We are living in prosperous times: for an increasing number of people in the UK, accessible wealth has increased. Of 25 million households in the UK, 2% are now considered to fall into the high net worth bracket. Financial wealth held by individuals has increased by 7.9% in the UK over the past 20 years, growing from £213bn in 1980 to £2,072bn in 1998.
And while the distribution of financial wealth is still focused on the top 20% of individuals, it is not only the sole domain of “old money”, or people over fifty with accumulated wealth. High net worth encompasses a large variety of individuals including “new money” such as sports personalities, as well as the highly-paid banker or lawyer. Defining high net worth is certainly more complex than it was 20 years ago.
Terms commonly used to describe individuals in this area of the market are mass affluent, high net worth and ultra high net worth. Mass affluent is defined as someone with £50,000 in liquid assets, while individuals with assets worth over £1m are considered high net worth. To fall into the ultra high net worth category, you require £20m.
One of the main concerns voiced at the forum was the difference in needs between someone who falls into the mass affluent end of the market, compared to the ultra high net worth market.
One guest pointed out that within each of these wealth brackets were many segments requiring different levels of service. He felt they fell under three main categories: “soloists”, who preferred to manage their own finances; “delegators”, who liked to hand over their finances to wealth managers; and “validators”, who wanted to manage their own finances but needed technical advice and assistance. Individuals could fit into more than one of these categories as they passed through different stages of their lives.
While all the companies represented used the internet in different ways, it was agreed that, in the high net worth arena, the internet was a powerful information and sales tool, especially for those who preferred to self-manage their finances or were time-pressured.
Rarely is it the ultra high net worth clients themselves who organise the insurance for their fleet of cars and jewellery but their accountants, advisers and personal assistants. The internet allows these aides to gather the relevant information together and to speed the process up. However, this is perhaps more typical of personal lines insurance than of financial services products, because the client may be wary of allowing even his closest aides access to his investment portfolio.
But do high net worth clients actually purchase their insurance online? Certainly ultra high net worth clients are unlikely to use this medium, as their insurance needs are often complex and the premiums large. They will often have several international properties, and may well need additional insurance such as aviation and marine.
Because of this complexity, the role of the broker is integral when dealing with ultra high net worth clients. This style of client requires one point of contact with an individual who has an understanding of their lifestyle and the associated risks. They also need to be available 24-7, 365 days of the year, and able to field any insurance requirements associated with this lifestyle.
As one guest stated, like individuals in other categories, they want to have peace of mind that they have the correct cover, which a computer screen cannot supply.
In general, it was felt that as a nation we still prefer the perceived ease of picking up a phone, but with technology becoming more accessible, cheaper and portable, our attitude to using the internet should alter.
Another guest said that it was not necessarily a problem to convert sales when the internet had been used to purchase high net worth products. What has been more important is the standard of service at the back end. If a client wishes to telephone, it is imperative that someone is there to answer the phone and that the service they receive is of a high standard. If this is the case, then people are more likely to purchase. If not, then, in this market, there is less likely to be a second bite at the cherry.
In areas of high net worth, where the insurance needs are less complicated, it became evident that both the broking houses and insurers felt there was something to be gained from co-operation, typically brokers directing clients with more straight-forward needs to an insurer's website. Where there had been pre-agreed parameters regarding ownership of clients, it was felt this option could be successful for both parties. However, despite evidence from guests that this type of agreement can work, it was made clear that it was still a very sensitive choice and not a route all brokers would wish to explore.
Other guests mentioned that brokers had been feeling the effects of the increased numbers of so-called “family offices”, where several rich families join together to create a captive and hire relevant staff such as actuaries and accountants.
It is not too surprising to learn that many of the individuals in this bracket seek alternative ways of managing their wealth and fulfilling their insurance needs. Their premiums alone generally start at around £50,000.
Several guests believed that family offices did not necessarily offer an effective solution. Because family offices often do not pay the salaries commensurate with the large companies, they are not necessarily hiring the best people in the market. These employees also tend to operate in isolation and are not necessarily as commercially aware as their counterparts in the major players. But it was generally conceded that if a family office was effectively utilising external advisers, rather than managing assets themselves, then these operations could provide a feasible alternative.
A point also raised concerned the fact that many high net worth clients hold senior management positions and are therefore also commercial clients of insurers and brokers. As a result, the national broking houses in particular control a large proportion of the high net worth business. It is considered important to sign key commercial customers up for high net worth products before competitors are able to take the business which could lead to the loss of the commercial account.
However, said one guest, this was not always the case. Initially, the commercial divisions of these organisations were wary of introducing business to their colleagues in high net worth, because of the effect it could have on the commercial account if anything should go sour. Now, it would appear that the boot is on the other foot and it has proved beneficial to retaining these accounts.
Lack of experience
As personal lines enjoys a higher profile and the value of the high net worth market is being increasingly recognised, it is apparent that there is a dearth of talented individuals with the right quality of experience.
One guest suggested the solution for developing future talent lay in returning to the old system of training new recruits in all aspects of the industry, providing them with the technical experience across a wide range of products, as well as developing the sales and relationship skills crucial for success in the high net worth market. This of course is a long-term solution and does not solve the immediate problem. There is also the chance that they will be lured away by competitors.
It was agreed that the other obvious alternative was to look outside the immediate market place and bring in new talent. This itself has risks, primarily lack of sector knowledge, but is certainly an option that could help fill the gap until the next generation has the necessary experience.
So where does the market go from here? A difficult question, but many agreed that providing a holistic service to the client would be a likely step. To a degree, this is already in evidence within some of the investment and retail banks, which are able to provide clients with the insurance products they require, while also managing their wealth. In order to keep up, it seems probable that we will see insurers that do not already have a financial services arm seeking to form strategic alliances with financial services providers or becoming preferred suppliers to those that have to use external suppliers.
There is still plenty of scope for the market to evolve and develop. It is thought that only 10% of eligible people currently choose to use specialist high net worth products, while a significant number are unaware that they would even fall into this bracket.
Change lies ahead and it will be interesting to watch how the market builds on its existing foundations.