While economists may debate whether the global economy is in full recovery, one can see some positive signs in the activities of the wealthiest Americans.
For example, each week comes news of another record-breaking day on the stock market. At the same time, blue-chip fine art prices are in the stratosphere, with Francis Bacon’s triptych of Lucian Freud recently fetching a record $142 million at auction.
Even the housing market has at last rebounded, with prices in some parts of the country 20% to 30% higher than they were just a year ago. Add the increasing value of rare automobiles, jewelry and other collections, and it’s enough to break open the vintage champagne, although that, too, has gone up in price.
The sense of financial panic that gripped us all seems to have let go.
In this period of relative calm, financially speaking, now is an opportune time to review one’s insurance policy coverage terms, conditions and, especially, financial limits. In the same way that investment portfolios are being carefully reviewed, and rebalanced in some cases, insurance products also need the occasional once-over. With less to worry about in the financial markets, why not take a few hours to sit with an insurance agent or broker and discuss the rising exposures to net wealth and their insurance treatment.
Dan Glunt, senior VP of HUB International’s San Francisco office, recently warned that “more than capital market risk can wipe out a client’s balance sheet. An uninsured or underinsured event can do the same damage and more.”
Time for a Check-Up
Such losses are far from uncommon. Dan painted a picture of someone whose invested assets have reached $10 million, thanks to rising equity values and other asset appreciation. “The person is told by his advisor that a $10 million umbrella insurance policy is all he needs to absorb potentially catastrophic financial losses above the limits provided in his underlying car insurance or homeowners insurance,” he explains. “In truth, the limits should be commensurate with the person’s exposure to risk, not his or her invested assets.”
He’s right. The exposure to risk for affluent individuals is much higher than for more average income earners. Time and again, Dan said, “someone of wealth is rear-ended in a minor automobile accident, everyone shakes hands and exchanges their insurance company and other personal contact information. Then the rear-ended person looks up the other driver on Google and realizes he or she is of significant means. Suddenly, their neck hurts.”
Not just wealthy people require higher-limit umbrella or personal excess liability insurance. Dan has several clients who have invested substantially in startup technology companies in the Bay Area. In anticipation of a big payday when these businesses go public in an IPO, the clients are buying expensive homes, automobiles and even fine art.
“They’re picking up Teslas and Ferraris and fine art, even though their companies are completely illiquid for the moment,” Dan said. “To borrow a term from gambling, they’re ‘betting on the come,’ hoping they’ll have what they need when the big liquidity event happens in a couple or three years.”