They’re in the Money!

Targeting and Insuring the Very Rich

When thinking about the wealthy, typically one conjures up images of well-known celebrities, business moguls and the inherently rich. One might envision multi-million dollar homes, 20-carat diamond rings or stacks of gold coins the size of small mountains. To the insurance agent or broker targeting this elite market, much goes on when prospecting, assessing and insuring today’s wealthy clientele.

Defining the affluent marketplace
According to the U.S. Census Bureau, slightly more than seven million Americans earned incomes of more than $100,000 in 2002, the top income category collected by the Bureau each year. In today’s economy, a $100,000 income hardly defines wealth and for the insurance professional prospecting the wealthy, income alone may not reveal an accurate assessment of a client’s insurable assets.

“I think when it comes to defining [the wealthy marketplace] asset managers have it a lot easier—you have $10 million in assets, you are in,” said Ross Buchmueller, president of AIG Private Client Group, which writes exclusively for very high net worth individuals. “That criteria doesn’t translate well to insurance, so we define our entry level as a total account with premiums generating $10,000 or greater.”

Whether defining financial assets or tangible assets the actual definition of the affluent client depends upon the person delivering the response.

“Everyone thinks they are very wealthy,” said Shelly Kozel, president of Lezok Ltd. in New York City. “In reality they may be no more than upper middle class but are perceived to have a lot of money.” This type of client might be a local TV star or news personality who is a recognized public figure in the community. “In reality, their investments may be no better than mine, but if they are in an auto accident with someone, all the other person sees is dollar signs.” Kozel, who has been in the business more than 40 years, began specializing solely in insurance for the wealthy 12 years ago.

Insurers, agents and brokers targeting the affluent individual generally define the person as owning a home valued at more than $1 million (large metropolitan area). They say an affluent client’s insurance needs span beyond the typical insured in many respects. Perhaps the insured owns a private collection of fine art, rare collectibles or priceless jewels. Maybe their 20,000 square foot home has been custom built with steel construction, exotic fabrics, in-home theaters or one-of-a-kind fixtures. The affluent insured might even own a different automobile for every day of the week, not to mention a private jet for international travel. And what about that summer home in France?

For affluent clients, a focused understanding of their risk management needs is vital to the agent or broker dealing with their accounts. Knowledge of risk exposures is not the only thing wealthy insureds value when choosing their agent. An understanding of the “wealthy” lifestyle goes a long way when prospecting the marketplace.

Different than the rest
“The average client would not go out and buy a painting for $150,000 and call you about it,” Kozel said. “You have to be prepared at all times to talk to these people and that’s why they all have my home phone number.”

For most affluent clients, higher deductibles are needed for effective cost savings. “I have clients who have $10,000 deductibles on a house, and I tell them not to turn in the small claims,” Kozel stated. “In the end, it saves them money and when they do have a claim the coverage is there.”

Nevertheless, even the affluent need educating when it comes to the business of insurance. Kozel even goes as far as to say it may be more difficult to convince an affluent client to go with increased deductibles or to avoid turning in small claims to their carrier.

Ron Wanglin, chairman and CEO of Bolton & Company in Pasadena, Calif., concurred. “Clients can be very demanding in terms of what the company can do,” Wanglin said. While Bolton & Company handles primarily large commercial accounts, its personal lines division—only 8 percent of the agency’s total book—has homeowners policies in excess of $100,000 in premium. “Typically, there can be a couple of issues when working with these clients,” Wanglin said. “They can be demanding and sometimes you are working through an intermediary, business agent or manager … and the expectations of what the business manager is expecting can vary.”

Rebecca Korach Woan, president of Chartwell Insurance Services in Chicago, added there are a number of different exposures to consider when insuring the wealthy clientele. Prior to opening Chartwell, she had observed accounts where wealthy insureds were either overpaying for coverages that didn’t make sense or were simply underinsured.

“We saw regularly people who were either underinsured because their broker had not bothered to adequately profile the insured and learn about all of their exposures, or we saw people who needed some rebalancing in their insurance portfolio,” Woan said.

Woan opened Chartwell, which specializes exclusively in the affluent clientele market, in 2001.

“We perceived a need in the marketplace for somebody who did nothing but the personal side of property and casualty. We thought that there were a lot of agencies doing it as an accommodation, but really not many that were just focusing on the individual,” she said. By specializing in the affluent marketplace, she is able to have a broader understanding of her clients’ diverse needs and exposures.

For example, Woan said there are many brokers who insure fine arts, but may not necessarily understand it. Chartwell, which has an additional focus on fine arts, provides referrals to services providers, including art advisors, as a value-added service for their clients.

Wanglin also advises those assessing the risks of wealthy clients to look at their overall lifestyle. “How much do they travel? If by jet, do they own an aircraft; multiple homes around the world—do we need to put together a global program to meet that risk?” he queried. For Wanglin, accurately assessing the risk is a combination of experience and fact finding. “The biggest challenge is getting the high net worth individual to sit down and go over everything.”

