When asked how to determine the needs of a high net worth client, we describe their coverage requirements as complex. The question is, how does an agent identify those complexities and how can your carrier assist in that process?
In our recent interview with Melissa Apostle, Personal Lines Risk Management Zone Manager, with The Cincinnati Insurance Companies, she shares the importance of her role in identifying some of the complexities that reveal themselves during her home inspections. Melissa has been in the inspection and appraisal side of the business for 30 years.
How do you identify the needs of a high net worth client, and what might you find during an inspection?
A high net worth client has a need for superior coverages to protect their assets and lifestyle and is not price driven. Often, however, the client is not aware of their own risk profile or the coverages available.
I’ve been in homes where they have extensive art collections, a valuable baby grand piano or an antique harpsichord and I’ll say, “We can offer specialized coverage on that,” and sometimes they aren’t aware of the options. The insured is also likely not aware that we can cover purchases of collectibles in transit and artwork on loan or in process of being commissioned.
In addition, the homeowner is often unaware of the extent of contents coverage. Some people are under the impression that it’s just their furniture. I explain that it includes everything they’d take if they moved. I’ll say, “Take your house, turn it upside down, and shake it out. Everything that falls out is coming with you. Your spoons, your towels, your shoes, consider all of your possessions when choosing your contents limits.”
I’ll also explain that losses covered under contents are subject to a deductible, while insuring art under a fine art policy provides the added benefit of eliminating the deductible in the event of a loss.
Can you share more about the home inspection and what you are looking for when entering a home of a high net worth client?
When I arrive at a house, I am looking at the construction, finishes and features, which all contribute to the replacement cost of the home – the cost to repair or rebuild it. Additionally, I am looking for evidence of loss mitigation such as alarm systems or water sensors, any possible liability exposure and any special items or collections, such as art or wine, that the client would better protect with additional coverages.
At times I am entering a home that is under-insured due to the situation under which it was purchased and insured at closing. People who buy homes out of foreclosure or through an estate, a short-sale, or in certain states where the economy is suffering or taxes impact affordability, the discounted sale price does not represent the replacement cost of the home. As a result of these buying conditions, the price of labor and materials to repair a partial loss or to full rebuild the home are going to exceed the purchase price.
My inspection is going to disregard purchase price and focus on how we will replace the home with like, kind and quality. Prior to entering a home, I’ll look at the current coverage and that gives me a snapshot of what we’re insuring. But then, I enter a home and I often find quite the unexpected… marble floors, hand-painted murals with gold leaf and black onyx in the bathrooms and the value can go up several million dollars.
A home built in the 1700’s will require special craftsmanship; another home may have been designed by a famous architect, but if the homeowner bought the house for $1 million and it costs $3.5 million to replace, we’re going to insure it for $3.5 million. That’s a concept that’s very difficult to explain, but I will take my time with an insured at their home to explain that for two reasons. First, I want the insured to fully understand the coverage. And second, it helps the agent to know that I’ve explained the increase to their client, and I offer to do any follow up as well. We never want the insured to feel we are “over-insuring” them. We’re interested in replacement cost because the purpose of this policy is to indemnify the insured, to make them whole.
How would you describe your role in the process, with the agent and the underwriter?
I – along with my colleagues and my teammates – am the eyes and the ears of the underwriter and the agent. It’s our job to go beyond what appears on paper. It is also our job to identify potential risks and make recommendations to reduce the likelihood of loss.
We look at contents as well the condition of the home. There was a policy that had two Ming Vases on it, and I wanted to see where they were placed – was it an area of high traffic, are there pets or young children in the home, what is the risk that they could get knocked over? At another home, there were very small Dutch master paintings from the 1600’s. With artwork, I’m checking the safety of the location and the quality of the curation – are they in an area that can be reached from a window, or hung dangerously over a fireplace? If the homeowner has not brought in a professional appraiser for their collectibles, I’m going to arrange that for them, too.
We are also going to look for appropriate security and alarms, adequate fire hydrant accessibility, determine response time from fire fighters, and make suggestions where we see inadequacies.
What is the number one benefit you bring to the agent?
We create a personal connection with the insured. Sometimes we are the only one that meets with them, and it makes such a huge difference. I explain more about the process and Cincinnati Insurance and the role of their agent. While I’m in their home, I observe their lifestyle and that is also when I uncover additional needs – such as coverage for domestic employees or learn about unique collectibles, whether jewelry, high fashion, antique cars or golf carts. It’s the opportunity to be on-sight that is going to give rise to the unexpected risk that we can mitigate.
When you cover a high net worth individual, the coverage can be more complex because their possessions may be exposed to additional risks and are often of great value. They may also require additional coverages such as kidnap, ransom or personal cyber protection against cyber attack, extortion or fraud. But as Melissa describes, the high net worth individual’s needs are most often revealed through a home visit and the personal connection that The Cincinnati Insurance Companies’ services provide.
For more information, visit www.cinfin.com/capstone.