Independent agents and their companies have over the years been beaten in the personal lines market by direct response carriers and captive agents.
But being down so long means there is plenty of room for independent agents to go up in personal lines market share — and the high net worth (HNW) segment of the personal lines market might just be the best place for them to make inroads into personal lines, say experts.
These experts see opportunity for independent agents where other agents may lack the products they need to do as good a job with this clientele as independent agents could do.
Many independent agents have not yet tapped the sales potential in personal lines in general or in serving the personal lines needs of the wealthy in particular.
Captive carriers dominate the overall personal lines market, writing 53.1 percent, or $125.5 billion in premium in 2010, according to the latest Property-Casualty Insurance Market report published in 2012 by the Independent Insurance Agents & Brokers of America and A.M. Best Co. Direct response carriers write 13.1 percent ($30.9 billion) of the personal lines market, while independent agency carriers — both national and regional carriers — represent 33.8 percent ($79 billion) of the market.
Estimating market share in the HNW segment of the personal lines market is not as easy, the experts say.
Bob Courtemanche, division president, ACE Private Risk Services, says that less than one-fourth of the HNW personal lines market is insured with independent agency carriers that have products and services tailored for the affluent. He bases his estimate on a Conning Research & Consulting study in 2008 that pegged the HNW personal insurance premium opportunity at about $30 billion. Isolating the personal lines premium written by the carriers that specialize in the HNW market and then dividing it by the $30 billion, produces a rough idea of market share.
Jerry Hourihan, executive vice president, chief marketing officer, U.S. Personal Lines at Chartis, says his company defines the HNW market as clients whose main residence is worth at least $1 million or individuals who purchase as least $10,000 in total insurance premium. Under that definition, Hourihan estimates as much as 50 percent of the new business he sees coming to Chartis’ Private Client Group is in whole or in part insured by non-high net worth specialist companies, or captive or direct insurers.
Ruthie Kerns, a personal insurance producer for Lockton Cos. who used to be an agent for Allstate, believes non-agency carriers such as State Farm, Allstate and Geico have captured the bulk of the HNW personal lines market share — as much as 80 percent in her estimation.
But that’s exactly why she likes the market now. With a huge majority of the HNW personal lines market being served by direct and captive writers, Kerns says the opportunities for independent agents and carriers specializing in this class are huge. “It’s a great market and what I have found is it is a very untapped market,” Kerns says.
Too Much, Too Little
But how should agents go about attracting this HNW business?
One way independent agents can gain new business is by educating wealthy customers who have traditionally been insured by captives or direct response carriers on how the specialty insurance market can do a much better job of meeting their needs than the standard offerings of direct writers.
Captive and direct response carriers do not have the specialty products and expertise high net worth personal lines customers need, she says. “The Allstates, State Farms, American Families … those are great companies,” Kerns says. “But their risk models are more to insure $500,000 homes — and a lot of them.”
Chartis’ Hourihan agrees. Carriers that do not specialize in the high net worth market do not have the products, risk management services and loss prevention services that are critical to the wealthy, he says. “They fall way short. The traditional insurance policy is typically inferior,” he says.
Affluent policyholders who are with non-specialty carriers are possibly underinsured for their personal property and liability exposures and they may be overpaying for this inadequate coverage, these experts contend.
Kerns says she often sees direct and captive carriers charging too much for too little coverage in the HNW market. A month ago, Kerns wrote an account for an insured who owned a multimillion dollar property in Colorado. The homeowners’ policy had been placed with a large captive carrier for many years at $4 million.
“When we came in, we did an onsite appraisal and found out the property was not worth $4 million, but was worth $8 million. They were underinsured,” she said.
Through a high net worth carrier, Kerns was able to raise the limits on the home from $4 million to $8 million, replace actual cash value on the automobiles with agreed upon replacement cost and increase the personal excess policy limits from $2 million to $8 million.
“All in total, we kept their premium the same,” Kerns says. “Were they overpaying for being underinsured? Absolutely.”
Christie Alderman, vice president and new products and services manager at Chubb Personal Insurance, says it’s not uncommon for her to see high net worth customers who are underinsured. That customer may have been underinsured for years, she says.
“That’s true both from a property standpoint and also from a liability standpoint,” she says. “Very frequently, our appraisers go out and take a look at a house that was submitted to us at a real estate value for the coverage A, and we spend a lot of time explaining why we think it needs to be a different value, a replacement cost value.”
