Reaching for the rich

"A market with untapped potential," says Norwich Union (NU) head of household product development Chris Elliot. He is referring to the high net worth market (HNW), which NU muscled in on almost a year ago with the launch of its Tapestry product.

And NU is not the only new insurer to have moved into the insurance of fine art, country homes and Fabergé eggs: Zurich Private Clients launched a product in June to compete with the likes of Chubb, Hiscox and R&SA.

It is not difficult to see why HNW is so popular. According to Zurich Financial Services speciality business director Dave Parry: "HNW is a growing market. People are down with talk of war with Iraq and the poor performance of the stock market. But these factors don't seem to affect people's ownership."

Market analyst Datamonitor estimates that in 2001 there were 2.4 million HNW individuals - defined as someone with liquid assets over £100,000. And it is predicted that this number will grow by 6% per annum to over 3.3 million in 2006.

Premiums levels are also a further reason why this sector is attractive. The sector has seen premiums rising coupled with improving claims costs.

Parry continues: "Our competitors have been writing at good price, so we have been able to come in at a profitable premium base."

Security conscious

And in terms of moral hazard, HNW individuals are definitely a good risk: they are security conscious individuals who do not want their prized works of art stolen.

But one important point that entrants to the market should note is that HNW individuals are not primarily motivated by premium levels, according to broker Countrylife Assurance principal Jackie Sopett.

"There are a limited number of HNW policies available. But competition is not just about premiums: it's about service and cover," says Sopett. "Although the entry of new players has maintained competitive rates, the pressure is coming from clients: they are demanding better quality service."

Competition is therefore likely to focus on areas other than price.

And this is just what the new insurers are looking to provide. Parry says: "We have sought to take competition away from price and focus it on quality.

"Over the past years the market has become stagnant. It has lacked innovation. We have an innovative approach; we take a stronger view of the customer than our competitors," argues Parry.

"For instance, the client, through the broker, will have a dedicated account manager. The broker will always speak to the same person at Zurich in relation to renewals and claims. This ensures a continuity of knowledge. And we limit the number of clients with which an account handler deals.

"We also provide a client manager who visits the client regularly to ensure a long-term relationship. We want to make our product more than a commodity purchase," continues Parry.

"Clients are concerned that they will be looked after. They don't want gaps in their cover; they want everything tied up in one renewal. To this end Zurich Private Clients can accommodate home, motor and yacht insurance - and we can do this as an integrated package."

Service-focused

Elliot says NU is also focusing on the service aspect. "We are looking to gain a real understanding of the customer. We don't want to rely on what has always been done.

"For example, we are the only general insurer that provides a 24-hour medical help line. We have also turned insurance on its head by providing a security check for the client's own benefit."

But the new entrants do not seem to bother the established markets.

Chubb personal lines manager of Europe John Sims says: "We never compete on price, although higher up the scale it is more competitive. We differentiate in other areas: the appraisals that we provide; the scope of cover; and the claims service.

"Ultimately it is the claims service that is most important. It is vital to pay claims without quibbling," he says.

"We are more upfront in our approach than other insurers. We take more time at the beginning; we underwrite the risk whereas some insurers only underwrite - that is to say ask the questions - at the claims stage.

"We do a lot of work at the outset to satisfy ourselves about the client and the risk, so that if a claim arises we can pay quickly."

It seems the established insurers are confident of their position, despite the arrival of the young pretenders keen to take on their mantles.

Broker Network high net worth underwriter Karol Ellis, who underwrites on behalf of Hiscox says: "We want to write on behalf of a company that won't do anything daft like drop out of the market or cut rates.

"Some new insurers are aggressively buying in business. But it is dangerous to trust them. One doesn't know what they might do."

Chubb is also bullish about its position. Sims argues: "We have two important things in our favour. First, we are here to stay - and stability is important. Second, we have good financial strength - an issue of great concern to customers and brokers."

But there is still frustration at the new companies, especially given the downward pressure on rates that increased competition necessarily brings. This is particularly so as the market has been under-priced for a number of years.

"Prices have just started to get to a reasonable level. When the new competition cuts prices. It badly affects long-term players like us," says Hiscox head of private client division Guy Knight.

Knight also says: "There has been a lot of broker activity on our existing book of business and we are retaining clients. The problem is that we are doing lots of quotes on new business that goes nowhere."

This begs the question: are the new carriers snapping their business up?

Datamonitor suggests that the established carriers may be vulnerable at the lower end of the market - and this is the sector, described by some as mid net worth (MNW), that NU is targeting.

Elliot says: "There are different views about where the HNW market begins. The focus is often on the top end - people living in large country mansions with contents worth in excess of £200,000.

"We have done significant research among our intermediaries and we believe there are other customer groups who would welcome the opportunity to have wider cover and access to a range of support services, which would not be found in standard home policies."

But just as NU is targeting the less wealthy individuals, some insurers are raising their sights towards the higher end of the market.

Chubb, for instance, is re-profiling its book to concentrate on the top end of the market, and is keen to accommodate the complicated ultra high net worth market. Sims says: "We are in a good position to provide extensive capacity to provide a comprehensive solution for ultra high net worth individuals."

R&SA is also engaged in a process of adjustment, moving the minimum contents value under their Prime Choice policy to £150,000 and buildings to £350,000. Zurich is also focusing on the wealthier individuals.

But, in addition to re-focusing their HNW products, insurers are also starting to recognise the importance of the MNW market and are developing separate products.

Different needs

Parry says: "People in different brackets have different needs. As a company we are looking to attract a broad spectrum of individuals. Although Zurich Private Clients is not targeting the MNW market, Zurich as a whole is."

R&SA is also active in the MNW market. It is testing a MNW product with 1,000 selected brokers.

While a degree of polarisation is beginning to emerge, it is still too early to see what real impact the new insurers have had on the market. But what is certain is that they will have to work hard: the longevity and stability of an insurer carries great weight in the HNW market.

Brokers and their clients will need a great deal of persuasion to move to a new and possibly untested carrier.