ELITE ADVISOR BEST PRACTICES
Identifying Property/Casualty Insurance Red Flags
Standard insurance policies cannot adequately address complex client needs, and disconnected polices from multiple companies are potentially dangerous. Here are 10 questions that can reveal critical coverage gaps for your clients.
By Dawn Quinlivan
- Standard insurance policies cannot adequately address complex client needs, and disconnected polices from multiple companies are potentially dangerous.
- Clients with custom homes, active lifestyles, luxurious possessions, domestic help, public profiles and youthful drivers all need comprehensive personal insurance reviews on a regular basis.
- Specialized independent insurance specialists can address your clients‘ needs in concert with your services.
From a consumer's vantage point, insurance is typically viewed as a necessary evil. Because standard insurance carriers commoditize their offerings through their advertising campaigns, your clients may believe that the simple act of buying insurance equates to being adequately protected—a belief that can prove perilous.
Much like seeking out a specialist for a particular medical issue, your HNW clients should consult an independent insurance agent who focuses exclusively on those with substantial personal wealth. You can help your clients better understand the need for specialized expertise by asking "trigger" questions that point to potential vulnerabilities in their insurance programs:
1. Is your client protected with enough personal excess liability insurance?
If a lawsuit puts personal assets at risk, the last thing anyone wants to worry about is running out of insurance. Most standard excess liability (umbrella) policies cap out at $5 million, a figure that cannot measure up to many of your clients' net worth. It can be surprisingly affordable to obtain higher coverage limits, but this sort of solution can be accessed only through the independent specialist channel. Limits of up to $100 million are available on a single policy to address allegations of property damage or bodily injury.
2. Is your client's insurance program complicated and disorganized?
Your clients acquire assets over time, so it's not uncommon to insure them in different ways. A summer residence, for example, may be insured with a different agent and carrier than the home in the suburbs. Fine art may be insured independently from cars. Whatever the combination, the end result is fragmented—creating insurance gaps and making insurance more difficult and expensive to manage. Don't allow your clients to wait until claim time to find out what is—and is not—protected.
3. Is your client's home properly insured and protected?
If your clients had to rebuild their homes in today's market, would they have enough homeowners' insurance to sufficiently cover the expense? Many properties are insured based on values that are vastly underestimated, especially those that have undergone extensive home improvements and renovations. For those living in wildfire- or hurricane-prone areas, value-added services also are available to maximize safety and preparedness.
4. Does your client employ private staff?
It's not uncommon for nannies, housekeepers, private assistants, gardeners and others to take their employers to court. Employment Practices Liability Insurance (EPLI) responds to allegations of sexual harassment, wrongful termination and discrimination. However, this coverage is not included in a standard excess liability policy. In addition to more precise coverage, carriers that specialize in safeguarding HNW clientele may offer services to proactively manage risk, such as complimentary background checks on prospective or existing private staff.
5. Is your client involved with charities or foundations?
Not-for-profit organizations typically operate on tight budgets and carry a minimal amount of liability insurance for their board members. If your clients or their spouses sit on the boards of not-for-profit organizations, they should look for additional individual protection on top of existing board coverage. Again, this sort of coverage will not be included in a standard excess (umbrella) policy.
6. Is your client a collector?
Whether vintage cars, fine art or investment-grade wine, your clients should be able to enjoy their passions for the finer things in life without exposing themselves to undue risk. Distinct insurance coverage is available for fine art, jewelry, wine, antiques and other collectibles, yet many policies include these items in a homeowners' policy and unknowingly diminish the homeowner's protection. Regardless of the overall policy limit, homeowners' policies generally cap limits on "contents" coverage. The value of covered items also may be subject to depreciation. Insuring high-value collections appropriately can provide broader, more flexible protection.
7. Does your client's family travel frequently?
Freedom to travel is one of the luxuries that come with success. While some vacations are carefully planned for months, other travel is more spontaneous. Buying annual travel insurance, rather than repeatedly buying coverage per trip, is a more convenient way to ensure financial protection when unexpected circumstances disrupt a trip or cause it to be canceled. Not all travel insurance providers offer annual coverage. At a minimum, your clients should choose a policy that provides worldwide protection and 24-hour access to assistance. Also, many travelers purchase art, jewelry and other valuables while abroad. Your clients should look for a collectibles policy that offers automatic coverage for "newly acquired" items.
8. What is the makeup of your client's family?
Family members may increase exposure to certain risks. For example, having a youthful driver may increase the need for higher liability limits. Having young children in the family may encourage your clients to consider kidnap and ransom coverage. Your clients also may need to consider an emergency preparedness plan for members of the family who are elderly or have special needs.
9. Are your clients' insurance policies in sync with their estate plans?
Many wealthy people structure their property ownership using LLCs, LLPs and trusts. Not all insurance providers enable policies to reflect these alternate structures, which can result in diminished protection or complications at claim time.
10. Does your client truly understand what's excluded from his or her policies?
Most standard personal insurance policies are created for the masses and therefore cater to broad coverage needs. Clients with high-value assets are more likely to require customizable policies that afford the flexibility to address nuanced exposures. For example, carriers catering to the HNW client can offer coverage specifically for:
- Yachts cruising worldwide
- Art collections used as collateral
- Exotic automobiles
- Historic homes
A good independent insurance advisor will conduct annual lifestyle reviews to identify circumstances that usually are excluded from standard policies. If your clients haven't had such a review within the last three years, it could be cause for concern.
Property/casualty insurance and personal risk exposure are complex areas for high-net-worth clients who have more—and therefore have more to lose. Because so many wealthy people are not receiving counsel about their insurance-buying choices, you can raise questions to spot potential issues worth exploring.