Alderman sees contents within an affluent home, such as fine arts and jewelry, often underinsured:
“Our appraisers often go into our customer’s home and sometimes will say, ‘Is there anything of terrific value that you might want to think about insuring in case there’s ever a loss that might financially impact you or emotionally impact you, so you’d want to replace that in the future?’ We’re always surprised at the frequency at which customers say, ‘Oh yes! I do have that Renoir upstairs.’ I think customers live with these really fine pieces of art sometimes on their walls on a day to day basis, and just don’t think about them from an insurance perspective.”
Courtemanche asks HNW individuals if they had a significant loss tomorrow, or if their home burned to the ground, would there be enough coverage to replace what they had accumulated over the years, at today’s replacement values? “That’s an important point,” says Courtemanche. “Are they properly scheduling items of particular value that they’ve collected over the years?”
The concerns of the affluent often go beyond jewelry and art. “To wine (and) all those things that someone might be accumulating, but not thinking about how the value increases over time,” Courtemanche says. “People generally don’t have a good idea about what it would cost to replace all that they’ve accumulated over the years … the general contents tend to be underinsured.”
In Hourihan’s view HNW homes often times are not insured to the correct value because direct and captive writers lack the engineering expertise to price replacement cost on a custom made home.
The property is not all that may be underinsured.
ACE’s Courtemanche says that when his company picks up a new client from a captive or direct response carrier, there is a gap in the liability coverage.
“From an umbrella standpoint, we see time and again when we write new business how much more umbrella liability the clients are taking when they have an agent that’s properly counseling them, and asking the right questions,” Courtemanche says. “Invariably, they wind up buying more umbrella insurance, which is a good thing to protect their net worth.”
High-profile wealthy clients in particular are endangered by rising jury awards and they need liability limits that are current.
“Gone are the days where the $1 million liability policy is adequate for most customers,” Chubb’s Alderman says. “When we’re looking at high net worth customers, there are a lot of contributing factors to evaluate. Are they online a frequent amount? Are they high profile? Do they have employees in the home? All of those questions should lead you to think about higher limits.” Chubb offers limits up to $50 million quite regularly, she says.
Hourihan says not carrying enough liability insurance is the biggest problem he sees in HNW accounts.
“From at-fault car accidents, slip and falls, to entertaining at their home and someone gets injured … not carrying enough liability is probably the most prevalent underinsurance issue that we see,” Hourihan says.
Lockton’s Kerns has also noticed that her wealthy clients are being targeted more in lawsuits. “When I came to Lockton two and a half years ago, we were probably seeing a maximum of $11 million in a liability claim. This past year, we’ve been seeing $30 million to $45 million,” she said.
The HNW market presents a real opportunity for independent agencies because HNW consumers tend to also be high-level executives and corporate business owners, says Robert Allan Paul, vice president of Entrepreneurial Advantage based in Minneapolis, Minn., an organization that works with the Consumer Agent Portal (CAP), a digital marketing and digital media provider for independent agencies and carriers in the personal lines insurance market.
The commercial lines market is already majority owned by the independent agency channel, Paul says. “I would hypothesize that if independent agents and carriers could figure out how to convert those commercial lines clients into HNW personal lines clients, there is a huge opportunity there,” he told Insurance Journal.
But that doesn’t seem to happen very much, Paul says. “For some reason your commercial client business owners don’t seem to make that transition over to the personal lines side of the house with the independent broker or agent. It’s not as common as you think it would be.”
However that strategy seems to be working well for Lockton’s Kerns.
“I have been using my commercial producers and we’ve been working together to get some of the key executives that we have here in Lockton,” Kerns says. “I have had wonderful success,” she says.
Lockton’s commercial producers want to make sure that their clients are properly insured on not just the commercial but on their personal side as well, she says.
Bruce Humphrey, CEO of PCG Agencies Inc. in St. Paul, Minn., says working in the HNW market can be difficult and takes expertise from agents and carriers.
“It’s exceptionally important to work with carriers that know how to adjust claims of that size and that have the ability to write risk throughout the country. Many of our clients own homes in many states and these carriers understand what the typical affluent person owns, the kinds of possessions they have, the unique construction of these homes,” he says. “These clients are best served by those types of carriers.”
Chubb’s Alderman says agents targeting the wealthy need to understand how the lives of the rich can be very different than those of a typical personal insurance account. The risk profile can be much more complex.
High net worth specialty carriers can address that complexity with “bells and whistles” that just are not available in the direct and captive market, Kerns says.