Most high-net-worth individuals and families insured by mass-market carriers pay too much for insurance, while remaining exposed to serious financial risks, according to a new study.
The ACE Private Risk Services survey, Wealth at Risk: How High Net Worth Families Overpay to Be Underinsured, asked over 600 independent agents and brokers about their new affluent clients who were previously covered by mass-market insurers. The survey found that wealthy families and individuals who purchase insurance from carriers targeted primarily toward the average American household frequently lack adequate liability coverage. Clients who purchase middle-market policies also tend to be underinsured on their unique homes and valuable collectables.
In addition, they’re likely overpaying for insurance because their deductibles are not high enough, overlooking package discounts that apply when they place multiple policies with one carrier and failing to get premium credits for loss-prevention devices, such as fire prevention and alarm systems.
The survey results were compared with a similar report ACE compiled in 2010. The new survey shows that overpaying and underinsuring have actually increased among affluent clients, according to ACE, which specializes in insuring high-net-worth customers.
“Eighty-percent of the people who would be defined as ‘high-net-worth individuals’ have their insurance with everybody else’s insurance,” says David Spencer, ACE's vice president for premier clients. Part of the problem seems to be that the well-heeled often neglect to adjust their personal insurance programs as their assets increase and their risks multiply.
For example, Spencer cites doctors and lawyers who took out policies with mass-market insurers when they first graduated from medical school and law school. As time goes on, these clients require more custom solutions, including better coverage, enhanced underwriting and claims service and increased risk management, he says.
Experts say advisors have been focusing more on insurance issues in the past few years. “Wealth managers are seeing an opportunity to add more value,” says Bob Courtemanche, ACE's division president.
Courtemanche says insurance has always been a challenge for wealth advisors. “They’re typically more investment-advice oriented and they don’t know the insurance world. That’s when the partnership with a good property/casualty agent has been very valuable to the family office space,” he says.
The survey identified the savings most often missed by high-net-worth clients:
• Raising deductibles: 81% of agents surveyed report the wealthy have homeowners and auto insurance deductibles that are too low.
• Obtaining package discounts: 62% say the rich don’t take full advantage of reductions for purchasing multiple policies from a single carrier.
• Applying loss prevention credits: 50% believe that the affluent overlook adjustments for safety devices such as burglar alarms and water leak detection systems.
The study also cited the most frequently neglected types of insurance:
• Umbrella liability: 92% of agents note insufficient liability coverage, despite 82% of families saying their wealth alone makes them likely targets for lawsuits.
• Uninsured and underinsured liability: 86% report well-off families lack adequate coverage, should they suffer serious harm by someone else with no (or insufficient) insurance, or inadequate assets to meet liability obligations.
• Valuables coverage: 86% cite incomplete coverage for high-priced jewelry, fine art, expensive wine, classic cars and other big-ticket collectibles.
• Home structure coverage: 83% believe families have insufficient coverage for their posh homes, even though primary and secondary residences can make up the biggest portion of a family’s net worth.
Appropriate protection doesn’t necessarily cost more. In fact, 51 percent of agents surveyed say they can typically lower premiums at least 5 percent by shifting clients from mass-market policies to high-net-worth policies and reevaluating clients’ overall insurance needs, according to ACE.
Further information about the study is available at www.acegroup.com/us-en/individuals-families/ace-prs.aspx.
