Opportunities Abound in High-Value Home, Condo Segment

The high-value homeowners and luxury condo markets have become competitive arenas to play in, with several new programs and companies in the past few years. But experts say agents and brokers shouldn’t be deterred by the added competition because this segment is full of opportunity.

Molly Rondeau, distribution sales and marketing executive for the new high-net worth insurer, Crestbrook Insurance in Scottsdale, Ariz., says there is plenty of untapped potential in this segment.

“If you look at the affluent market in general, it is defined by simple terms – homes with values of $750,000 or more. This is a $65 billion marketplace, and the direct writers have 85 percent market share of that. There is still a whole lot of business out there that is ripe for the picking,” she says.

That fact is evidenced by the response two markets have seen since launching new programs in the past year. Crestbrook, which began operations in 2013, and a new program offered by General Star through MGA All Risks, have both seen positive receptions to their product offerings, the companies report.

Rondeau says the response has been “very powerful and in some cases overwhelming.” In California and Illinois, the company has already exceeded its premium expectations.

The carrier launched originally in Illinois last October and in California earlier this year. It is now also in Washington, Oregon and Arizona, with plans to start writing in Indiana in August, followed by Texas and Nevada in October. In 2015, the company plans to expand into 12 to 14 more states.

Rondeau says he attributes the positive reception in part to the company’s strong technology platform and product portfolio, as well as to having Nationwide as its parent company. She also thinks this market is looking for more specialized products.

“The difference between affluent and the high-net worth clientele is they have more to protect and more to lose,” she says. “Protecting assets is what we do, and it’s what the affluent, high-net worth clients need.”

This year, several new programs have been launched for high value homes in addition to the offerings from Crestbrook and All Risks, including:

• Primary flood coverage from Ironshore,
• A new policy for high value homes in Florida from American Integrity Insurance Group,
• A high value homeowners program available in the South from Specialty Insurance Managers,
• And a new luxury lines program from XL, just to name a few.

The newer programs in the high-value homeowners market are also providing policies with more enhancements than before.

Crestbrook took its offerings a step further by making certain options standard, like loss assessment coverage of $50,000 for luxury condo owners, with options up to $100,000, with a maximum of $10,000 for an assessment resulting from a homeowners’ association insurance deductible.

The condo coverage also includes: loss of use for a reasonable amount of time required to restore the insured’s home; and unlimited backup and sewer and drain, subject to policy or state-specific deductible. Homeowner and condo policies also include travel assistance and identity theft assistance benefits, as well as equipment breakdown benefits with up to a $100,000 limit for Coverage A- Dwelling, Coverage B- Other Structures, and Coverage C- Personal Property with a $500 per occurrence deductible.

If clients opt to add the Crestbrook Homeowners endorsement, more than 20 layers of additional coverage are available.

Deductibles of up to $50,000 are also waived for a covered loss over $50,000, except if a special deductible applies.

The All Risks program underwritten by General Star, also offers many enhancements like watercraft liability, coverage for golf carts, personal liability, the option to add replacement costs on contents for an additional premium, and the ability to offer scheduled personal property on the coverage form.

While Crestbrook has mostly stayed in the western United States, All Risks has been focused on the Mid-Atlantic region where it is based, with coverage available in 12 states and Washington, D.C. According to Scott Sauter, personal lines product leader for All Risks in Richmond, Va., there are no plans to expand yet because the company would like to get further established in its existing states first.

Other Trends

Sauter says there are a lot of companies trying to get into this business right now, even in coastal regions like Florida where it is traditionally more difficult to find capacity.

“This is a segment of the market that has traditionally performed well – you don’t see a lot of attritional losses. There is also an influx of capital in the market that is having an impact on this segment as well,” he says.

Cat coverage was more difficult to find for coastal regions when capacity was scarce, says Sauter, but that currently isn’t the case. “Because there aren’t a lot of attritional losses in this segment, underwriters can just focus on the cat piece, unlike some of the lower value [homeowners] business where there are higher attritional losses.”

Luxury condos are an especially appealing class to insurers in cat regions because they are well-constructed, fire-resistant structures.

“They are a good bet for insurance companies because they are a completely different animal from high-value [homes] where you have a single structure,” he says.

The luxury condo market has been a hot commodity as construction gets back underway and more multiuse condo facilities are built, say Rondeau and Sauter. As affluent baby boomers and empty nesters look to downsize and find more amenities and convenience, they are turning to luxury condos to accommodate their lifestyle.

Luxury condos are also a popular choice among high-net worth individuals looking for a second or seasonal home.

“We are seeing greater demand for condo coverage. It is very popular, particularly in resort type areas like South Florida,” says Sauter.

In many cases these individuals may rent out or use these second homes for “vacation swaps” where they trade homes with someone else in another area for a period of time. Rondeau says agents need to be aware that a client is doing this and pay particular attention to where the homes are located in these circumstances.

“If we know people are exchanging homes in a country that is more volatile, you don’t know what kind of a tenant you are getting and that needs to be part of the underwriting process,” says Rondeau.

“Agents need to ask ‘is this home rented to others? Is this a vacation rental?’ because then it becomes more of a commercial exposure and personal lines carriers are not interested in investment properties rented to several different tenants.”

Rondeau says looking at all the different properties an affluent individual has and all the pieces that go along with those, including if the properties have been moved into an LLC or trusts, need to be standard during the renewal process.

“Agents need to understand their client’s exposures so companies can properly underwrite clients,” she says. “The majority of agents and brokers do not look at the renewal questionnaires every year [for any changes]. On the homeowners and condo side, take a second look at LLCs and trusts and the usage of secondary and rental locations, and understand their exposures.”

Topics Florida Agencies Homeowners