1. Household Insurance for the High Net Worth Customer
Mervyn Albon
Class Underwriter Property Schemes
Broadgate Syndicate 1301 at Lloyd’s
29th September 2011

2. High Net Worth vs. Standard Insurer – An Overview of the Insurance Market
The high net worth (HNW) market has evolved in the UK over the past 20 years
Now there is a good choice of insurers for the HNW individual to choose from
There is still a high proportion of HNW customers who insure with “household name” companies purchasing a standard type of insurance policy
Lack of customer & insurance agent education and awareness of specialised products available

3. The Key Differences – HNW vs. Standard
The ease of reading and understanding
The core coverage provided
How a claim is paid – the basis of settlement
Specialised coverage extensions
Warranties and conditions – the “small print”
Value added services

4. Know ye that we the underwriters ...
HNW policies should be in clear and easy to understand plain English
A customer should know what is, and what is not covered
Defined words – the meaning of language used in the policy
Lack of ambiguity for customers and underwriters entering into an insurance contract

5. Warranties & Conditions – the “small print”
Standard policies often carry “conditions precedent to the liability of underwriters”. These may include:
Average
Protection and alarm/safe warranties
Item specific clauses such as “clasp and settings” or “onus of proof of value”
A HNW policy should be warranty free. This is based on trust and the understanding of a HNW customer’s lifestyle, however some risks do need special terms
For a HNW underwriter, the best customer is:
Rich
Honest
Careful

6. What is “Average”
Average is a method used by insurers to protect themselves against under insurance
If a property is insured for less than the actual reinstatement/replacement value of the item(s) then underwriters do not receive the correct premium for the risk
An under-insured claim is therefore subject to proportional settlement
Most insurers use 20% under-insurance as a trigger point before applying Average

7. Core coverage – All Risks Vs. Perils
“Peril” – “a cause or pain, or injury, or loss”
Peril based policies are still purchased. Typically covering the perils of:
Fire, lightning, explosion, aircraft/vehicles/animals, storm, flood, weight of snow, escape of water/oil, theft, riot, subsidence, heave and landslip
Accidental damage option for an increased premium
Contents only covered within the home unless an additional premium paid; sum insured limited
“All Risks” – “all risks of physical damage or physical loss”
HNW policies will cover contents etc. on a world wide basis

8. Buildings Insurance Standard Insurer: reinstatement of the property
Subject to “average”
HNW Insurer: reinstatement of the property.
Not subject to “average”
Extended reinstatement available after property surveyed by insurer

9. Buildings Insurance cont.
HNW policies give full reinstatement cover with no “average” condition for under insurance
Cost of alternative accommodation/loss rent – mostly unlimited in monetary terms and given for 12+ months
“Trace & Access” cover
Replacement locks – most HNW policies have no limit or deductibles
New acquisitions; some HNW policies give automatic coverage for newly purchased properties

10. Contents Insurance
HNW policies generally give worldwide all risks coverage
“New for old” coverage
No deduction for every day wear and tear on clothing and other items; a standard policy will pay a claim with a deduction for depreciation
A HNW policy will give generous sub limits for higher risk items such as precious metals and jewellery
New acquisitions are often covered automatically, subject to a pre-determined limit

11. Fine Art, Antiques, Collectibles & Valuables Insurance
Standard insurers do not provide an adequate basis of settlement and often shy away from high value items
HNW insurers cover the items based on their current market value
It is possible to insure items on an “agreed value” basis
Depreciation cover is often given for “partial” losses
Acquisition cover
“Pairs & Sets” - if an item(s) has an increased value because it is part of a pair or set then HNW insurers can take this into account if one item is lost or destroyed
Some HNW policies cover an item whilst at a restorers
Defective Title insurance

12. Personal & Employers Liability Cover
Standard insurers give fairly low limits
HNW policies give worldwide personal liability coverage (with some time restrictions for North America)
Libel and slander cover available
Domestic employees cover given

13. Additional added benefits
Free personal risk appraisal – ensuring correct sums insured and offering risk management advice
Legal expenses coverage with higher limits than a standard insurer
Home emergency coverage
Annual family travel insurance – better coverage than offered by standard travel insurers
Identity Theft cover
Some HNW insurers allow you to insure motor vehicles under the same policy

14. Some examples ... Average The Round House, Belle Isle
Grade I listed C17 residence
Badly damaged by fire in 1996
Under insured by around £6.5m
HNW insurer guaranteed the rebuild
A standard policy would not have
responded

15. Some examples ... Trace & Access … Leaking under floor pipe
Standard Insurer:
Limited trace cover
Partial replacement
Not suitable for the HNW
customer
HNW coverage:
Damage caused finding leak
Replacement of whole suite

16. Some examples ... Agreed Value Wedding ring made for HNW customer
Item stolen from hotel room
Standard Insurer
May decline claim in unattended hotel room
Would seek to use own replacement jewellers
May not agree the insured value
HNW Insurer
Based on valuation agreed value cover given
HNW insurer paid loss as a cash settlement
Customer had new ring made