An untapped market

John Sims, Chubb Insurance's European head of personal lines, estimates the high-net-worth market is worth between £800m and £1bn, with individuals paying premiums of £3000 and above for their home insurance.

However, it is estimated that 75% of HNW individuals choose standard insurance cover through banks, direct writers and building societies.

Given the different interpretations of HNW status within the industry, the number of HNW individuals in the UK is debatable. A recent survey by Datamonitor, entitled Household Insurance for the Affluent, reads: "The number of UK HNW individuals is forecast to increase from 571,000 to 841 300 between 2002 and 2007. This presents a vast potential for HNW providers to increase their policy count." According to the report, HNW individuals are those that have more than £200,000 in liquid assets.

Capgemini's latest World Wealth Report for Merrill Lynch revealed that there were 383,000 HNW individuals in the UK in 2003, an 8% increase from 2002.

Zurich has 200 UK brokers on its books, including national, large provincial brokers and specialist HNW brokers. Martin Hall, general manager for Zurich Private Clients, says: "It is one of the biggest opportunities for growth in the insurance industry. There are not many markets as untapped as ours. I think there is enough business for all providers to hit their goals over the next three years."

According to Sims, the challenge facing brokers is in finding ways to attract HNW clients. He says: "In many cases people are blissfully unaware that there are alternatives to standard policies, which are full of warranties and conditions. Once they have undergone a full review, it is often not actually that much more expensive to move onto a specialist policy, particularly if someone has art - where we charge a lower rate."

A good example of the untapped market was discovered at this year's British Antique Dealers' Association Antiques and Fine Art Fair, sponsored by Hiscox. A survey conducted at the fair found four out of five collectors insure their art and antiques on a standard home insurance policy, most of which exclude arts and antiques as standard, with only 20% opting for specialist home contents cover.

Tony Lumsden-Cook, managing director of Oak Underwriting, says: "The HNW market is absolutely enormous. The best way to tap into this potential is 'The $64,000 Question'. We would need to spend a fortune on retail advertising - about £5m to £7m - in order to make a presence. There is an awareness problem."

Hiscox, which passes on 10 leads a day to partner brokers, has recently started a £1m advertising campaign targeting affluent homeowners.

Brokers need to be client-focused and tap into specific interests, for example, advertising at events such as art fairs and motor shows.

Barry O'Neill, general manager of Marsh Private Clients UK, says: "We have to focus on what clients are interested in. We work with private galleries, a stamp expert and those involved in hunting and shooting. HNW clients can afford their passions and often have an international lifestyle. We have tried advertising in the past, but it was not particularly effective."

Stuart Alexander recently sponsored the 20th/21st Centuries British Art Fair at the Royal College of Art. This was a good opportunity for the broker to interact with potential clients and spread awareness about specialist insurance.

Austyn Tusler, manager of AIG Private Client Group, says: "It is essential to be focused on the client and their needs rather than on their home and its contents."

Cliff Gathercole, private clients manager at broker Amilcroft Insurance Management, says: "HNW business often comes from company directors. If they are happy with their commercial lines then they take out personal lines. They do not want to deal with a company directly, they would rather speak to an account handler. We tend to look at existing clients in order for growth in our HNW portfolio to occur."

Hiscox has had a successful pilot scheme in which trained Hiscox operatives have helped set up HNW books at commercial brokerages. Aaron Devitt, regional manager for Scotland and Ireland at Hiscox, emphasises that these brokers are not tied to Hiscox and can place their business where they see fit.

Client profile

Although there is a generally accepted premise that a HNW client is someone with more than £350,000 of property and £150,000 of contents, definitions vary widely. Zurich, for example, targets individuals with buildings valued £750,000 and higher, contents of £250,000 and car collections above £100,000.

Typical HNW clients include managing directors, doctors, celebrities such as sportsmen, (broker Heath Lambert has recently agreed to become the insurance provider to the Professional Footballers' Association) and people who have inherited considerable wealth. However, HNW individuals can work in less obvious professions and should resist being pigeon-holed.

Many in the industry recognise those earning in excess of £100,000 as HNW clients, though, again, there is no industry standard.

Charles Dupplin, head of the art and private client division at Hiscox, cited a case where a client needed to insure a $1m (£561,000) painting that he carried in a briefcase wherever he went.

It is important to identify individuals that will quickly climb the career ladder, according to O'Neill. He says: "We have challenging clients and it is absolutely fantastic to work with so many clever and sophisticated people. Some of our clients are emerging-wealth clients, those who are achieving well within their peer group and have great potential."

Personal touch

The personal touch is widely regarded as one of the most important items in a broker's armoury when trying to attract HNW clients. Because brokers have the opportunity to discuss the individual's requirements face to face, there is also an excellent opportunity to discuss security risks and improvements. Where necessary, brokers can arrange for underwriters to send valuation experts to undertake a home visit and specialists may be required to look at precious pieces of art. Often, second homes abroad will also need surveying.

