M&A of high net worth focused businesses has created ‘one of the hardest markets’ for placing these specialist risks, says broker managing director

With Investopedia defining a high net worth individual as someone with liquid assets of at least $1m (£800,000), the high net worth (HNW) insurance market is often viewed as a lucrative sector by insurers.

But, consolidation and a number of significant market exits – such as Nationwide and Covéa exiting certain HNW lines last year have led to a restriction in the capacity available to brokers.

Kevin Morton, head of private clients at insurer Zurich UK, believes this market movement has been driven by insurers looking for increased scale in their HNW portfolios in order to better manage volatility.

He explained: “If you don’t have scale in HNW, because the exposures are relatively large, it’s easy for that book to be volatile over a period of time.”

Morton added that this trend is likely to have been the deciding factor behind some of the exits seen in recent years, as well as the driving force behind consolidation that has reduced the number of capacity providers that are active in the HNW market.

Consolidation conundrum

While consolidation provides benefits of scale, William Cooper, managing director of broker Stanhope Cooper, said that it has also ushered in “one of the hardest markets” for placing HNW risks.

Cooper pointed to the departure of Home and Legacy as just one example of an MGA leaving HNW. In addition, he believes that Aviva’s grasp on Azur Underwriting and Axa XL’s private client business has also restricted choice.

The insurer acquired Azur Underwriting’s HNW personal lines business in August 2022, following the purchase of Axa XL’s private client book in March 2021.

Cooper said: “We’ve lost AIG and Axa to that consolidation – that’s two powerful [insurers] with big cash reserves and no one’s really come in to replace them.

“This makes it much harder to place risks and it’s probably one of the hardest markets I’ve known in the last 15 years in terms of being able to place a high net worth client.

“You might have a panel of eight to 10 insurers, but it could be that only one is willing to offer you anywhere near the terms you are looking for.”

Nick Gavin-Powell, head of private clients at Price Forbes, added that restricted capacity options has also adversely affected service levels.

“The knock-on effect [of this lack of choice] is that the remaining insurers are now seeing large increases in the amount of submissions,” he explained. “This has increased turnaround times, especially if the insurer hasn’t increased [its] headcount.

“Appetites for HNW have remained stable – and we’re not seeing huge rate increases. It’s more that insurers are being choosier and prioritising quotes for business they truly want to win.”

Cooper agreed, confirming that insurer service in the HNW market has been on the decline for some time now.

He continued: “When I first started doing HNW in 2009, you would submit a business case and get an answer back within six to eight hours.

“Every year since then, that margin has grown wider and broader – service level agreements have gone completely out the window and now you’re lucky to get a quote within four to five days.”

As a result, brokers have sometimes had to devise their own solutions.

“A typical HNW underwriter now wants a perfect balance, with the right ratio of contents to reinstatement value, a nice spread of art and some jewellery – but not too much because if there is too much jewellery in there, they just get too nervous,” Cooper said.

“We’ve found it so hard to place jewellery risks that we now have our own jewellery binder, with three insurers on there and capacity to write standalone jewellery [policies].”

Opportunities remain

Despite these challenges facing the HNW market, Gavin-Powell remains optimistic about the opportunities.

He said: “A lot of HNW business for regional brokers comes from the connected business, such as insuring the company directors’ home, cars and watch as well as the commercial policy.

“That’s an opportunity for a broker to cement the trusted relationship with their client, but it can backfire if the broker is unable to deliver competitive terms.”

Morton agreed that cross-selling as a significant opportunity for brokers and insurers, largely due to the low customer churn that is typical of the HNW market.

“It’s very sticky business,” he observed. “While price is a bit of a factor in this market, it is not the [only] factor, so it’s not as commoditised as other personal lines markets – clients want an insurer they can partner with over a period of time.

“Traditionally, you tend to see remarkets performed between three and five years on this business, unless the client specifically requests it.”

Morton added that relationships with clients are often stronger when brokers operate with a real specialism for the HNW market.

“There’s certain brokers that will specialise in this area and that plays well in terms of having the experts that clients can trust,” he continued.

“We look for brokers that have longevity of relationships, understand the client profile intimately and can present risks not just with accuracy of data, but really getting into the detail of how that risk is managed.”

For Gavin-Powell, the insurers that will get it right in the HNW market are those that focus on building solid underwriting capabilities.

“The main challenge for insurers in the sector is meeting demand with consistent service,” he said.

“Those [that] are investing in good quality trading underwriters to help capitalise on the current market conditions will reap the rewards in the medium to longer term.”

Cooper, meanwhile, thinks success in the HNW market is all about flexibility of service and giving customers what they need in the easiest way. He described this as doing the simple things right.

He noted: “What we want in this world is to be able to call an underwriter on their mobile at 5.30pm on a Monday when the phone lines are shut, show them a risk and get an answer.

“HNW is not a computer says no, nine to five type of business. I have clients that often can’t speak until late at night or very early in the morning when they are not at work, so that rigid structure just doesn’t work for HNW clients.”

But Cooper is optimistic about the future of HNW – even if there are still some challenges to overcome in the short term.

“In the long-term, the future is bright and the UK remains a very desirable place – certainly for international wealth to come and live and educate their children,” he said.

“There is a lot of opportunity within HNW but, in the short-term, there are definitely some challenges to overcome in terms of service levels and available capacity.”