ELITE ADVISOR BEST PRACTICES

Household Staff and Risk Management

What clients need to know about safeguarding their families and their wealth

By David Hubbard

Key Takeaways:

  • Many of your high-net-worth clients rely on private staff to manage their households. Without proper oversight, however, the risk exposures could outweigh the benefits.
  • Specialized insurance products can bring your clients an added layer of protection if they hire household staff. But, proactive management can minimize the likelihood of problems from the start.
  • You don’t need to be an insurance professional to educate your clients about ways to protect their successful lifestyles.


Most people acquire their wealth through career success. With time at a premium, private staff—nannies, housekeepers, drivers, gardeners, chefs and others—often become critical members of the household. There are many benefits to the presence of full-time staff, such as reducing the chance of burglary and overall property damage.

However, there are also risks that you and your clients should be aware of. Many household employees can start to think of themselves as extended members of the family. This can blur the lines that all workers need in order to remain effective. In addition, household employees’ unfettered access to loved ones and valuables makes it imperative to exercise extreme diligence in their management. If a working relationship ends, your clients’ (i.e., employers’) assets and privacy could be compromised. Here are two real-life examples:

  1. A gardener was fired for habitual tardiness. He sued his employer for wrongful termination, stating he was never advised of set working hours.
  2. A housekeeper was let go because her employer regarded her performance as inadequate. When the employer hired a new, younger housekeeper, the original employee sued for wrongful termination and age discrimination.

As an insurance professional serving the high-net-worth segment, I can attest to the fact that those with perceived deep pockets are more likely to face personal liability litigation. Whether the matter is settled out of court or via a lengthy jury trial, these matters can be harrowing for the whole family. They can also diminish the assets that fall under your management.

What your clients can do: Three key steps
1. Consider the home a workplace.

Corporate human resources departments formalize everything from recruitment to annual performance reviews. If a problem arises, documentation can help protect the company. Your clients can take that same approach with household staff. Reputable firms can help your clients screen candidates, conduct effective interviews and implement structure once employees are on board.

For example, residential staffing consultancies recommend drafting a “pre-hire guide” before a new hire’s first day, outlining pertinent details, such as:

  • A recap of roles and responsibilities
  • Clarity about who will supervise the employee and where to go with questions
  • House rules, including security measures and how to interact with family and guests
  • A list of daily and weekly duties
2. Manage proactively.

One home’s rules may not apply in another. Advise your clients to think about their specific circumstances as well as the unique features of their properties, and then adjust staff instructions accordingly. As an example, consider this: an insurance claim resulted from art damaged by a well-intended housekeeper. She used the wrong cleaning method, ruining the surface of the piece. Proper training could have avoided that loss.

In addition, employees should not be expected to operate outside their areas of expertise. Another claim: a child was seriously injured on a backyard playground during a friend’s party. The parents of the injured child sued the host family, alleging they failed to provide adequate supervision and security at their home. As it turned out, the hosts had asked a staff maintenance worker to help out during the party, even though he had no training or background in child care.

3. Secure the right financial protection.

Ensuring adequate insurance protection is critical for any employer. The following coverages are designed to protect family, assets and private staff from common exposures:

  • Excess liability insurance responds after primary coverage limits on home, automobile or watercraft policies are exceeded. In today’s litigious society, jury awards and settlements very often eclipse those initial limits.
  • Employment practices liability insurance responds to claims of wrongful termination, sexual harassment, discrimination and other employment-related suits that private staff may bring. This insurance usually is an add-on to an excess liability policy, but a stand-alone policy can be purchased when appropriate.
  • Workers’ compensation insurance covers expenses related to medical care and rehabilitation if an employee is injured on the job.
Conclusion

In general, household staff can be an enormous help to your clients. With simple management techniques and appropriate insurance coverage, you can rest assured that “help” is never a hindrance.


About the Author

David Hubbard is Vice President, Regional Marketing Manager at AIG Private Client Group, a division of the member companies of American International Group, Inc. (AIG). Based in Los Angeles, Hubbard is a certified Continuing Education Trainer in California and has presented on the subjects of risk management and personal insurance to property and casualty insurance brokers, attorneys, financial planners and certified public accountants.

AIG Private Client Group is a division of the member companies of American International Group, Inc. Insurance products and services are written or provided by subsidiaries or affiliates of AIG. Not all products and supplemental services are available in every jurisdiction, and are subject to underwriting review and approval. Insurance coverage is governed by actual policy language. Any reference to claim settlement information are based on the loss being covered and are subject to change without prior notice.