It’s not unusual for many high-net-worth families to own multiple homes – and increasingly in more than one country. Whether they live in those homes year-round or only occasionally, they always want to feel right at home.
This comforting scenario, however, is challenged by myriad property and liability risks that await them at every home. At each dwelling, depending on its location, they are confronted by a subtly unique set of laws and regulations affecting how they manage that property, as well as those they may have in their employ for that purpose.
Added to these disparate challenges are constantly evolving national and local regulations, older homes with aging infrastructures like plumbing and electrical systems, and the sheer difficulty of communicating with contractors and domestic personnel for whom English is not the primary language. Lastly, in each region there are different types of insurance regulations, as well as insurance policy coverage terms and conditions. Obviously, the greater number of foreign residences one owns, the more complicated this landscape of risk becomes.
An affluent U.S. buyer of a home abroad would be surprised at how different the rules are across the Atlantic or Pacific. This point resonated during a recent meeting with James Wasdell, founder and director of Quantum Underwriting Solutions, a London-based personal insurance brokerage firm that serves an exclusively high-net-worth clientele.
James recalled a wealthy American client who purchased an historic fisherman’s cottage as a holiday home in Devon on the southwest coast of England. “He wanted to do some minor renovations to the property, and contacted English Heritage, the regulatory body dealing with such requests,” James said. “The Heritage officer came to inspect the property and noticed that all the windows were double-glazed, which is not exactly historic. Unfortunately, the previous owner had made the changes without contacting the authorities. Consequently, the new owner had to replace all the windows at a pretty significant and uninsured cost.”
Regulations governing the preservation of historic residences – of which there are many in Europe – are not to be trifled with. In England, such homes are registered on the Statutory List of Buildings of Special Architectural or Historic Interest and are given a designation of Grade One, Grade Two and Grade Two Star.
Grade One homes are considered to be of exceptional historic interest, and thus face the strictest rules regarding their preservation. Such dwellings range from 15th century castles to vast estates like one sees on the PBS show Downton Abbey. If the home is damaged, it must be restored to exactly the same condition using traditional materials and craftsmanship. Even the color of the paint falls within the scope of the rules. The related expenses can be sizable, particularly if not offset by specialized insurance coverage. Failure to comply with the rules may not only result in fines; the offender also can be jailed.
More than 90% of historic homes fall into the Grade Two classification, such as the aforementioned fisherman’s cottage. Grade Two regulations require that the homeowner maintain the appearance of the home’s historic look and details, hence the need for single-paned windows at the cottage.
Similar rules exist in France and elsewhere across the European continent, with varying distinctions. Nevertheless, nearly all require the use of certain materials and the engagement of specialized craftsmen, depending on the age of the home and its historic value. “Such tradesmen are increasingly difficult to come by, and in some cases, the particular craft may be dying,” James noted. “The fewer number of available craftsmen, the higher the cost of the service provided.”
Knowing these subtle nuances is further complicated by each country’s legalese, which may also be in a language other than English. Even dwellings that are not considered historic pose stiff challenges, as much of the housing stock in Europe is older than buildings and residences in the United States, with outdated plumbing, gas and electrical systems. James has several affluent clients from the states who own large apartments in Paris, where the plumbing systems are in particularly poor shape.
“Our biggest source of claims in the city is an escape of water—a burst pipe,” he explained. “These are expensive claims, too, as the homeowner may only reside in the apartment for a few weeks of the year. By the time the leak is finally detected, the damage is substantial—ruined rugs, artworks, furniture and other valuable items.”
Full-time domestic workers like cooks, gardeners and chauffeurs invite other financial exposures. Aside from the customary challenges like the need to assess a job applicant’s prior employment history and possible criminal background, homeowners must understand the unique labor laws that apply in each region. What is called “workers compensation” in the United States, for instance, goes by other names abroad, such as “employer liability insurance” in the United Kingdom.
Each law is different in ways small and large. In France, the wage replacement percentage for an injured or ill worker is lower during the initial days of disability, but rises as time progresses. Unlike in the United States, there is no waiting period for claimants to receive payments. In England, the employer liability insurance must be in place the second someone is hired, not the first day they report for work. Failure to have the insurance policy bound and paid for results in a fine of 2,500 pounds per day.
Meanwhile, new laws are constantly being written, while older laws already on the books are fast evolving. In England, recent legislation called the Workplace Pensions Act requires all employers of full-time workers (including homeowners) to provide each worker a specific pension, depending on their occupation and income.
“Even a domestic house cleaner has to be provided a pension, assuming the worker is full-time,” James said. “While these costs add up, what’s worse is the pension enrollment process, which is highly complicated and involves all sorts of expensive fees.”
Nor unexpectedly, insurance regulations also differ on a country-by-country basis. When buying a home in the United Kingdom, for instance, the purchaser is legally responsible for the property from the date of exchange. “They are not obliged to purchase insurance, but it is advised that they insure, not only to liability, but also the structure itself,” said James. “The exchange of contracts makes them legally obliged to purchase the property, even, if for example, it has been damaged in a storm; hence, the advice to insure it from the exchange,” he said.
On the bright side, 80% of the wealthy American clientele at Quantum Underwriting Solutions tend to buy secondary homes in England and France —the “hot spots,” as James called them. This limits the aforementioned challenges in many cases to just these regions. Nevertheless, the remaining 20% are buying homes across the rest of Europe and other foreign locales, multiplying the different risk factors. Just imagine the laws, regulations, languages and customs that may greet those buyers in Latin America, Asia or elsewhere.
In all cases, financial advisors should consider the myriad legal, regulatory and insurance challenges prior to their clients purchasing residences abroad. Valuable assistance is available from a few U.S.-based global insurance companies that have relationships with brokers on both sides of “the pond,” like Quantum.
Most important, these insurers, like those brokers, also are licensed to issue policies in many foreign jurisdictions and have local offices staffed with underwriting, loss prevention and claims professionals who are well versed in the local rules, customs and language. This is the only effective way to help assure that the client is protected by a seamless property and liability insurance program for residences around the world in which the coverages and services are consistent with the high quality they receive in the United States.
Such insurance specialists can help address and overcome the challenges I’ve mentioned, from the highly complex regulations and laws to insurance policy, pension and claim considerations. They may even be able to help with domestic employee background checks.
Once these issues are put in the hands of experts, a family can comfortably enter their foreign residence and feel that they are home once again.