Are add-ons worth it?

Insurers are increasingly looking to include extra 'value-adding' bolt-ons to their HNW policies. From stalker cover to identity fraud protection, the number and type of add-ons is growing. Zurich Private Clients (ZPC) recently launched a series of 'lifestyle' protection covers that included a medical consultation service and a 24-hour lifestyle counselling service.

Critics argue that these features are of no real value to the client and only serve to detract from the core cover. But their proponents say that they are merely reflecting the changing risks that their wealthy clients have to address.

Chubb Insurance is one HNW insurer to offer add-ons. In April 2003 it expanded its Masterpiece policy to cover car-jacking, stalking and aggravated burglary. It claims to be the first insurer to do this. The company also provides identity fraud cover, launched in the previous year.

Chubb's European head of personal lines John Sims says that the company chose to include stalker cover and the other features because it wanted to protect clients' lifestyles not just their possessions.

"These are real exposures and it is perfectly legitimate to provide cover for them," he says. He sees them as "more than add-ons".

"A lot of these exposures have come to light in the US and then the UK," he continues. "These are covers most insurance companies should be giving.

Anyone could sustain these losses."

ZPC general manager Martin Hall also defends the lifestyle protection enhancements, which includes stalker cover and identity fraud cover, on the basis of changing risk exposures.

"We were thinking about changes in society and different risks," he says.

"We want to move towards a risk management based approach with added services.

The development has been driven by the kind of issues that our clients have to address. It is vital to keep our policy in tune with customers' lifestyles."

But not all agree that extra features like stalker cover add any real value. Hiscox partner Charles Dupplin, who heads the insurer's art and private client division, describes the long list of add-ons (a "laundry list" as he describes it) as an "unhealthy development".

"They make the policy longer and difficult to understand. And people don't actually claim on them. The police, for instance, do not think that people will be victims of stalker. Add-ons have no value," he argues.

Dupplin admits that the Hiscox policy includes add-ons such as marquee cover and identity fraud, but he says this is done "reluctantly" because others are doing it.

"Extras provide a way to differentiate and create headlines, they are not added in for insurance reasons. It makes it difficult to compete without it," he says.

He also argues that add-ons make the broker's job more difficult. "If a market is not offering identity fraud, but another is, should the brokers go with the market that does, if it is not as good as the market that doesn't?"

Oak Underwriting managing director Tony Lumsden-Cook also says that many add-ons are without value. He argues that only ones that would be widely used should be included. He suggests legal expenses covers as a particularly valuable addition. Otherwise, he says, add-ons only serve to "soak up premium" and divert attention from the core product.

"Stalker cover can be bought in the market," he says. "If a client is worried about this risk, he or she can get that cover separately. Add-ons like this are simply put in because the market is flat."

Brokers also question the worth of the add-ons. Sterling Hamilton Wright VIP personal lines manager Fiona Macrae says: "If you are a true HNW client then the add-ons can be beneficial, but at the lower end of the market they are of no use. Only 5% of clients will have a use for them." Macrae says that add-ons are being used to detract from the price of the product.

"It is basically one-upmanship; they are using add-ons to compete. But at the end of the day they are not worth anything if a client doesn't need it."

She says the insurer's claims service is the important factor for her when placing business and not the add-ons. "Clients do not want to be mucked around when making claims," she says. "I also want flexibility in underwriting," she adds.

Cheryl Machen, international and key account director at Marsh private client practice, is more positive about the use of add-ons such as stalker cover and aggravated burglary. "Crimes have become more aggressive and people are being targeted for their wealth. It is also easier to find out people's personal details. Insurers are adapting to trends in the market."

But she does point out that while clients are more aware of the additional features that HNW policies offer, they do not tend to ask for them. "But they like them if they are offered," she adds.

Where is the trend to include extra features heading? Sims says that there is scope to add other products and services, such as those from the life insurance side like critical illness cover.

But he does say that this would be difficult to - particularly as Chubb does not have a life assurance arm.

"But there is scope to join with other brands and provide add-on services," says.

Hall says that it is difficult to predict how the HNW market will develop in relation to add-on features, although he suggests that there might be greater use of kidnap and ransom cover.

He does agree with Sims that linking with financial services products could be an "interesting" option. Like Sims he notes that there are difficulties owing to different distribution channels.

Hall also says that there will be greater collaboration between HNW insurers and other brands in the future. "Brands will become more and more important," he says.

Machen says that moves towards a broader HNW product would be welcomed by policyholders.

"Wealthy people want a one-stop-shop," she says. "They want a single advisor to look after all products - rich people just want one phone number.

As a broker there is an opportunity to make life easier for the client and anything that makes life easier would be better."

But Sims notes that caution must be taken when considering extra services and features for HNW products. "You have to be careful not to water down the product. It is ultimately a policy that pays claims - at the end of the day, people want a cheque."

Some would argue that insurers' moves to include more and more add-ons in their HNW policies is already doing this.