Picture a large house at the end of a very long driveway, secluded behind tall hedges, high trees and imposing gates. This is the typical house in the high net worth market, a rarefied place apparently protected from the rest of the industry’s problems. Katie Puckett takes a look at this resilient area
The clouds may be grey across most of the economy but insurers and brokers serving the wealthy say, if anything, they have seen an increase in enquiries as clients seek to protect their assets from an expected rise in crime. Falls on the stock market and property price collapses are not yet denting the amount of cover that insurance deals for tangible possessions and the cost of rebuilding a property require.
“In the past year or so, it’s probably been a more resilient part of the insurance industry,” says Giles Greenfield, managing director of Smith Greenfield, a specialist broker to the high and mid net worth markets. We’re having the best year we’ve had. People still need to insure their assets. They may have lost money on paper, but I don’t think we’ve reached the stage when they’re selling their jewels or paintings.”
High net worth (HNW) business covers an enormous potential range, with annual building and contents premiums from £750 up to tens of thousands. How that market breaks down depends on who you ask – firms covering the super-wealthy are slightly snobbish about supposed HNW products that they say are really aimed at the mid end of the market.
Generally, mid net worth policies would cost £750 – £1,500 a year, and the sums insured would be around £250,000 – £500,000 for buildings and up to £150,000 for contents. Whereas HNW clients would have contents worth at least £200,000 and building cover closer to the £1m mark. There are also less tangible differentiators – direct business is almost always mid net worth, sniffs one specialist, as are policies taken out with composite insurers, such as Aviva, RSA or Zurich.
However what everyone does agree on is that the market still has a great deal of potential.
Datamonitor predicts there will be 111,700 HNW individuals in 2010 (defined as those with liquid onshore assets of £1m or more) holding a total of £302bn, and 9.4 million affluent individuals (those with £30,000 or more), holding a total of £1,349bn.
Many people who fall within these wealth brackets do not take out specialist products, which would offer them more flexible coverage for non-standard buildings, such as listed or thatched properties and better terms on expensive items. For example, underwriters of mainstream household policies would charge a high premium for fine art, but specialists know that art theft is rare as burglars cannot spot valuable paintings or easily shift them.
At the start of the year, insurers and brokers were bracing themselves for a sharp increase in claims but this has so far failed to materialise.
“Everyone’s more aware of fraud, but I’m not seeing it,” says Bill Wilson, head of private client services at loss adjuster Cunningham Lindsey.
“There may be a tendency for exaggerated claims but not out-and-out fraud.”
What has noticeably increased is aggravated burglary, where thieves are more desperate and take advantage of laxer security while people are in the house.
Home & Legacy is an intermediary owned by Allianz, which specialises in high and mid net worth insurance, and also targets the “emerging wealth” category – young bankers or City workers, who tend to buy expensive jewellery, engagement rings or home entertainment systems, now residing around the lower mid end but likely to ascend to high net worth later in their lives. Household manager Ian Davies says their biggest client has £90m worth of cover split roughly evenly between buildings and contents.
He has analysed claims across its £30m gross written premium (GWP) book, and admits the results have him puzzled. For the first two months of the year, claims were up by 30% on 2008 levels.
But when he repeated the exercise for the first five months of the year, he found overall claims had dropped by a third against last year. “It’s obviously good, but slightly baffling.”
As you would expect, a number of firms have been drawn to such riches. Greenfield has noticed the broker market for mid net worth clients becoming increasingly crowded, though he feels there are enough potential clients still using unsuitable basic policies to go round.
Neither is Gladwin concerned: “It’s always been a competitive market, but it means different things to different people. Although they may say high net worth, they’re not all competing for the same risk.”
High net worth specialist Hiscox meanwhile stopped offering mid net worth policies (which covers contents sums up to £200,000) via brokers last August as it has found more clients within that bracket are now buying online.
Retention rates in the specialist HNW market are typically around 90%, but accordingly customer service standards are much higher. Smith Greenfield keeps around 95% of its customers, but then none of them ever have to wait for more than three rings to speak to their dedicated account handler.
This is a key area of competition. Since June, Home & Legacy has been offering free SmartWater property marking services to all of its clients. Wilson, who joined Cunningham Lindsey from Hiscox last August, to build up its HNW team, is talking to several brokers and insurers about writing set retention rates into contracts for claims handling.
Premiums meanwhile remain static, despite insurers best efforts to increase them. The depressed construction market means that index-linked rebuilding values are actually lower, and brokers also report that clients are asking them to shop around more to secure the best price.
Which is perhaps a lesson for all of us in the low net worth bracket – you do not get to live in that big house without driving a hard bargain.