As the ranks of the wealthy expand, more and more brokers are looking to cash in. Danny Walkinshaw asks how?
More and more brokers are following the gold rush. The lucrative high net worth sector (HNW) is growing by the day, with recent research from Datamonitor suggesting that by 2010, there will be nearly one and a half million HNW individuals in the UK, all looking to insure their costly assets, from vintage motors to priceless paintings.
The HNW sector has traditionally been serviced by a select few brokers and insurers. Their runaway success is now sending a clear message to the broking community that HNW is an accessible and lucrative market, if you are willing to invest time and money. A recent spate of brokers expanding their HNW services suggests the market is waking up to this fact.
So how does a broker cash in on the cash rich? There is a consensus that this market is particularly suited to brokers, with wealthy individuals who have complex needs and little time and are only too willing to turn to a trusted adviser. The relationship between broker and client is pivotal – and if a broker gets it right, the rewards are great, with retention rates of up to 90% in this market.
Sterling Insurance works closely with brokers in the HNW and medium net worth (MNW) sector, and has recently revealed a new HNW product, Executive Plus, designed for the larger HNW cases, to be launched in April 2008. It has already recruited a team to deal with the product.
Sara Greenland, associate director of personal insurances at Sterling Insurance, thinks that brokers have the edge.
She says: “Relationships are all important, both broker and insurer, and broker and customer. A close relationship with the customer will not only assist retention but improve the quality of the information provided.
“Trust plays an integral part in disclosing valuable information such as assets and security. But this is an area where direct writers are unlikely to be successful, particularly in the high net worth sector where customers can be quite guarded about their personal information.”
“Trust plays an integral part in disclosing valuable information such as assets and security
Sara Greenland, Sterling Insurance
There are various criteria that determine whether an individual is HNW or MNW. Some are defined by minimum sums insured, others by minimum premium. Often, when brokers look at a client’s requirements, they will find he is suited to a MNW product. Most brokers will have some kind of facility for HNW and MNW, if only to support their commercial interests.
But for brokers such as Guildford-based Stackhouse Poland, which has this year launched its second joint venture company, Green Park Insurance Services, to boost its HNW account, the focus is on developing this existing offering.
The broker looks after around 10,000 private clients delivering nearly £10m of premium in its private client division. Keith Hester, director of Stackhouse Poland, says there is huge appeal to brokers that can offer the right service.
He explains: “It is attractive to the specialist brokers because the sector is poorly served from an advice perspective and the quality broker can make a big difference here. It also allows us to offer a complete service to business owners, entrepreneurs and professional people, where we will look after the corporate as well as the private side of their affairs.”
One of the biggest challenges of breaking into the market is finding the clients and having access to the right markets, particularly the specialist markets.
In November, two specialist brokers, Smith Ross Shane and Greenfield Risk Services merged to form a new company Smith Greenfield Services, one of the UK’s leading HNW brokers. They warn that newcomers to the market may struggle.
Steve Smith, managing director of Smith Greenfield Services, says: “It is difficult for a broker now to come into this type of business. It is a very interesting market at the moment and you don’t see many new brokers tackling it. The market has become more competitive over the past 18 months.”
“All brokers in the UK, whether or not they are a skilled HNW broker, have wealthy clients
Simon Mobey, Chubb
But many wealthy individuals are underinsured, providing an opportunity for the entrepreneurial broker to break into the market by upselling to existing clients.
Simon Mobey, UK and Ireland personal lines manager at Chubb, thinks a good starting place for brokers would be through cross-selling. He explains: “All brokers in the UK, whether or not they are a skilled HNW broker, have wealthy clients. It is a growth area for the future for brokers. They could, for example, have motor and home cover on one policy, which would give clients the ability to place cover with one specialist broker.”
Mobey said premiums were on average £3,000 to £4,000 on households and £2,500 on motor, making it attractive business. Charles Dupplin, chairman of the art and private clients division at Hiscox Group, recalls the summer flooding as an "occasion when regular policyholders came unstuck He says: “During the floods there were people claiming for HNW buildings that were not getting fast responses or even getting anything back at all. Whereas those with HNW policies were able to have their claims approved without any problem.”
Dupplin adds that if brokers can get the little things right, it could turn into a long term guaranteed cash stream. “The renewal retention rate is very long term and provides plenty of opportunity for the business,” he says. “There are certainly more clients who do not buy HNW policies who could, than who do. And there are many wealthy people who don’t really know about the availability of an HNW policy.”
Another way to get a foothold on HNW is through insurers, which often offer training for brokers looking to improve their private client divisions. Helen Ascroft, personal lines manager at Manchester broker CBG, says: “We have had some very good training runs from the different insurers to look at the basics of who are the HNW clients, assisting with valuing and what to look out for.”
If more brokers begin to invest in their private client divisions, competition is likely to increase in what is already a highly competitive market. Stephen Lark, managing director of broker Lark, is keen to talk up the opportunities for brokers. He says: “There is going to be increased competition, but if brokers are willing to show they mean business [in the HNW sector] then there is every chance they will profit from the obvious opportunities that are going to arise in the future.”
It may take time, effort and investment, but for brokers that are serious about growth, there’s gold at the end of that rainbow.
HNW individuals as clients
â€¢ HNW individuals are generally defined as anyone with an annual income of over Â£100,000, or with net assets in the UK to the value of Â£250,000 or more
â€¢ Insurers and brokers provide cover to HNW individuals in all personal lines, but most commonly for buildings, contents, cars, fine art and antiques, jewellery, valuables and collections
â€¢ They are likely to need more than just the services of an "off the shelf" provider due to their hectic lifestyles and are often demanding in their approach to service, availability of advice and flexibility
â€¢ They want peace of mind that their insurer will cover all eventualities and that their broker has sourced the market for the most suitable policy
â€¢ There are thought to be more than 1 million HWN individuals in the UK today.