Monday, August 20, 2007

Shelter From the Storm

Get your clients the full-service homeowners policies they don't know they need.

Financial Planning Magazine

By Jeanne Lee August 1, 2007- When it comes to insuring their luxury mansions and multimillion- dollar beach houses against floods, fires and other catastrophes, wealthy homeowners often have a kind of financial blind spot. Even otherwise savvy clients may default to the same basic homeowners policy year after year, perhaps increasing the dollar limit as their net worth expands, but neglecting to evaluate the quality or depth of coverage.

Two-thirds of people living in homes worth $1 million or more are insured through a mass-market insurance carrier, according to Chubb Group, which focuses exclusively on the high end of the market.

Property and casualty (P&C) coverage is becoming more critical as today’s baby boomer clients get past the stage of accumulating wealth and focus more on wealth preservation. “The affluent client needs access to the high-end insurance agent and doesn’t know where to find one,” says Gary Rathbun, chief executive officer of Private Wealth Consultants in Toledo, Ohio. “I don’t sell P&C insurance, but we need to have those relationships—it’s just part of the service we provide. It’s important to really spend time on inter-viewing and partnering with the right [P&C] firms—and the networking is not something that you’ll get paid for. But it will pay off for your client.”


Although affluent clients may not realize it, their complex insurance needs—if they have multiple homes filled with expensive art and furnishings—go far beyond a rider to cover great-grand-mother’s silver. To start, there’s the issue of how to properly determine replacement cost for a custom-built house that may have unique architectural features, uncommon materials or one-of-a-kind craftsmanship. “We find that reconstruction costs are often set too low,” says Cary Hager, an independent insurance agent with Insurance Office of Central Ohio in New Albany, who specializes in high-net-worth clients. “Many agents are not accustomed to how stonework, say, or certain types of crown moldings add significantly to the cost per square foot.”

Appraisers also take stock of the contents of the home, to make sure that antiques, jewelry, art or expensive collections are covered. “I’ve found $50,000 hand-tied silk rugs that the owner inherited, and never realized were an insurable asset,” says Hager. “I call it the Antiques Roadshow moment.”

The appraisers may offer tips to help prevent losses, such as making sure that valuable paintings are never hung over working fireplaces.


Many meteorological experts are predicting that environmental factors will make our weather more violent. This means expensive coastal property could become even more vulnerable to storms. Insurers are learning to be proactive.

Many insurers shy away from coastal risk. While the federal government runs a flood insurance program that will write up to $250,000 per house, high-net-worth clients obviously need more coverage.

Planners need to make sure that the language in clients’ contract specifies in-kind and quality replacements. “This could mean the difference between getting a mahogany door, or just a door,” at claim time,says Maureen Hackett, vice president of AIG’s private client group. They also need a guaranteed replacement endorsement, which covers the difference if rebuilding will cost more than the value of the insurance policy.

The gap between market value and replacement cost can be especially pronounced in the case of a period house with historical value. For instance, owners spent $3.5 million to rebuild a house in Salem, N.Y., that had been designed by the famous architect Stanford White—even though the house had been estimated to have a market value of only $1.5 million. The Chubb policy paid to replicate the original architectural style in period-appropriate materials because it contained an endorsement known as “law and ordinance coverage,” which provides extra funds to make sure the new structure will meet modern building codes. “If you don’t have that built into your policy and you have a historic dwelling, you’re on the hook for the additional costs,” says Mark Schussel, vice president and director of public relations at Chubb.

When disaster strikes, deluxe carriers make accommodations that would be out of the question with a standard-issue contract, including generous allow-ances for living expenses while a house is being rebuilt. In the case of the Stanford White house, Chubb provided $10,000 per month toward the rental of a comparable house nearby during the months of reconstruction.


In the past two years, carriers have rolled out more specialized coverage for the affluent market. Clients who frequently travel overseas may be interested in Chubb’s Signature Passport endorsement, which provides up to $250,000 for emergency medical transport. “If you are in equatorial Africa on safari and are badly injured, they can get you to France, England or all the way home,” Hager says.

Another risk clients may overlook is the potential for a lawsuit by a nanny, personal assistant or other domestic employee for sexual harassment, wrongful termination or discrimination.

Finding the proper homeowners insurance for a high-net-worth individual may require the joint efforts of a financial planner and an insurance specialist, if for example, an affluent client puts his or her home into a trust.

“Now that the trust is the owner of the home, jewelry and art which was covered by the homeowners policy may no longer be covered,” says Elizabeth Jetton of Mercer Advisors in Atlanta, and a past president of the Financial Planning Asociation. “If I have a high-net-worth client with a very complicated potential loss situation, I would absolutely sit down with an independent insurance agent, because I am the advocate for the total financial picture for that client.”

(c) 2007 Financial Planning and SourceMedia, Inc. All Rights Reserved.

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