Catering to wealthy individuals

Most high net worth individuals already complete their personal insurance package with excess liability coverage, or the personal umbrella liability. Even so there could be opportunities missed in meeting the umbrella needs of the affluent market.

“It’s a relatively easy coverage to sell for a good agent,” says Jim Fiske, U.S. marketing manager and vice president, Chubb Group of Insurance Cos. In today’s highly litigious environment, virtually everyone needs a personal umbrella or a personal excess policy, Fiske says. But, Fiske adds, some agents catering to the high net worth market might be missing a few opportunities and exposures when writing their client’s personal umbrella.

“A lot of agents focus on the net worth of the individual in terms of dialing in on an appropriate number in terms of how much (coverage) they should carry,” Fiske said. “And that’s part of the discussion but it misses a couple of important points.”

Agents should understand the client’s risk factors, Fiske advises. Does the insured have children? Does the insured lead a riskier lifestyle? Does the insured employ household staff? “The reality is a lot of people will have a nanny and a housekeeper and that brings in a whole new set of exposures,” he said.

Other risk factors might include the insured’s use of financial vehicles such as trusts or limited liability corporations for a shelter for their assets or for the generational transfer of wealth. “Once you start putting entities into the mix it adds a great deal of complexity to understanding the umbrella needs (of the client),” Fiske added.

Chubb, the eighth largest homeowners carrier in the United States, writes $2.7 billon in premium for personal insurance and caters to the insurance needs of the affluent.

Don Soss, chief underwriting officer for personal insurance, Fireman’s Fund Insurance Co., says agents who cater to the high net worth individual have to stay in constant communication with their clients to accurately understand their exposures.

“We are really an advocate for the agent to dig deeper and not be afraid to ask some personal questions,” Soss said. “That helps them understand the risks the customer has, the risk appetite of the customer and helps them to develop the appropriate (insurance) program.”

Auto claims drive excess losses

Fireman’s Fund, which also caters to the affluent client and writes $1.2 billion in personal lines insurance, doesn’t have a problem selling personal umbrella policies to its wealthy clients. On the higher end, Soss says, nearly 100 percent of its personal lines book has excess liability coverage. But, he adds, there’s an opportunity for agents to advocate for higher limits.

Soss says he sees fewer auto accidents today, but those he does come across are more severe. “The insured will get into an accident and injure multiple people and you have multiple (law)suits; so that brings the limit above what the auto policy limit is intended for, creating a need for excess liability insurance,” he said. Soss claims some 90 percent of excess loss claims are auto related.

Additional endorsements

Chubb’s Fiske says that over the last few years the high net worth personal umbrella market has added new coverages such as employment practices liability and identity fraud coverage.

Also, a personal injury provision is a fairly common coverage these days, one that mass market carriers such as direct writers or captives typically do not include, according to Fiske.

“When you think about today’s technology and the fact that people are blogging, setting up MySpaces and communicating, all of a sudden personal injury becomes very important, particularly when you weigh in risk factors like children,” Fiske said.

A directors and officers liability endorsement is another coverage option available to affluent buyers of personal umbrella coverage.

“We recognized a lot of our customers sit on nonprofit boards and are dependent on the board having sufficient coverage for their errors and omissions or anything they may get sued on,” said Fireman’s Fund’s Soss. It’s typical for a nonprofit organization to carry policy limits of just $1 million to cover all board members, he added. “So if that’s insufficient, and they get sued, potentially someone could be on their own.” Claims such as wrongful termination, or a board-recommended termination “tend to be highly litigious and you see very large defense costs,” Soss says.

One of the key questions agents should consider when evaluating umbrella coverage for high net worth clientele is how the defense costs are handled under the policy, Fiske advises.

“Ideally, you want a company that has unlimited defense costs in their forms,” Soss said. “And you want to make sure you have enough limits so should there be a settlement, you are sufficiently covered.”

Fiske advises agents and brokers to pay attention to the contract language of the personal umbrella policy. There’s no standard policy language in the personal excess liability market, he says. “Therefore if you have 10 different excess umbrella policies you would potentially have 10 different approaches to liability.”

This may be especially true for the affluent insureds currently with direct writers, Soss says. While direct writers that do not use independent agents write a good portion of the affluent market, Soss believes many of these individuals may be underinsured. “They are buying a more homogenous-type product that may not be suitable for their needs. … Getting individuals to realize that is an agent’s challenge.”

Topics Agencies Excess Surplus