When it comes to helping high net worth (HNW) clients get optimal coverage, there’s more to it than just adding a couple of zeroes to premiums and payouts.
HNW clients have different interests and concerns that require customized insurance programs. Whether it’s real estate, cyber threats, or protecting the collections that fire their passions, insurers and their agent partners must take extra care to assess needs, account for unusual risks and creatively cover the gaps.
One of the best benefits of wealth is indulging in the things that spark joy, whether it’s fine art, vintage cars, jewelry, or collectibles that harken back to childhood, like baseball cards or comic books.
Whether a collection is sentimental or purely a financial investment, collectors want to know that their collectibles are protected, said Hayden Kopser in his recent Academy of Insurance course, The Art of Insuring Collections.
“To me, there’s really nothing more exciting and interesting in insurance than insuring people’s collections,” he said. “They’re passion assets.”
Kopser is president of North Improvement LLC, a boutique property/casualty brokerage catering primarily to the complex needs of HNW clients. Kopser uses his mobile app development background to help protect clients’ assets and reputations from modern risks, like cyberattacks and online fraud. Before founding his firm, Hayden was a senior underwriter with AIG’s private client group.
A collection can be any number of items that a person is passionate about or holds value as individual items or as a group, Kopser said. Everything from fine art and antiques to jewelry to model trains. Even bottle caps and sneakers can hold monetary, historical and sentimental value that needs to be insured, he said.
“It’s as many items, or as few items as makes sense, and in total value, you could go up to billions,” he said. “I’ve seen billion-dollar collections, and you could go down to a few thousand bucks,” he said.
“You can insure things like wine. You can insure things like cameras, as long as it’s an individual, not for business use. And some of these are not going to be sublimited,” Kopser said. “They may fully be covered by a homeowner contract, but unlike with some art or some collections policies, they’d be subject to a deductible. They might have restrictions on certain loss types.”
Collectible coverage needs can quickly become complex and specialized and depend on location, the items themselves, the age and scope of the collection and the dollar amount assigned by an appraiser. While some items will have limited coverage under other policies, such as homeowners, people want more protection when it comes to insuring more extensive and expensive collections.
When shopping for coverage, a new appraisal is the best way to gauge insurance needs accurately, according to Kosper.
Carriers may have reputable appraisers they recommend or even in-house appraisers. However, Kopser cautions that an appraiser must be a disinterested third party.
If it has been a while since the collection was appraised, providing blanket coverage can be a stop-gap measure until the collection can be appraised, he said.
“Blanket coverage basically says here’s the maximum limit for a class in the collection, maybe jewelry, fine art, silverware, and here’s the maximum single item limit,” Kopser said.
While the base value of the items can be established through expert opinion, comparative items and market value, a lot of other factors can come into play when it comes to how much coverage a collector needs and wants, he said. Coverage can be customized for appreciation, location, provenance, diminution and while in transit.
Geographical areas at greater risk for catastrophes like hurricanes and wildfires will have higher premiums for collectibles. For example, “Simply moving from Manhattan to Brooklyn can triple the premium for the same coverage because there is a greater risk of theft and loss,” Kopser said.
Other things to consider when insuring valuable items might include their past owners. For example, a vintage watch could be insured for one amount, but if that vintage watch used to belong to Paul Newman, and the insured has the paperwork to prove that ownership, then the item could have an extra, intangible value attached that could also be covered.
“It [insuring collectibles] requires a lot of knowledge, but it also affords much more flexibility in the way you can set up a client’s coverage than with, say, home or auto insurance,” Kopser said. “You’re playing a part in protecting history so it’s really exciting.”
Personal Cybercrime Risks
HNW individuals and families are also at greater risk from cyberattacks, Kopser said in his Academy of Insurance course, Modern Trends in High Net Worth Cyber Insurance.
First, HNW families are more likely to have homes with more IoT-connected devices and more people with access to those devices, networks and passwords, including children and staff members.
“You have so many different access points for which someone can get into your private information and can take over your technology,” Kopser said.
More people and more access mean more opportunities for bad internet hygiene, such as posting revealing information online or clicking links that invite malware into the system.
High net worth individuals are also generally higher profile people, so it is easier to find information about them, their households, lifestyle and habits online, making them more vulnerable to cyber and “real world” crimes, such as burglary. Higher profile people may also be targeted by ransomware attacks that hold information hostage until a ransom is paid, typically in a cyber currency such as Bitcoin.
One scam that is gaining popularity involves criminals observing high-dollar transactions by hacking emails and other communications. In such scenarios the criminals often pose as an institution or organization such as a real estate company or car dealership to request a fraudulent transfer of funds, Kopser said.
“There has been fine art [crime] events that have gone well into the billions,” he said. “And by the time the money is sent, and you realize that the item you’re trying to purchase is not being delivered to you because the person who was supposed to deliver it never really received payment, the money’s out somewhere in Eastern Asia. By the time that happens, it’s too late.”
The HNW clientele also worries about protecting their reputation, Koper added.
When a cyberattack exposes personal information, such as text messages, emails or other confidential materials, “it can cause extreme damage to their reputation and lead to things like losing jobs, or at the very least, damaging their career for the long term,” he said.
And there can be additional public relations expense to manage reputational crisis.
The FBI and state governments have begun to advise insurance carriers and individuals do not pay ransoms for these cyber threats, Kopser said, which will create a massive issue because there are maybe hundreds of thousands of policies with ransomware coverage, both personal and commercial policy.
Even though personal cyber risk is not as high as commercial cyber risk, more carriers are beginning to cater to the cyber coverage needs of high net worth clients. While many financial institutions and businesses have coverage for losses due to fraud, personal cyber coverage can help cover the gaps and mitigate the damage if an individual is impacted by a commercial cyber incident. “And if you don’t have cyber coverage in place and the company that got spoofed doesn’t have cyber coverage in place, you’re probably out of luck unless you want to sue them,” Kopser said.
HNW Clients Need Expertise
The HNW client market can significantly benefit from agents and brokers, said Ana Robic, division president of personal risk services at Chubb, in an interview with Insurance Journal.
“The advice and counsel, really, of an independent agent, to ensure that a high net worth individual and family has the coverages that they need to protect their uniquely valuable possessions” is critical, she said. “It’s a spot in the marketplace that really requires that intermediary.”
For example, high value home insurance designed for HNW individuals can offer guaranteed replacement costs, non-depreciated cash settlement options, deductible waivers, broad liability coverage and flexible coverage limits, Robic said. “Where brokers and agents can work with the high net worth carriers to demonstrate the value that certain targeted insurance products have to those that are being underserved by standard markets.”
Lacey Garrison Strom, executive vice president and director of private client practice at Heffernan Insurance Brokers in California, said the current high net worth marketplace will better tailor programs beneficial to the carrier and the client.
“Relationship building is the most important factor here,” she said in an Insurance Journal interview. “The better the relationship a broker has with their underwriters, the more pre-underwriting a broker does on their own, and a broker that is brutally transparent will receive terms more consistently and faster than their competitors.”
Insurance Journal’s Allen Laman contributed to this report.
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