A club that's worth joining

The high net worth market is supposedly the panacea for all financial ills. Insurers' high net value adverts are increasingly permeating general audiences, but there's still not much agreement over what constitutes high net worth, mass affluence, mid-high net worth and ultra-high net worth.

The high net worth sector has witnessed rapid growth since its conception in the late 1980s, when the qualifying minimum sums insured were around £250,000 for buildings and £75,000 for contents, says Bob Trott, managing director of Oak Underwriting, a specialist high net worth insurer of high-value homes, fine art, antiques, collections, silver and jewellery.

This has been increasing over the years and rising wealth in an expansive, ageing population will see rapid growth continuing. Part of the reason is that Britain has a booming property market. Some insurers now define high net worth as owning a property worth £500,000 and contents worth £125,000.

Matt Cooper, marketing director at high net worth fire and flood restoration specialists the Revival Company, says: "The high net worth market is undoubtedly expanding and this is partly because people are genuinely getting richer but also because the bar is being lowered slightly.

"House price rises have meant that the number of people whose house is worth more than £1m has increased significantly. "

At Chubb, there are three levels. Initial, which is Chubb's entry-level high net worth insurance starting with people whose homes would cost £300,000 to rebuild, says personal lines manager for Europe John Sims.

People worth more than £700,000 are eligible for Chubb's Masterpiece high net worth policy, while those willing to pay more than £10,000 a year can sign up for the company's Signature service.

Cooper believes the real growth area for brokers is individuals owning houses worth more than £1m.

Policies for this type of individual will be more complex and of higher value than for people worth less than this, he says. "But they will not require a completely different type of expertise and business model in the way the super high net worth market does."

This market requires brokers to spend far more time assessing and advising their clients.

For example, if a broker has a client with more than £5m worth of fine art and antiques, or a yacht to insure, the broker will need to understand how to assess these valuations for insurance and have the right contacts at ' ' the right insurance companies to effect the policies.

The higher end of the market is where the value-added services are. Chubb's Masterpiece policy, for instance, includes some kidnap and ransom cover. The company also prides itself on its service quality and generous payouts.

Out of 11,000 claimants who responded to a Chubb survey, 97.6% said they were happy that Chubb had paid them enough.

"If someone with a Chubb policy has insured a £50,000 diamond ring, we give them £50,000," says Sims.

Lower sum
"Some other insurers may want the customers to go to their own jeweller or accept a lower sum. If you drive a Ferrari and you damage it, we will give you another Ferrari while it's being mended. All these things allow high net worth people to get on with their lives."

As Hiscox' extensive advertising points out, Britain's biggest high net worth insurer has paid out for events as extreme as a cow ending up in a swimming pool.

David Sweeney, UK development director of Hiscox UK Retail, says the company has two levels of customer: emerging wealth for people with contents worth £50,000 to £150,000/£175,000 and high net worth for anything above this level.

About two million people in the UK are either the emerging wealthy or of high net worth, he says. It is a growing market.

It's also a market with flat premiums, which has served to attract capital. However, just as there's disagreement over what constitutes high net worth, there are arguments over the best way to serve the market.

The thriving niche of high net worth insurance has acted as a magnet to imitators, says Trott, and that success has attracted an influx of new entrants.

There have been attempts to commoditise high net worth insurance so that it can be sold direct over the telephone or the internet, using price as the main driver.

Graham Knight, household product manager for Allianz Cornhill Personal, adds: "Insurers have sought to increase their generally profitable household accounts by stretching their standard products to take advantage of the fast growing mid net worth market."

The flaw in this approach is that the products tend to retain their standard features and limits which may not suffice for mid net worth customers.

Hiscox operates a direct high net worth service, but Sweeney rejects any notion that it is commoditising the market.

Anyone with more than £150,000 of fine art, jewellery or other expensive contents is highly recommended on the website to go through a broker, he says, and every one of Hiscox Direct's customers has that option as well. Each year the company directs thousands of consumers to its panel of brokers.

Service quality
One risk is under-insurance. Sweeney says at least 40% of high net worth individuals are under-insuring. Sims believes the figure is nearer to 80%. Another differentiator is quality of service.

Sean Ball, head of Cunningham Lindsey's private client service, says: "A high-quality claims service is paramount in ensuring satisfaction, policy renewal and meeting the expectations of insurers' and brokers' discerning clients in this competitive market.

"High net worth clients are hard to win and you can only keep customer loyalty if you provide the consistently high level of service that they have paid for and quite rightly, expect."

Trott believes brokers have a key role. Brokers are the ideal partner for high net worth insurers, he says.

They know their clients; they are the eyes and ears and carry out all the essential fact-finding.

Unlike most risks in personal lines, a high net worth broker usually knows a lot about the properties being insured.

This can prove useful when looking at hazards such as flood, where disaster avoidance planning becomes an important part of the service, and where high net worth insurers apply detailed bespoke underwriting techniques, rather than the broad-brush approaches more common in normal home cover.

Ball agrees. "While we are seeing the big direct writers making inroads in the market, about 85% of high net worth policyholders continue to use the services of a broker," he says.

"From a claims perspective we find the involvement of the broker extremely beneficial to achieving the balance of providing the appropriate service levels and correct interpretation of the policy cover." IT