Why specialize in the affluent?
Most would consider the wealthy marketplace to be a lucrative business. Higher premium dollars translate to higher commissions. But how accessible is the market and why jump into this niche?

“You find in insurance that specializing is the easiest way to go about doing business and most efficient … it’s tough to be a generalist,” Woan said. “Everybody thinks it’s a great market, but unless you understand the market you can’t succeed in it. For example, I wouldn’t be a good a commercial broker … you do what you know best.”

Kozel used to handle just about every line of business but felt he couldn’t service his accounts in the manner he deemed appropriate. “As a result I decided to handle only professional liability and high value personal lines clients,” he explained. “To me service counts and I just can’t be everything to everybody.”

So, Kozel left his commercial accounts behind to develop a specialty niche in the affluent marketplace with only three producers, including himself and his wife. Today, 50 percent of his clients are attorneys, 25 percent are computer consultants and the remaining clients are simply referrals.

On the other hand, James Merriman, senior vice president of the Western region of Marsh Private Client Services, said specialized insurance for the affluent developed as a value-added service for high-level executives of Marsh’s commercial accounts. Over the years, Marsh has expanded its reach and now actively targets high net worth individuals for its Private Client Services division.

Specialized carriers and coverages
When insuring the wealthy, agents have many choices for personal lines insurers, but only a select few specialize in protecting the unique needs of the wealthy clientele.

According to Wanglin it is important to work with insurers that have the mindset, capacity and appetite for writing high-value risks.

Chubb Personal Insurance has been specializing in the affluent marketplace since the early 1980s, said Peter Spicer, assistant vice president, new product manager for Chubb & Son. “We are one of the few carriers out there,” specializing in this market, Spicer said. “We’re not going to be the least expensive product in the marketplace, but we are going to be there.”

Insurers like AIG Private Client Group and Chubb have developed services and products to meet the unusual needs of the wealthy. For example, both insurers developed employers professional liability products that can be added to high-value homeowners policies for domestic employees. The response was driven at the request of agents and brokers working with affluent clients.

Judy Wilson, personal lines vice president at Bolton & Company, said she’d like to see more carriers offering this endorsement coverage on homeowners policies. “They can always buy an EPLI policy, but it’s hard to find on a personal lines account where there are house workers.”

Another area where insurers want high marks when insuring the wealthy is claims handling. “If we have a claim, service really does count,” Kozel said. “But I’ve aligned myself with insurance companies whom I trust and whom I know will make my clients happy, and as a result I feel comfortable and I can sleep at night.”

Targeting the market
Working with the rich and famous certainly seems like a good way to business. But can the retail agent and broker target and market to the wealthy? The answer is yes, and no.

First and foremost, you have to have access to carriers writing business to the high net worth individual, Wanglin said.

Secondly, traditional marketing techniques will probably not work. “In my opinion, the high net worth market is not a market that will respond to that [traditional marketing],” Woan said. “This is a referral based business and relationships are very important.”

One way to tap into quality leads is to work with CPAs, attorneys, banks and business managers Wanglin advised. He also suggested moving in the same social circles as wealthy individuals so they view you as a peer and not a salesman.

Woan suggested developing a strong relationship with the insured’s financial advisor or anyone who might be knowledgeable about the client’s insurable assets. “It’s only when you can have a coordinated relationship with a high net worth client that you can fully accommodate their insurance exposures,” she explained.

Kozel agreed that referrals are key when trying to grow business in the affluent marketplace. “Attorneys, accountants, who were also friends, had clients who had substantial assets and they would refer me because they knew I did a good job.” Kozel did no advertising and built his business purely on word of mouth. He admits, his business approach is completely different than his days at a large commercial firm in Long Island, but it’s an approach he truly enjoys. Despite his small producer force, Kozel continues to grow his agency by about 20 percent each year.

“The only meaningful way to get to the very affluent is through their advisors, primarily their lawyers and accountants,” Arthur Bavelas, president and CEO of Resource Network Ltd., a consulting firm that targets the affluent marketplace for the financial services industry. Bavelas says he may acquire referrals on quid pro quo relationship, but what is often more effective is to identify a maximum-benefit referral “I’ll pat your back, you pat mine” system. For example, “Attorneys are terrible marketing people and insurance professionals are great marketing people,” Bavelas said. “If an insurance professional can help them market their services that would be helpful.”

Other options exist through prospecting consultants specializing in the wealthy marketplace.

Sam Barton, a specialist in segmentation and targeting of the affluent marketplace, says the first thing an agent can do is profile his own customer base to figure out where the most profitable relationships exist. Barton, president and founder of IXINet, provides data for purchase that allows an agent or broker, primarily in the life insurance industry, to cross reference the data with existing customer files to determine the financial household wealth and their need for financial products.

“An interesting stategy is to try to capture customers before they become really wealthy,” Barton said. “They have the upward mobility to be good insurance customers and ultimately will become good brokerage customers.”

Topics Carriers Agencies