ACE’s $28.3 billion purchase of Chubb will create a major disruption in the luxury insurance market. When the integration of the two insurers is complete, the new company is anticipated to control approximately $6 billion of annual premiums on personal insurance, of which $4.6 billion will represent the high net worth segment, according to The Wall Street Journal.
The merger will also decrease the total number of major insurers focused on the high net worth segment. While this has prompted some commentators to sound warning bells about a possible oligopoly forming in the space, the current consolidation that’s unfolding in the high net worth insurance market could actually be the great opportunity for other firms that have been angling for some time.
The high net worth client segment has been and will continue to be a strongly pursued segment for all financial institutions. The unique needs of this group for financial products and services combined with their ability to pay for them makes the group attractive to serve.
In the North American insurance industry, where the number of high net worth individuals is highest, competition for the business of these individuals has been fierce over the years.
But will other insurers see an opportunity to capture more market share by luring away clients not happy with the combined company? This is a critical issue now that the industry appears to be in another soft market with prices, and therefore margins, down on most lines of business. The high net worth segment has, for most companies serving it, been a high margin and reliable book of quality business in difficult times.
No doubt several of the traditional competitors, and possibly some new entrants into this segment, will seek to gain market share in 2016 and beyond. The most difficult issue facing these companies is knowing how to win over customers in this segment. Their needs are different from those of most individual insureds and their expectations for service are high. Investing time and capital in the wrong products, services and supporting infrastructure could be devastating for a carrier, especially in a soft market. Having a deeper understanding of the drivers of customer satisfaction and how this market differs from the market generally is key to making the right investment in this business.
Understanding their needs requires knowing how to analyze the responses to the right questions to identify what are the true drivers, not merely stated drivers of customer satisfaction. Beyond that, each insurer interested in this segment must be able to align the identified drivers of high net worth customer satisfaction with product and service features best suited to address them. This implies understanding the cost/benefit trade-off related to customer satisfaction so that a carrier does not over-invest in satisfaction efforts.
Commercial Insurance Potential
Because the opportunity of capturing high net worth individual clients also includes the potential of capturing commercial insurance business with which these individual clients are associated, impressing high net worth clients can pay off in premium many times as great as their individual premium. Most of them will need something beyond only their individual experience with a carrier to get them to recommend one to their company’s risk manager. Once this hurdle is overcome, the rewards for the insurer multiply.
This is why competition for this customer segment is so fierce. It is also why the merger of ACE and Chubb should be sparking more competition for this segment. No one can be sure if the merged ACE/Chubb entity will be able to retain its leadership position with high net worth insureds.
It has never been an easy challenge for insurers to provide products and services for specialty segments, but those who are successful at it reap great rewards for the effort. Understanding the needs and preferences that drive the insurance buying behaviors of the high net worth segment is not part of the expertise of most carriers, yet it is critical to their success in this market. Merely understanding the unique technical risk aspects is not enough.
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