for newly purchased properties
Contents Insurance
• HNW policies generally give worldwide all risks coverage
• “New for old” coverage
• No deduction for every day wear and tear on clothing
and other items; a standard policy will pay a claim with a
deduction for depreciation
• A HNW policy will give generous sub limits for higher risk
items such as precious metals and jewellery
• New acquisitions are often covered automatically,
subject to a pre-determined limit
Fine Art, Antiques, Collectibles &
Valuables Insurance
• Standard insurers do not provide an adequate basis of
settlement and often shy away from high value items
• HNW insurers cover the items based on their current market
value
• It is possible to insure items on an “agreed value” basis
• Depreciation cover is often given for “partial” losses
• Acquisition cover
• “Pairs & Sets” - if an item(s) has an increased value because
it is part of a pair or set then HNW insurers can take this into
account if one item is lost or destroyed
• Some HNW policies cover an item whilst at a restorers
• Defective Title insurance
Personal & Employers Liability Cover
• Standard insurers give fairly low limits
• HNW policies give worldwide personal liability coverage
(with some time restrictions for North America)
• Libel and slander cover available
• Domestic employees cover given
Additional added benefits
• Free personal risk appraisal – ensuring correct sums
insured and offering risk management advice
• Legal expenses coverage with higher limits than a
standard insurer
• Home emergency coverage
• Annual family travel insurance – better coverage than
offered by standard travel insurers
• Identity Theft cover
• Some HNW insurers allow you to insure motor vehicles
under the same policy
Some examples ...
Average
• The Round House, Belle Isle
• Grade I listed C17 residence
• Badly damaged by fire in 1996
• Under insured by around £6.5m
– HNW insurer guaranteed the rebuild
– A standard policy would not have
responded
Some examples ...
Trace & Access …
– Leaking under floor pipe
– Standard Insurer:
• Limited trace cover
• Partial replacement
• Not suitable for the HNW
customer
– HNW coverage:
• Damage caused finding leak
• Replacement of whole suite
Some examples ...
Agreed Value
•
•
Wedding ring made for HNW customer
Item stolen from hotel room
– Standard Insurer
• May decline claim in unattended hotel room
• Would seek to use own replacement jewellers
• May not agree the insured value
– HNW Insurer
• Based on valuation agreed value cover given
• HNW insurer paid loss as a cash settlement
• Customer had new ring made