Special Report High Income, High Profile
By Kenneth St. Onge
F
or insurance agents, there is a lesson to be learned from Hulk Hogan — particularly about the pitfalls of selling coverage to wealthy clients. The well-known, ex-professional wrestler turned reality TV star is suing his insurance broker, Wells Fargo, over what he alleges is a failure on the broker’s part to properly minimize his liability. That alleged failure was a costly one for Hogan, whose proper name is Terry Bollea, three years ago when his teenaged son, Nick, crashed his car while street racing — leaving his passenger, John Graziano, with traumatic brain injury. The suit left Hogan’s personal fortune of $30 million exposed, his lawyer’s argue in court filings when — after exhausting the $250,000 injury limit on Hogan’s auto insurance policy — Graziano and the Hogan family reached an out-of-court settlement to pay for what is expected to be lifelong medical care for Graziano. In the Wells Fargo suit — one of several filed in connection to the accident — Hogan’s lawyers argue that Wells Fargo failed to upgrade his coverage, left him under-insured and forced him to use own personal fortune to settle a suit with Graziano’s estate. That suit is now pending in a federal court in Florida. In some ways, the Hogan suit is more than just a cautionary tale or anecdote: It illustrates the unique dangers facing insurance agents and brokers who pursue high net worth clientele — a segment of the personal lines market that is both highly lucrative, and highly specialized. It’s a market that many in the insurance business are increasingly targeting to latch on to profitable business in a perennially softened market. Due to a lengthy economic downturn that touched the highest strata of earners, even the wealthiest insurance-buyers are reconsidering their personal insurance programs. www.insurancejournal.com
It’s a trend that’s making high net worth insurance a competitive market niche.
president and CEO of New York-based Frenkel & Co., which has a sizable practice catering to high net worth clients. “We have Eyes on Liability some clients that are involved in the talent Given their wealth and assets, high-net industry. They are a significantly higher worth clients have different needs when it exposure. Then we have the people that comes to their personal insurance — meanclearly have large financial holdings. They ing the standard-issue policies don’t really also are members of nonprofits and directors fit their needs. This creates an opportunity of major corporations. Their exposures from for agents to customize coverage. But the a directors and officers standpoint and an dangers — such as those found in the individual standpoint are key. That needs Hogan case — are of considerable conseto be covered not only by the corporation quence. or the nonprofit organization that they’re “They’re over-insuring against minor involved in, but also the indemnifications threats, while under-insuring against major that are given to them, and then their perones,” declares insurance ACE Private sonal insurance.” Risk Services in a recently released white It’s a common problem in insuring high paper and survey about the insuring afflunet worth clients: A need for high liability ent customers. “The problem is especially limits — $5 million to $10 million and up — acute when an affluent consumer insures … and types of risks for which standard marhomes and automobiles with mass-market ket carriers have little appetite. According policies designed for the average consumer to Kelly, the economic downturn has had — as most do.” high net worth clients “becoming more keen Among the pitfalls cited by ACE: liability to understand their coverage in those areas.” lawsuits, destruction of high-priced homes It’s a challenge that Naples, Fla.-based and damage to or loss of jewelry, fine art insurance agent Mike Horn calls one of and other valuable collections. There are “obvious liability.” The wealthy, he said, also coverage and cost-related issues, such as “can be targeted based on the kind of house too-low deductthey live (in), ibles, discounts the kind of for consolidation Insurance agents from around car they drive, of policies, and the country said that liability is and other tellundervaluing tale signs of contents on their arguably the most important, wealth.” (Like personal propcable TV star most-looked at feature. erty. Hulk Hogan, Insurance for instance.) agents from around the country said that “In my opinion, their biggest risk is the liability — and in particular, umbrellas liability exposure,” Horn said. and other programs that can insulate the Along those same lines, if a client has wealthy from lawsuits — are arguably the servants or employees, workers’ compensamost important, most-looked at features. tion is a concern. Be they nannies, gardeners Among the high net worth set, insurance or drivers many times there is a need for solutions tend to be customized. “It depends workers’ compensation coverage in high net on what the individual is really doing from worth households. continued on page n12 an economic standpoint,” said John Kelly, September 6, 2010 INSURANCE JOURNAL-NATIONAL REGION | N11
Special Report High Income, High Profile Wealth of Risks, continued from page n11
Of course, property coverage can also be an issue, particularly because of the kinds of property that high net worth individuals own — such as second and third homes in exotic or coastal locations, for instance, or other items not commonly insured through traditional personal lines policies. “They might have different types of adult toys, if you will,” said Brian Bettini, of Southern California-based agency Allen, Bettini & Carter, an agency that focuses on high net worth clients. “You can have boats. You can have very expensive cars, for example. Or you have secondary residences that are in maybe slightly more difficult locations to insure. It’s not uncommon for a high value client. If they’re living in the Bay Area, maybe they have a house here and they have a house in Tahoe or maybe Palm Springs or something of that nature.” There can also be personal property such as valuable artwork or expensive jewelry that would most likely be scheduled. In some cases, agents use risk management tools and plans to help choose insurance coverage for high net worth clients. “We have a risk profile that we complete for individuals,” said Rebecca Korach Woan, of Chartwell Insurance Services. An example: “For clients with sizeable collections of artwork, we will go out and do a risk survey on site to assess the vulnerability of the collection. We’ll recommend disaster planning as appropriate and … maintain close communication with advisers, both financial and legal.” Deductibles, too, are often much higher on property owned by high net worth clients, since wealthy clients find it cheaper
in many cases to self-insure by paying for smaller exposures rather than filing claims.
their assets.” Agents also need “a significant critical mass with the insurers that are key in this Finding Business area” — primarily Chubb, Chartis, Fireman’s Perhaps more than any other sales niche, Fund and ACE — because high net worth insurance for high net worth clients is a clients want to know that an agent can business of referrals. navigate the high net worth community and “It is really possesses “the word of intellectual ‘High net worth clients need mouth,” said Joe capital to hanGendelman, of dle and assist to know how agents go about Milwaukee-based them with any Bruce Gendelman handling their knowledge of and all quesInsurance tions that they their asset base.’ Services, an agenmay have,” cy that specialKelly said. izes in high net worth clients. Gendelman Ease is also a concern. said the agency doesn’t advertise or cold call. “Typically, it is ease of administra Agents said finding high net worth clients tion” that high net worth clients seek, said is a waiting game. Gendelman. “They want one agent and the “It’s very different,” said Frenkel & Co.’s same renewal date for all their personal Kelly. “You have to be grounded and be insurance. It’s really the ease of doing busibranded with the high net worth communess.” Convenience often trumps costs. nity.” Clients have demanding lives and want to When the wealthy talk about their insurhave one agent in charge of all their needs ance needs, they have very specific things — and to be able to write one check to that they seek, Kelly said, particularly discretion. agent to know that all their insurance needs “High net worth clients need to know how are met. agents go about handling their knowledge of In all, said Chartwell’s Korach Woan, their asset base.” “what distinguishes brokers, or certainly us, There are other service aspects, too, that we believe you must have both an understand out. standing and an appreciation of the needs of “From a claims standpoint what’s your the high net worth individual and the folclaim process, how would you go about low up that is necessary to satisfy this client assisting them from the beginning to the base.” end of the claim,” Kelly said. “From the risk management side, they’re very interested in Reporting by Insurance Journal Editors what you can provide them with and give Timothy F. Kirn, Stephanie K. Jones, Patriciathem new ideas as to how they can protect Anne Tom and Andrea Ortega-Wells.
N12 | INSURANCE JOURNAL-NATIONAL REGION September 6, 2010
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