The high life

High net worth insurance is joined at the hip to commercial lines, according to Paul Dickson, managing director of Dickson Insurance Brokers.

And Dickson is not alone. Bob Beckett, chairman of The Beckett Group, and Chris Blackham, chairman of Layton Blackham, also sell HNW insurance to their commercial clients and Mark Boon, managing director of La Playa, says his company was set up on this principle. More recently, David Sweeney, UK development manager at Hiscox Insurance, joined the Willis Commercial Network conference in Venice to encourage the commercial brokers to sell HNW.

Marriage of convenience

Blackham says about 50% of his HNW clients are also commercial clients, and the other brokers mention a similar figure. Blackham's HNW book is worth about £3m, about 5% of his commercial book, and he says that ratio has remained constant since he started offering HNW. The other brokers say their HNW books are worth about the same proportion, except Boon whose books stand at £1m premium each.

Though the HNW books are worth much less than the commercial books to which they are often linked, the brokers say this kind of cross-selling is invaluable. As Sweeney points out, it gives commercial brokers relatively easy access to a whole new tranche of business. "It creates revenue from another income stream," says Sweeney. "The average HNW policy is higher than a small business case and the commission is as good or better."

Beckett adds: "It's very profitable and there's a very low attrition rate." Boon agrees, pointing out that his company lost only three HNW clients last year, one of which was because the client emigrated. Once brokers have got HNW clients on their books, it seems, they are likely to stay.

Furthermore, it may be an untapped market. Brokers like Beckett have been offering commercial clients access to HNW policies but many insurers believe it is still undersold. As Sweeney points out: "I think there always was a need for HNW but in the past insurers didn't provide it. Now that the insurers are in place, these brokers are realising the potential of the market."

As well as creating another revenue stream, however, these brokers feel that offering HNW is an essential service to commercial clients. "If you're doing commercial insurance and putting yourself forward as a professional adviser you've got to be able to deal with any proposition," says Dickson.

Strong links

These brokers believe that offering a personal policy to company owners can cement business relationships and, therefore, the bigger budget commercial policy. "The old adage is the more policies you sell to customers the more they recognise you," says Blackham. "It creates a strong link if you do a good job on the HNW - it is a very personal relationship."

Beckett agrees, adding: "If you give a cracking service on personal lines it makes it very hard for clients to walk away. One of my clients even phones our personal lines department when he's choosing his wife's birthday present - he uses our inventory of his possessions to make sure he doesn't buy something she already has."

Added to which, he says: "If you don't do it, you leave the door open for another broker to come in."

The HNW connection can sometimes come about some time after the client's commercial lines insurance, however. Blackham says many of his non-commercial HNW clients used to place their business insurance through him. "About half our HNW is related, the rest tend to be those who have inherited wealth or used to be well-connected," he explains.

Making a fortune

Clare Pardy, development director at Axa Art, echoes the same point. "We've got a client with a collection worth £100m and that business comes through the broker that dealt with his company for 40 years before the collection was even formed," she says. And, as Lennox Bunting, senior underwriter at Chubb's Signature account, points out, the one-time entrepreneur may have made his fortune by selling up.

Given this close relationship and the relative sizes of both books, brokers could be forgiven for discounting the HNW book in order to win the commercial business. Indeed, brokers and insurers alike claim this has happened but all add that it is firmly in the past.

"HNW was sometimes used as a loss-leader in the past but nowadays insurers look towards both lines to make a profit," says Bunting. "There are odd occasions where we will take a commercial decision on a piece of business but I wouldn't write a lot at a loss."

Beckett suggests that the practice might be outlawed under the Financial Services Authority regime but Boon argues that brokers should avoid discounting HNW insurance anyway. "We don't sell on price so it would undermine our argument to offer one of the insurances free," he explains.

Tax dodges

Using HNW as a loss-leader is also seen by many brokers and insurers as the first step towards a tax dodge. They claim that HNW in such schemes used to be offered to business owners under the auspices of the commercial insurance. Though the HNW insurance was paid for, the commercial client's company footed the bill.

