High Net Worth

7 Crucial Risks Facing High Net Worth Families

From cyber risks to global travel, high net worth families have a host of risks to manage.
By: | June 26, 2018 • 3 min read

High net worth (HNW) individuals and families face many risks due to their complex lifestyles. The wealth they have accumulated makes their property and casualty exposures more complex than the average consumer, and their risks oftentimes rival those of a business in scope.

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The frequency and complexity of the risk exposures faced by HNW families and individuals make it necessary to adopt proactive risk prevention strategies, as well as the purchase of insurance protection to make them whole should they suffer a loss.

1) Cyber Crime

The use of technology and social media, the number of connected devices per household and the number of people (staff, advisers) communicating with HNW individuals make them prime targets for cyber crimes.

These crimes include email phishing, ransomware and unauthorized bank transfers. While the insurance industry is starting to offer insurance protection for some of these losses, the best defense is practicing good cyber hygiene.

2) Catastrophic Weather Losses

Hurricanes, flooding and wildfires will continue to impact HNW families since many of them own homes in disaster-prone tropical or mountainous regions.

Traditional risk identification tools such as FEMA flood maps are outdated and do not accurately reflect risk. In recent years, we’ve seen unprecedented flooding in areas that have never or rarely been flooded before. These extreme weather events will continue to impact the HNW.

To prevent losses, families and individuals must work with professionals who can provide more advanced risk identification resources, as well as resources to help prevent or mitigate losses, such as hurricane and wildfire protective services.

3) Collections Management

HNW families and individuals are known to have a passion for collections, such as art, furniture, memorabilia and cars. Many collections are a significant asset class in their financial portfolio and are managed aggressively to increase value, which may mean the collection is on exhibition or on loan to museums and galleries.

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This increase in risk exposures requires specialized risk management solutions.

A good example of how specialized risk management solutions comes into play took place after the California mudslides — coverage was afforded for some who had specialized fine art insurance versus traditional homeowners’ coverage where mudslides are not typically covered.

4) Employee-Related Risks

HNW families hire employees who help run their households. These individuals range from nannies, caretakers, captains and crew, to housekeepers and assistants.

Employees bring about risk exposures related to on-the-job injuries and employment practices liability exposures. HNW individuals need to adopt the same stringent hiring practices that a business adopts when hiring and terminating employees.

Practices should include background checks, onboarding protocols, regular performance reviews and the like.

5) Security Risks

Security at home and during travel — including the risks of terrorism and global conflict — also remains a top concern.

Security concerns can range from home security alarms and devices to worldwide travels concerns.

For families with complex risk exposures, consulting with a security expert is recommended. These experts provide a full risk assessment that would minimize any security breach, such as a home invasion, a cyber breach or any other issue that could put the family at risk.

6) Professional Liability

Many HNW individuals hold board positions on for-profit, nonprofit and not-for-profit boards, yet the majority of individuals do not know if they’re protected with professional liability coverage.

If they know coverage is provided, the majority do not know the policy limits or terms and conditions. It is imperative that anyone who holds a board position understands their personal risk exposures and the insurance protection available to them.

7) Ownership of Assets

HNW individuals tend to own assets in the names of trusts, LLC and other legal entities. It is critical that they understand the ownership structures of all assets and that all insurance policies are coordinated to properly cover all necessary policies. &

Lisa Lindsay is the executive director with the Private Risk Management Association (PRMA). She was instrumental in establishing PRMA and played a key role in developing The Chartered Private Risk and Insurance Advisor (CPRIA) certificate. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]