However, ultra high net worth clients may be more resilient to underinsurance caused by inflation

Brokers and insurers in the high net worth (HNW) market may see policyholders cut back on cover for renovation projects over the next six months as inflation continues to impact the cost of building materials.

During the Covid-19 pandemic, HNW clients reportedly took to renovation projects with enthusiasm, building home cinemas, gyms and bars to fill the void left by cancelled holiday and social plans.

HNW broker Stanhope Cooper can nicely evidence this trend – its managing director, William Cooper, told Insurance Times that the broker’s “turnover on renovation underwriting doubled over lockdown”.

Although this growth was not solely due to the pandemic, Cooper explained that the enforced lockdowns were “certainly a driver” that “coincided nicely” with Stanhope Cooper’s existing work in this area.

However, Cooper now fears that this previously fruitful line of business could be hit by high inflation and the accelerated “cost of building materials”.

He explained: “I’m worried that there might be a bit of a dip in the market in the next six months.”

July 2022’s Building materials and components index, compiled by the Department for Business, Energy and Industrial Strategy, for example, found that the cost for all new work increased by 27.2% year-on-year, as at June 2022, reported New Civil Engineer.

Inflation impact

However, with ultra high net worth clients paying around £25,000 for their annual insurance premium and high net worth customers shelling out an average £4,000 for yearly cover, according to Cooper, is inflation-hit commodity pricing really a concern for this demographic?

In Cooper’s opinion, these clients “live in a bubble where inflation and the real world doesn’t really touch them that much”.

He continued: “There’s a bubble at the top end of the market, which is good for us because it means repeat business, it means renewable income, it means security on the cash flows.”

Sarah Willoughby, art and private client business director at insurer Ecclesiastical, however, believes that “inflation is obviously impacting all of us”.

She said: “There is still underinsurance within any home insurance policy, whether you’re standard, mid net worth, high net worth, or ultra. But clients, when they get up to ultra level, maybe can afford to pay the differential if the claim happens.

“If you’ve got an up to date valuation, that’s no more than three years old for jewellery and personal valuables, we give extended replacement cost. So, you’d have an uplift on that sum insured.

“If [the underinsurance] was even greater than that [amount], your ultra high net worth client could pay the differential, whereas high net worth clients might not have as much capacity to pay the difference.”

Willoughby added that although Ecclesiastical does not have specific ultra high net worth policy wordings, it can still provide capacity for up to £100m of buildings cover and £155m of fine art insurance.

“We are obviously constantly reviewing where we are with indexation, inflation and ensuring that our clients are going to have their sums insured correctly, aligned with inflation indexation,” she added.