Combatting the danger of underinsurance: insurance for global high net worth individuals

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A recent survey from one of the world’s largest insurance companies, Chubb, revealed that 54% of HNWIs feel they are underinsured. This is a worrying statistic, as HNW clients typically have large property portfolios, high-value assets and passion collections with total values in the £1million+ bracket. However, it’s little wonder that so many wealthy individuals have inadequate cover; Chubb’s research also showed that just 19% of HNWIs use a specialist broker to source their cover.

Insurance is a huge concern for most Enness clients, most of whom own global real estate and very high-value assets. We sat down with some of Chubb’s specialist appraisal team—Brian Verney, Nicola Amis, Paul Mullen and Thomas Mangnall, who all work as specialist HNW insurance appraisers—to produce a series of articles around specialist HNW insurance concerns. In our first article, we’ve discussed the risks of underinsurance, and also discovered what HNWIs can do to make sure they have the right level of cover in place.

What is underinsurance, and why do so many HNWIs feel they are underinsured?

Paul: Underinsurance is when a client has inadequate insurance cover, meaning that the money paid out in the event of a claim may be insufficient. Unfortunately, underinsurance is a very real problem, and is usually only discovered too late. Your insurance payout should be sufficient to reinstate what’s been lost or damaged, calculating this value can be a headache.

Nicola: It is very, very difficult to accurately assess the value of your home, whether that’s the cost of rebuilding or the total value of the contents inside your home. When you add high-value items, global travel, multiple properties and niche collections into the mix, HNWIs have a very hard time establishing what level of cover they need. Rebuilding costs in mortgage surveys don’t always accurately reflect the reinstatement value of listed or high specification buildings. The mortgage survey will often be based on published, standard rebuilding costs.

How can HNWIs combat the risk of underinsurance?

Brian: As in many areas, from property finance to tax advice, HNWIs should look to specialist service providers when considering their insurance. At Chubb, we tackle the issue of underinsurance by offering an appraisal service. An appraisal helps the client put a correct figure on the house and everything in it, therefore preventing underinsurance.

Thomas: The benefit of this is twofold. Most importantly, the client has complete peace of mind that they have the right level of cover because it has been physically assessed by an expert. From our point of view, we know that our HNW clients live in large, unique or listed buildings and have significant collections of art and jewelry. Therefore our exposure is quite substantial. As a result of this, it’s helpful for us to physically see what we’re covering.

How does the appraisal process work?

Paul: We meet with clients and spend some time having an informal, sit-down conversation. We talk about the history of the house, the age of the services, and confirm the property is well-maintained. Then, we begin to engage with the clients about the level of cover they need, completing a walk-through and examination of the property and contents.

Nicola: We use sophisticated technology such as infra-red thermography to spot water leaks or electrical faults. Identifying potential issues early on enables us to prevent major losses. We are trained to assess the unique features of our clients’ homes, enabling us to provide accurate rebuilding costs as well as contents sums insured.

Is there any one area in which clients tend to be underinsured?

Thomas: Underinsurance occurs across all areas. Most clients have a rough idea what their home is worth, but only in a market sense—the cost of rebuilding is very different. This is especially true for our wealthy clients, who tend to live in unique, large or even listed buildings. Working out the cost of rebuilding a listed 18th century manor from scratch, in the event of a fire, is definitely a job for a specialist.

Brian: Confusion can also be caused by fittings, such as carpets. In a large, luxurious home, the cost of replacing the carpets could be significant—but many will forget to factor this into their own assessment.  Wardrobes can be a problem area. Many HNWIs are unaware that the value of their clothes, bags and shoes can be in the hundreds of thousands.

Can this process be carried out around the world?

Paul: Certainly, our team is experienced in appraising across Europe—although the challenges are different from place to place. For example, many of our English clients own relatively new-build villas in Portugal and Spain, primarily centered on golf resorts. These properties are typically quite easy to insure as we can provide the building spec or development plans. Then, when we do come to appraise, this will usually line up exactly with what we know from the brochures.

Thomas: In places like the Riviera, however, it can be much more complicated. Clients who own large Vineyards or historic Chateaux face very different concerns to a client purchasing a new-build villa in Quinta Do Lago. From two meter thick walls and dovecots, to the latest technology such as Crestron systems.

Nicola: Each area presents its own set of problems. Many HNWIs are buying chalets in the Alps, many of which are extraordinary in their design—but they do raise problems. We have to think differently about the unique features of an Alpine chalet that has underground garages, hydraulic lifts, and heated driveways. These high-tech features can present fire risks. And, of course, the risk of earthquakes and avalanches is a concern.

Brian: Ultimately, HNWIs have many complicated considerations when it comes to insurance, so it’s easy for a client or non-specialist insurer to get things wrong. The proper insurance is something we often don’t realise we need until it’s too late. Whether you’re trying to insure a large art collection or work out the cost of rebuilding your Alpine chalet from scratch, seek the advice of an expert as soon as possible and make sure you aren’t part of the vast number of HNWIs who are underinsured.