Dealing with high net worth customers is not the same as dealing with your other customers. If your agency is fortunate enough to have such a client, you will have to pay special attention to them.
While it may seem counterintuitive, affluent customers are often frugal when purchasing insurance. Often these insureds will have high auto limits coupled with umbrella coverage to protect their substantial assets from claimants anxious to share in that wealth; but because it costs extra, they won't necessarily want the umbrella coverage to include UM/UIM coverage … until they are badly injured in an accident, at which time they will argue that they would have gladly paid the premium had it been offered to them.
Some high net worth customers are asset rich through inheritance, but cash poor. When you have such a customer, insist on appraisals and document that the customer refuses to insure to value. Consider the case of an affluent client who owns a family mansion built in the 1850s, or more recent construction with "high end finishes." The customer directs his obliging agent to insure the home based on what it would cost to build a new, 'generic' 10,000 square foot home. During a thunderstorm a large tree is blown over onto the home, damaging the roof, 3rd story framing and causing water damage through all three floors. The carrier will pay the loss, but will not replace the roof with the original hand-hewn slates. Nor will the 150 year-old hard wood floors or 12 inch crown moldings be restored to their original condition. Your client's inevitable response? Unacceptable!
The problem is, simply putting the square footage of an old or otherwise unique structure into a calculator will not give you an adequate assessment of coverage needed. Go on record explaining why an appraisal is required to put an accurate value on the coverage needed not just to 'replace,' but to restore the home to its former glory.
Affluent customers can also be very hard to reach. An agent will usually be dealing with an assistant, and will sometimes be told to sign the customer's name on applications for him. Cutting corners due to the customer's inaccessibility may seem like a practical necessity during the application process, but what if there is a loss? It will insulate the client, setting you up for an E&O claim. For that reason, be sure to deal directly with your client or, at the very least, obtain documentation from the client expressly authorizing a third person to make these decisions. And whether he is rich, poor or somewhere in between, never sign an application for your customer.
As part of their mobile lifestyle, a great many affluent clients own multiple homes. They can only be in one place at a time, so their various residences often sit empty for weeks or months. Regular homeowner policies exclude coverage for certain exposures, e.g., water, freezing or mold damage, if the home sits vacant for a specified period of time, which is something the customer needs to understand. If you are placing multiple homeowner's policies for a high net worth client there are carriers who have policies well-suited to these well-to-do insureds.
Finally, moneyed clients often have extravagant toys and exotic pets. Insist on visiting the home and any other properties they own. Look for things like a commercial water slide at the residence, pet tigers, yachts and planes. We have seen claims on all of these items, which were overlooked by the agent when placing coverage for his wealthy insured.
To avoid these problems with affluent clients you should review their coverages annually, because they have the ability to make major changes to their insurance needs – purchases, sales and renovations -- more often than other customers. You are also likely to place coverage for a well-off customer that you have never placed before. Be prepared to consult with an expert or enlist the help of a broker when you first place the coverage to make sure you get it right.
Wealthy customers can be a terrific source of business, but you need to pay special attention to them for their sake and yours. Their losses are going to be outsized, so your E&O exposure will be, too. It's even more important than usual to document everything you offer to your high net worth client because, in the event of an un- or under-insured loss, they can afford the best lawyers money can buy. To make matters worse, knowing that they can afford to lose, affluent litigants are more likely to ignore the cost of litigation and roll the dice simply to make a point.
For such unconventional clients, you would do well to heed unconventional wisdom: the bigger they are, the harder you fall.
Did you know Big "I" Markets has partnered with Chubb & AIG to place affluent coverage exposures? Please contact Nancy Doherty (703-706-5389), Aysha Jordan (703-706-5382) or Chrystal Washington (703-706-5368) for more information.
Jim Redeker is vice president and claims manager at Swiss Re Corporate Solutions and works out of the office in Kansas City, Missouri. Insurance products underwritten by Westport Insurance Corporation, Kansas City, Missouri, a member of Swiss Re Corporate Solutions.
This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.