Lumsden-Cook says, "The brokers need to be very professional and have a separate department having mature, experienced operators. They need to know their client. Oak will send the relevant professionals to undertake valuations."

Matt Mullee, private client director at La Playa in Cambridge, argues: "Brokers do not necessarily need resources but the right people, knowledge and experience. We constantly have meetings with valuers and security consultants."

Products

In addition to homes, cars and general contents, the policies often cover items such as fine art, expensive second homes and yachts. Brokers may, for example, need to find out how many staff are employed at a property.

Coverage such as accidental breakages, thefts, fraud (including identity fraud) and more specialist products such as carjacking can be offered by specialist HNW insurance policies.

Security concerns are paramount and clients need advice on features such as door and window locks and a wide range of alarm systems. Aggravated burglary is a growing security risk and, following such incidents, insurers may offer counselling and temporary relocation expenses.

Chubb's Masterpiece product advertises that, if a painting or work of art is damaged, they will not only pay to have it restored as perfectly as possible, they also pay in full any depreciation of its market value.

Gathercole recognises that clients have changed their policies over the years. He says, "Our clients are looking for more nowadays, insuring things such as legal expenses and worldwide travel."

Policies are often diverse, and those offered include personal runway insurance, kidnapping cover, including child abduction and hazardous sports protection.

Andrew Jobson, managing director of Aon private clients, cites some unusual examples within the HNW market such as insuring Japanese coy carp in ponds, ascertaining loss of value to a house following damage to attractive trees and insuring against injury to bodyguards and personal assistants.

When asked about whether there was anything Marsh could not cover, O'Neill says: "There are no limits to what we can insure. Obviously, every risk has its unique characteristics. I cannot think of anything; we haven't had anything we could not place."

Valuation

A major problem is the undervaluing of an individual's property and possessions, especially where standard cover is purchased. This is an area in which the experience of brokers can help significantly.

Dupplin says: "The insurance-to-value ratio on a macro level in the UK is 66%, compared with the US where the percentage is in the high 80s and low 90s. One of the reasons for this is that there is more of a money culture in the US, and brokers are keen to get it right to avoid errors and omissions suits. Whereas in France the ratio is between 50% and 60% insurance to value, this is tax-related, for example, the inheritance tax is 70%."

He warns, "People forget that the average woman has £20,000 worth of clothes. On average, in the UK, 50% of people are underinsured."

Edwards believes that 80% of people with net assets of at least £750,000 are not properly covered.

Hall says: "Clients are about 40% underinsured. The greatest challenge is education. Clients are happy once we explain to them their insurance needs. Too many HNW clients are placed on inadequate contracts and standard contracts, once the benefits are explained they have no issues with insuring to value. That information and education being passed down is taking a while to happen."

Jobson says: "I think it is a massive issue. We use a standard index ratio; if the contents are insured for less than 20% of the property value, then they are woefully underinsured. Clients on standard contracts are doing first-loss limits in their own minds, and it is not always the case that they would have to pay more premium if they were fully covered."

Tusler is not surprised that underinsurance occurs. He explains: "It is impractical to ask clients to count up their possessions and update their sums insured after every visit to the shops, as some insurers advocate.

It is also impossible to ask policyholders to use a calculator to determine how much cover to buy. Human nature suggests that clients, even very wealthy ones, would often rather buy less cover than more."

Both insurers and brokers recommend regular valuations. Edwards suggests that art should be checked every three to five years. Properties and clothes should also be evaluated regularly. Gathercole says: "Ideally, people would revalue their property at every renewal, or once every two to three years." Brokers should also encourage their clients to notify them of any high-priced purchases recently acquired, he adds.

The market is set to enjoy the growth it has achieved over the last 10 years and the fact remains that some brokers are well positioned to take advantage of this by offering high levels of personal service, arranging adequate cover and products that meet their HNW individual needs.

- Oak Underwriting - house worth £500,000 and contents valued at over £100,000.

- Zurich - buildings of £750,000, contents of £250,000 and car collections of £100,000.

- Chubb - individuals who pay more than £3000 for their house insurance premiums.

- Stuart Alexander - home rebuilding value of £300,000 and contents over £75,000.

- Marsh - property around £500,000 and contents over £100,000.

- According to Datamonitor, the number of UK HNW individuals is forecast to increase from 571,000 to 841 300 between 2002 and 2007.

- HNW individuals have over £200,000 in liquid assets.

- Capgemini's latest World Wealth Report for Merrill Lynch reports there are 383,000 HNW individuals in the UK in 2003, an 8% increase from 2002 when there were 355,000. HNW individuals are those with liquid assets over $1m.

- HNW individual global financial wealth to grow by 7% per annum.

Sources: Datamonitor and Capgemini.