Twenty years ago, insuring a wealthy client's property could be a relatively simple exercise - largely the same product as anyone else's, just with a bigger sum insured. But even then, some placements hinted at what's since become standard in underwriting cover for high-net-worth (HNW) clients. Martin Birch (pictured left), principal of Agrisurance insurance brokers in Sydney, told Insurance Business about a farm pack transaction in the firm's insurance portfolio. The transaction involved a Tasmanian farm property with $11 million of paintings insured as “specified contents”.
“Admittedly, some of these valuables were stored in a bank vault, but some were on the homestead,” said Birch. “Fire sprinklers and risk mitigation measures were installed across the property to manage the exposure.”
These days, that level of exposure and high sums insured are not uncommon when brokers are placing cover for high-value collections.
Birch said broking colleagues from his licensee Omnisure, who deal in this HNW space, often find “coastal properties and hobby farms with values that push insurers to their limits, business assets bundled with personal ones and sums insured that don't fit neatly into standard household products”.
That mismatch between what a HNW client actually owns and what a mainstream policy is built to cover can still be a common theme for brokers involved with HNW customers.
A standard homeowner typically insures one residence and ordinary contents. A HNW client might own three residences, heritage or architecturally designed homes, imported stone, custom joinery, wine collections, sculptures, antiques and jewellery - each carrying its own valuation, replacement and claims-handling challenges.
Felicity Sheppard (pictured right), underwriter and head of specie at Keystone Underwriting in Melbourne, sees the sharpest version of this in valuation. "It's a common problem where people don't have things recently valued," she said.
Keystone covers assets at agreed value where a valuation is under three years old - beyond that, cover reverts to declared value. That's Keystone's own underwriting condition rather than an industry standard but the principle behind it - that asset values move faster than paperwork does - holds broadly across the sector.
"We feel assets will change in value after a three-year period," Sheppard said, though she noted the review window tightens further for fast-moving categories: A particular artist coming into demand, or bullion, which has climbed sharply over the past eighteen months as investor demand has grown.
Rebuild cost is where the gap often bites hardest and earliest. A luxury property's purchase price and its rebuild cost are frequently unrelated numbers. Land value can dominate the purchase price while replacing the building itself, after architects, heritage requirements, imported materials and specialist trades are priced in, can run well beyond what the original sum insured assumed. Clients tend to insure to their sense of the property's market worth rather than what reconstruction would actually cost.
Many high-value homes sit inside family trusts, companies or SMSFs rather than being held personally. This can mean the policyholder isn't always the occupier or the beneficial owner. Getting the insured name and insurable interest right becomes materially more important than in a standard domestic placement and is one of the more easily missed steps in arranging cover for this client group.
These are a few common placement mistakes that brokers should watch:
Getting placement right is only half the job. How a claim is actually handled is where clients judge whether that placement was worth it and jewellery claims are a good illustration. Rather than cash settlement, Keystone favours replacement which means sourcing a comparable diamond or having a jeweller recreate a piece to the same value and specification. That’s because the payout isn't meant to reproduce the exact object but to fund an equivalent one.
Claims handling, alongside dedicated claims managers and access to specialist restorers, is increasingly how HNW insurers differentiate themselves - claims experience now matters as much as policy wording.
