Lloyd's is the natural home for high net worth household insurance – a controversial statement perhaps, but I have strong grounds for making it. The high net worth market is so diverse, with no two cases alike, that the formula-driven approach which works for mainstream bread and butter household risks is wholly inappropriate. High net worth is a niche area where the Lloyd's underwriter is at his most comfortable.
The syndicate structure and entrepreneurial underwriting ethos of Lloyd's are major strengths, and brokers have direct access to the key decision maker, the underwriter. Compared to the company market, even the largest syndicates are quite small. This means they are readily able to adapt their systems and administration capabilities to fit the needs of the particular client. The watchword is flexibility.
Typically, a Lloyd's syndicate has a very flat management structure. Its underwriter takes responsibility for the business plan, the underwriting philosophy and the overall profitability of his book. Free from the constraints of an underwriting manual, he can apply his experience, judgement and entrepreneurial flair, speedily taking decisions to deliver tailored solutions to meet the differing needs of brokers' high net worth clients.
Mix and match
The Lloyd's franchise gives the underwriter the ability to take advantage of the market's extensive territorial licences to insure properties and their contents located overseas. Where the managing agency runs a group of syndicates, each specialising in a different risk area, the underwriter has the added ability to mix and match a range of covers to meet even the most unusual request. It will, therefore, come as no surprise that, for its size, the Lloyd's market has a disproportionately high share of the high net worth household insurance market.
But what exactly do we mean by high net worth household insurance? In essence it is specialist cover to meet the wide and varied needs of the wealthy. However, there is no precise definition of what it takes to be wealthy. If we take as our measure the ownership of more than £1m of liquid assets, the market for high net worth household insurance is certainly increasing.
According to a report issued by Datamonitor in October last year, the number of these millionaires in the UK rose by 39% each year from 6,600 in 1992 to 47,300 in 1998. Even after allowing for inflation, this is a healthy increase, and, according to Datamonitor, the rising trend is set to continue into the new millennium.
According to the Office for National Statistics, the most wealthy 1% of adults in Britain own some 20% of the total personal wealth. For the wealthiest 5% the percentage rises to more than 35%.
The wealthy tend to be very demanding in their purchases of goods and services. They may be prepared to pay high prices, but they are looking for high quality and products that are made to measure rather than off the peg. This applies to property insurance as to everything else. Success in the high net worth market hinges on an insurer's ability to adapt products and systems to fit the client rather than the other way around. This is one of the Lloyd's market's key strengths.
The numbers of individuals and properties to be insured may be growing but they are still small. In contrast, the sums insured and premiums per case are large. High net worth individuals typically own two or more homes, all of which may be used at different times of the year. There may a town house, a weekend retreat in the country, a villa on the Mediterranean, and so on.
The properties may include farms and country estates together with their buildings (barns, stables, shooting lodges, etc), machinery, produce and livestock. Some, such as holiday homes, may only be occupied for a few weeks each year. Property owners may offer the public access to their gardens and grounds or hire them out for sporting events. The public liability section of the policy will need to be worded carefully to cover activities such as these, and the maximum sum insured level set at an appropriate level.
A large house with substantial grounds will require housekeepers, butlers, gardeners et al to look after it. With high net worth insurance, the employer's liability section of the policy really means something. The extent of the cover will have to take account of the size of the workforce.
Wealth tends to mix with wealth, and, if a moneyed visitor to an insured home should suffer an accident, they have the means to hire the very best of legal advice in their quest for damages. It is not surprising, therefore, that awards for personal injury tend to be far higher than the norm. There are also special risks to consider. Shooting rights will have implications for both the insurance of property – the guns will need to be insured – and public liability cover.
Customising the blend of covers and sums insured is the name of the game. This applies as much to the fire and accidental damage sections of a high net worth household policy as to the others. The ancestral home may, for instance, contain a collection of portraits of the current occupant's forefathers. As they are not painted by well-known artists, their value to their owner may be considerably more than the price they would fetch in the auction room. The policyholder's main concern will therefore be to purchase cover to cover the repair and restoration of the collection rather than theft.
Lloyd's understands the specific and varying demands of the high net worth market in the UK, and has the empathy and flexibility it takes to meet them. The challenge for the new millennium will be to enhance value to the policyholder and quality of service to the broker. Lloyd's, with its blend of history, experience, innovation, flexibility and forward thinking, is uniquely placed to meet it. Working closely with brokers offering added value risk management services, underwriters will be able to offer a multi-layered product spanning a range of personal lines.
Lloyd's is already a major force in high net worth household insurance in the UK. As the number of Lloyd's offices expands in Europe, it will make increasing inroads in the European Union.
- Dr Krish Shastri is director of marketing and business development at Cassidy Davis Insurance Group)