James Sullivan looks at how brokers can take up the challenge of the high net worth sector
?There was a time when the high net worth sector (HNW) was viewed by most people in the industry as little more than an interesting niche area, with very few brokers and even fewer underwriters actually offering any products.
Yet in recent years this scenario has considerably changed, with increasing affluence meaning that the catchment area for potential policyholders has widened substantially.
What this has meant is that underwriters left, right and centre have, over the past five or so years, declared an interest in HNW, flooding this once sleepy market with abundant capacity.
As things stand, this has to be one of the most aggressively fought over patches on the insurance lawn.
Naturally with such a highly competitive marketplace, pursuing the right distribution strategy is all important. At the more commoditised end of things, and increasing even for small packaged business policies, a diverse distribution model seems to be favoured – this is not really the case for high net worth.
Direct sales may increasingly make sense for a bread and butter product like motor, but not so much for HNW, where the general opinion seems to be that the role of the broker is absolutely crucial.
The trumpeting of the broker’s role in high net worth isn’t merely coming from intermediaries themselves, it’s also supported by service providers and underwriters. They really are seen as vital.
“In terms of competition, everyone is looking at high net worth, and in terms of direct selling, Hiscox is very good, but in general, brokers dominate relationships in this market,” says loss adjuster David Thompson, head of Crawford Esteem.
He suggests that it’s natural for brokers to play a key role here, simply because they are already in such an excellent position with regard to potential policyholders.
“A lot of brokers have been in this market for a considerable amount of time and look after the household insurance for key clients because they have been looking after their commercial insurance,” he says.
John Lawton, director of Home & Legacy at Allianz Personal, agrees that the intermediated channel is pre-eminent here because of the ‘ ‘ commercial link.
“Over 80% of high net worth home insurance is placed via brokers, mirroring neatly the dominant position that the broker channel has in co-mmercial insurance and this is no coincidence.”
So can brokers afford to relax, knowing they are in such an advantageous position? Not exactly. But they can take comfort from their good position.
“Brokers do face increased competition from banks and other financial institutions but they are well positioned to compete effectively as they can offer more choice, a broader range of personal insurance products and better all round personal service,” says Lawton.
“Brokers are also acutely aware that that the personal product is an important part of their client relationship – problems with personal insurance can imperil the commercial business as well.”
“‘There are a lot of products out there, but that’s what an experienced, specialist broker is there to help with. The most important thing is knowing your client and their buying habits’
Sara Baulk, Marsh
Another reason that brokers are important with regard to high net worth is as a result of the inherent complexity of the risks involved, according to Sara Baulk, a specialist in this area at Marsh.
“I don’t think people realise sometimes how complex their risks are,” she says, adding that HNW is far removed from the commoditised end of the market and requires bespoke solutions for clients.
“There are a lot of products out there, but that’s what an experienced, specialist broker is there to help with. A broker can tailor a policy to suit the client’s needs.
“The most important thing is knowing your client and their buying habits. We can provide the best advice and arrange the best cover.”
And the good news for brokers is that there appears to be a vast volume of business which remains to be won, as this sector is a long way from saturation point.
“At the end of the day the perception is that only 20% of the high net worth market is actually insured,” says David Thompson, who also suggests that brokers can expect to capitalise on the wide spectrum of wealth that now exists in the UK.
“There are many people out there who are very wealthy, but their wealth has come from different sources. So you have new money, dot com and lottery money, and inherited wealth.
“The old money tends to go into the broker market anyway, but so does the new money, of which there has been a real growth in the past 15-20 years.
“These people have very successful businesses, so the relationship is already there with the broker.”
Home & Legacy’s Lawton agrees that the future prospects are encouraging. “Brokers will increasingly market personal insurance products to the commercial clients and the more quality-focused high net worth personal products they can offer the better for their overall relationship with the customer,” though he adds that their market knowledge needs to be excellent.
“They need to have a good understanding of the products that are on offer from the various insurers and wholesalers, the differences between them and what that means, if anything to their clients, and finally to be able to analyse when bundling is better for the client and when it isn’t.”
But we shouldn’t forget the underwriters in all of this.
Lawton argues that the product development currently taking place within this sector, as well as the growing number of carriers, is actually good news for insurers, as it enables them to clearly differentiate themselves from the online offerings of banks and other financial institutions.
Besides, he says, the plethora of products now on offer “gives brokers the perfect opportunity to demonstrate their ability and skill at client servicing in the most demanding of sectors”.
So whatever else they say, brokers can’t say the opportunities don’t exist to continue their dominance of the high net worth market. IT