Therefore, says Beckett: "No professional practice will offer loss-leaders - you don't want clients involved in tax fiddles. It's too easy to get the tax mixed up in it."

Loss-leaders and tax fiddles are not the only thing to look out for when selling HNW insurance to commercial clients. Brokers that have only the odd case of HNW business may find it hard to place. It can be, says Blackham, quite difficult for smaller brokers to get HNW agencies and according to Dickson the situation is getting worse.

He says: "Increasingly, insurers are saying brokers have to be able to provide a six-figure account and that's really the bottom end. It is already squeezing some of the commercial brokers that do the odd bit of HNW insurance. It's great for us through, as the insurers are telling these brokers to get in touch with us."

Hiscox, for example, has a £100,000 minimum on HNW accounts and advises brokers with less to approach other HNW brokers. Chubb has similar guidelines but Bunting says: "We'd always look to see what the broker means to us in the grand scheme of things. You have to take a view if they are a commercial broker with just a few HNW cases."

Oak Underwriting, which set up in April 2000 and now has 18 members of staff, does not set minimum requirements for brokers, however, and Axa Art is also willing to accept the occasional case. "We don't pressurise brokers for business, all they've got is all they've got," says Pardy.

"We are happy to give brokers with only a few pieces of business an agency."

The larger brokers argue that the FSA's regulatory regime may cut out brokers servicing one-off pieces of business anyway. As Blackham points out: "In future, brokers will have to ensure that anyone that sells a product is qualified to do it." As he points out, this means one-man bands with spin-off commercial clients will have to think carefully about how they place this business.

Brokers and insurers argue that having an in-house HNW specialist is also better for clients. As Sweeney says, selling HNW insurance involves visiting the houses of the very rich and advising them on their security arrangements. "They need to be trustworthy enough to be invited in," he says. "And they also need to have an interest in art at the very least."

Specialist teams

Beckett and Blackham both argue that commercial brokers selling HNW need to set up a specialist team to do so, liaising with the commercial team for leads. "You can't do it half-heartedly," says Beckett, and Bunting echoes his words. "If brokers are more commercially minded their HNW advice may not be so good," he says.

The HNW insurers say they are keen to help brokers with more limited resources, however. Pardy says Axa Art will accompany brokers to meetings with HNW clients if they are not confident they can place the business themselves. "We have the specialist knowledge so we are happy to help," she says.

Tony Lumsden-Cook, managing director of Oak, says his company is also happy to help smaller brokers. "We can help out. They just need to have the sense to ask," he says.

Hiscox, meanwhile, is piloting a scheme in which it helps commercial brokers with the potential to create a HNW book to recruit a HNW specialist.

"We have been piloting a scheme where we help brokers to recruit and train a HNW specialist, and even pay their wage for the first year. We anticipate rolling out the scheme to about six brokers next year."

Tied agents

Sweeney insists this paid-for broker would not be a tied agent, however, and would be free to place business with any HNW insurer. He says: "As part of the deal, we would like to be able to quote for the business but we would not be insisting on certain proportions. We would expect to come out well against the other quotes anyway."

Commercial brokers keen to cross-sell HNW would probably be well-advised to take the offers of help. Not only will the FSA have its eye on them, they could also find that clients evaporate if they do not receive good service. Lumsden-Cook says his top-100 brokers are HNW specialists, offering a better level of service.

Pardy believes customers are beginning to see the difference too, commenting: "I think the link between commercial and HNW insurance is declining because more brokers are now specialising in HNW. When we started 20 years ago, nearly all the business came from brokers with commercial connections."

And, as commercial brokers that offer HNW insurance are only too aware, the close link between the two covers can mean that valuable commercial books are lost because of sloppily serviced HNW. Dickson sums up the case: "It is true that you can jeopardise your commercial book, though on the other hand you get to do the business. It depends whether you say the glass is half full or half empty."