Joining the club

The high net worth (HNW) market has always been dominated by just a few key players. While the rest of the market is subject to price wars, HNW has been doing the opposite, with some companies picking the most profitable business, leading to a rise in the thresholds for minimum sums insured.

But the secret is out. HNW is the latest target for big underwriters such as Norwich Union (NU), which has just released its Tapestry product, and smaller ones such as Oak Underwriting, established last year by Anthony Lumsden-Cook, who previously managed Cox's HNW arm. Zurich and Groupama have also announced they are about to enter the market.

However, the HNW market is not the place for companies wanting to make a fast buck.

The quality of service demanded by policyholders takes time to develop and is expensive. Lumsden-Cook believes this is the reason why, typically, very few players operate in this lucrative sector.

"It's very specialised," he says. "This market requires people who can understand and cope with it and there are few people who have a working knowledge of the values of houses, jewellery and art."

Other important skills are being able to offer flexibility and the ability to make decisions quickly. "Those who write by committee are devoid of the decision-making process," he adds.

HNW insurers often have to cater for unusual requests and have to react fast. "For example," says Lumsden-Cook, "if there is a £16m Picasso painting bought in New York at 1pm (5pm London time) and the customer wants to add this on to their policy immediately, you have to be able to accommodate."

He says wealthy people have strong opinions about their lifestyle, so HNW insurers should not be too heavy-handed.

One Oak customer spent a considerable sum on a painting, which would only fit on the wall opposite their front door.

"Obviously this caused us some headaches, but the customer did not want it on show in the Tate, he wanted it in his home, so we came up with a very unusual alarm system to secure it," says Lumsden-Cook.

Growing affluence
One of the reasons Groupama, Zurich and NU have turned their attention to the sector in recent months is because of the increase of the number of affluent people in this country.

Richard Hawkins, who heads up Groupama's HNW team, says: "People are earning more, the elderly are living longer and people are retiring younger with more money."

This view is supported by a recent Data-monitor report, which states the number of millionaires in Britain has grown at 17% per year since 1995 to 73,990 in 2000.

The mass affluent category - liquid assets of £30,000 to £200,000 - has grown at 12% since 1995. The combined wealth of the new mass affluent reaches £313bn, almost three times more than the £120bn held by the millionaires' club.

But the HNW market is not all about insuring millionaires, which makes the market even more complex for any non-specialist underwriter or broker. Most insurers in the sector offer different minimum sums insured. Oak, for example, says its typical policyholder will have a home insured for £750,000, with £250,000 of contents.

Chubb, which has been in the UK HNW market for five years, has also always targeted the top end of the market and has recently raised its minimum building value from £300,000 to £350,000. Chubb personal lines manager for Europe John Sims says: "Our thresholds have always been high and we have raised them because there has been a dramatic increase in the cost of rebuilding for high-value homes."

Other players, however, such as RK Harrison, are taking on "mid net worth" business.

Director of the company's new wholesale division RK Harrison Schemes, Stuart Rootham, says: "We realised that a lot of the mid net worth business was being dropped by other insurers. Traditionally, we sold direct, but we decided to enter the broker market as it was a good opportunity."

It also believes it presents a good opportunity for brokers, as many HNW insurers want large books of guaranteed business. "What we do is give the small and medium brokers the chance to compete," he says.

Besides offering cover for homes and antiques, HNW insurers also offer a variety of other products. Chubb can provide customers with a package of buildings, content, motor and travel insurance all for one monthly premium.

Paying out in full
The company also has a claims system that has no alarm clauses or anything that would invalidate a claim. Sims says: "Many of our customers are attracted for this reason. If they forget to switch on an alarm and then get burgled, we will still pay out for the claim. In 99 out of 100 cases where there has been an unforeseen situation, the full cost of the claim is met."

Despite the collapse of Independent and the exit of Cox from the market, the remaining players seem to think there is plenty of room for expansion. Insurers are starting to branch out from what has traditionally been the lucrative area for HNW - the South-East. For example, Hiscox recently opened a new branch in Glasgow to tap into the Scottish market.

But one of the main problems is that many potential customers are unaware of the products on offer. Chubb is currently undertaking an advertising campaign in the national press. "We need to show people that what we provide is a value-added service," adds Sims.

Lumsden-Cook says the market will only expand slowly, as intermediaries are reluctant to move business to HNW insurers and much of the business is still held by building societies.

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