Matching HNW Clients’ Coverage With Their Risk Profile

One’s assets usually dictate the proper financial limits of insurance protection. While this truism stands firm, there can be a tendency when assessing the risk-transfer needs of the wealthy to focus more on the amount of insurance than the actual insurance coverage.

Clearly, the limits of financial protection are vitally important, and in the case of those with considerable wealth, these limits can be substantial. But also critical is the right insurance coverage, which should be designed to specifically address the policyholder’s risk profile.

We are all dissimilar when it comes to our particular aesthetic tastes, personal passions and work-life structures. Some people enjoy highly public roles, entertaining guests at sumptuous parties, fundraisers, museum exhibitions and the like. Others may collect vintage automobiles, rare pieces of jewelry, paintings by the Old Masters or the latest works hanging on the walls of an art gallery. The risks that confront our personal assets in many ways depend on our personal appetites.

Celia Santana, president and CEO of Personal Risk Management Solutions, a New York-based insurance brokerage specializing in serving high-net-worth clients, recently recounted a story she had heard about an affluent family with a longtime nanny who had come to be regarded as a member of the family.

“As the nanny grew older and the children grew up, the nanny stayed on and altered her work regime, attending to household chores more than caring for the kids,” Celia recalled. “One day she was injured doing housework, and required expensive surgery. Her health insurance coverage did not cover the full costs, and she sued the family, which had not purchased a workers’ compensation insurance policy.”

Celia added, “The loss was sizable.”

Deep Discussions

The above scenario illustrates what can happen when an insurance agent or broker fails to fully discern the breadth of potential risks confronting policyholders. The assumption of the insured is that high insurance limits alone—buying the most insurance—will take care of all threats to personal wealth. Unfortunately, this is not always the case.

“I remember another situation,” Celia said, “a new client who came to me with multiple residences, valuable cars like Maseratis, Ferraris and a McLaren, and a fantastic fine art collection. The gentleman had only recently become financially successful. His previous agent had bought an excellent insurance policy covering his art and other valuables, with a sizable umbrella liability policy on top. But the client’s cars were covered by separate insurance policies that he had bought on his own from a low-priced standard insurer he’d been with previously.”

The limits of the automobile policies were consistent with the value of the cars—a good thing, of course. The problem, however, was that the umbrella liability policy did not extend coverage over the pricier vehicles. Celia pointed this out to the customer that day in her office. “Needless to say, when I described the potential risks he had inadvertently exposed himself to, his jaw hit the floor,” she said.

Since each of us is different, our insurance coverage should reflect these differences. Some people sit on nonprofit boards, requiring an in-depth evaluation of the entity’s directors and officers liability insurance policy. Others have teenage children texting, blogging and posting pictures on social networks that may expose them and their parents to charges of libel, slander and defamation. Complex trusts and estate tax planning strategies differ among high-net-worth families, creating other serious financial exposures.

Celia tells another potent story underscoring the dire need to paint a full portrait of family risk before buying insurance. “I’ve heard time and again of wealthy parents who buy an apartment in Manhattan for their children to live in after college just as their children begin their work lives,” she said. “They then fail to buy liability insurance on the apartment, because it is their smart son’s or daughter’s apartment after all, and they believe they will buy their own policy.”

Most young people would do just that, but not all, Celia explained. “If an accident happens in that home, guess who is on the hook, liability-wise? It’s not the child. It’s the person whose name is on the title,” Celia said.

The moral of these stories is hopefully clear: You may not like to talk to strangers about the personal elements of your lives, but when it comes to insurance, you simply have to open up. As Celia puts it, “If your agent or broker isn’t asking probing questions about your hobbies, passions, children and their activities, even such ‘How dare you!’ questions like, ‘How often do you host parties?,’ then you have the wrong agent or broker.”

Excellent advice. When it comes to insurance—even if the sky literally is the limit—it’s the coverage that really counts.

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