A Florida art collector was shipping $50 million in artwork from his southern home to New York City for an exhibition when the truck carrying the works broke down on the highway.
Luckily for the collector, he was covered by specialty, high-end insurance that provided a security detail to follow the art collection up the coast, just in case something went wrong. The art collection was transferred to a second truck and arrived in New York safely.
The insurance provider was AIG Private Client Group, one of only a handful of insurance providers that specialize in providing high-end insurance for ultra-wealthy customers.
“We may not do that again this year, but tomorrow it could be another client with a different issue,” says Jerry Hourihan, president of AIG Private Client Group, North America.
The companies in this exclusive niche are few, and this year, the group got even smaller.
Fireman’s Fund, which according to insiders was losing market share in this sector, recently pulled out of high-end insurance, selling its high-net-worth personal lines to ACE, which took over 120,000 customers and absorbed 500 Fireman’s Fund employees.
“The real opportunity in this market is for wealth advisors,” says Jim Williamson, ACE Private Risk Services Division president.
“Advisors need a full knowledge of their clients’ wealth and their exposure. Many people are overpaying to be underinsured. It is a population that is being underserved because they do not realize how much they have at risk and how unprotected they are.
“For instance, many wealthy people who have not updated their insurance could easily move to higher deductibles and lower their premiums or buy more coverage for the same dollars.”
In addition to ACE and AIG, the other major players in the high-end insurance market are Chubb and Privilege Underwriters Reciprocal Exchange (PURE).
The market, in which insurance is sold to protect expensive items such as artwork, jewelry, cars, multimillion-dollar homes, yachts, antiquities and more, is highly competitive, as the recent consolidation illustrates. But industry executives say that, despite the exit by Fireman’s Fund, it has great potential for growth.
“There is plenty of room to grow this market because so many high-net-worth people are not properly insured,” says James A. Fiske, a senior vice president at Chubb Personal Insurance.
Hourihan estimates as many as half of high-net-worth individuals and families may not have the coverage they need. Many started modestly and gathered wealth over the years, but did not upgrade their insurance to keep pace with their growing needs.
The market is ripe for increased growth, according to Ross Buchmueller, president and CEO of PURE, which, unlike companies such as Chubb and AIG, provides only high-end insurance.
“Clearly, the wealthy are growing [assets] at a faster rate than the rest of the nation,” says Buchmueller. While some of the top companies are losing market share, PURE has seen a 40% increase in clients each year since it was founded in 2006 after Hurricane Katrina.
Natural disasters such as Katrina or Hurricane Sandy—which caused extensive damage to coastal areas that include some of the nation’s most expensive homes—show why high-end insurance for wealthy clients is so important, says Buchmueller.
The problem for the insurance companies is getting their message out to this special client base, company officials say. Chubb, for example, has created a new website, www.moveuptochubb.com, to try to reach the wealthy. Other companies try to get their message out by having client events, where clients are encouraged to bring friends and associates. Still other companies sponsor special seminars for brokers and agents to help them reach new clients. The carriers agree that the high-end market is driven by referrals, and that word of mouth is their best advertising.
Chubb was one of the first to identify and enter this market in 1978, says Fiske.
“This market has low frequency losses but [when there is a claim], it is a high-loss area,” says Fiske. “The market is growing more global. People no longer have one multimillion-dollar home. They have a flat in London and a condo in Whistler, British Columbia, as well as a main home. So we need to make sure they have the proper coverage.”
To help the insurance companies increase awareness of their services and focus on these particular clients, the Private Risk Management Association (PRMA), a trade group, was created about a year ago.
PRMA is creating a professional development program for specialists working with high-net-worth clients. The program is run with St. John’s University’s School of Risk Management, and professionals completing the six education segments will receive a “Private Risk Management” certificate, issued by the Center for Professional Education at St. John’s.
“The high-net-worth insurance marketplace is not growing as fast as the standard carriers because of a lack of awareness on the consumer level,” says Lisa A. Lindsay, executive director of PRMA, based in Palm Beach, Fla. “Unless a high-net-worth person makes a claim, they may not realize they do not have the proper coverage. That is what is prompting our whole drive for awareness.
“These clients may need a $10 million umbrella policy. A standard insurance carrier does not have that available,” she adds. “More often than not, the high-net-worth person does not have proper coverage.”
