The personal lines market gets very personal in the high net worth segment, according to one of the market leaders. PURE Group of Insurance Companies’ Chief Claims Officer Michael Taylor says that to excel in this market, agents, brokers and insurers must understand the special needs and expectations of affluent customers, offer solutions and services that meet their needs, and be prepared to provide hands-on claims service. In this interview with Insurance Journal’s Andrea Wells, Taylor discusses expectations, coverages, claims and the competition for high net worth clientele.
Insurance Journal: When it comes customer expectations in the high net worth market — whether it is in purchasing, managing risk, claims, or overall customer experience — how do expectations differ from a typical personal lines client?
Michael Taylor: There are good examples of how expectations are different in this segment. … A few years back when I had a former colleague with a mass market personal lines company call me and he was the claim manager for their business on the West Coast. He happened to be handling a claim for a Hollywood power couple. His and her actors, both very well-known actors, were insured by a mass market insurance company versus one in the high net worth segment. My former colleague called me and told me, “I have a claim for these folks. How do you deal with them? They have really high expectations.” I said, “Well, that’s the point.” They were in a market that’s not designed to service those expectations. Mass market companies provide more of a generic response versus a personalized response and that’s the key for carriers operating in this space with businesses designed to serve those clients. The operating models offer personalized solutions, personalized service, not generic solutions or generic service. Whether that’s at the beginning with customized risk management assessments, right down to that point of claim.
IJ: The high net worth market has attracted newcomers in recent years, including a growing body of agents and brokers seeking to specialize in this space. Why do you see that trend occurring?
Taylor: There’s increasing awareness and interest in this segment of the market, whether it be on the carrier side or on the broker-producer side. There’s continued soft commercial market conditions. There’s been the commoditization of mass market personal lines where it’s just commoditized to a point where it’s all about price and so, this is a segment that presents a unique opportunity to compete on value, not just price. It then allows you to define value by whether it’s innovative products to fill gaps or risk management expertise, consultative sales expertise on the broker side, or emphasis on service at time of claim on the carrier side. I think there are so many different ways you can compete on something more than just price in this space, as opposed to mass market personal lines or the soft commercial market. High net worth is a very attractive market for carriers and producers right now.
It’s evidenced by new entrance in the high net worth segment. In the past two to three years, I’ve seen a number of folks start putting a toe in the water, new carriers interested in trying to penetrate this market, and I don’t think that’s necessarily a bad thing for us. In fact, I think it’s a good thing. Overall, it raises awareness of the segment. The estimated size of this market segment, being somewhere between $35 billion to $40 billion, with probably only about $10 billion written by carriers who specialize in high net worth. That tells you there’s tremendous opportunity for continued growth.
IJ: Do you see areas in this market that are often under-insured?
Taylor: Absolutely. I think there are two areas of particular interest and/or vulnerability that we see. … One of them is cyber and the other one is higher limits of liability insurance. Cyber is first and foremost a risk that businesses across the country and around the world are trying to counter right now. … I think the focus has been largely commercial-based and we’re somewhat blissfully naïve if we believe it’s not equally pervasive on the personal side. We’ve seen instances where, particularly in this segment, attractive targets are presented for those nefarious cyber criminals to lurk and look to exploit.
We had two relatively recent examples of real estate transactions where it was clear that cyber criminals were monitoring the email traffic of high net worth individuals. In one case, they actually went in and took over an individual’s email account. Another case, they got involved with someone in the chain of commerce and mocked their email. They didn’t actually take over their email, but just had an email that looked so similar that it wasn’t recognized at the point of funding these transactions. One case involved a nearly $2 million real estate transaction and another involved just under $1 million. They actually got into the chain and gave instructions to direct the money to go somewhere other than its intended location. Just like that, the money was gone.
… Previously, most carriers have offered solutions around identity theft. If somebody compromised your accounts, we’d help fund the expense of cleaning up your accounts and restoring your identity, but there had been no coverage to indemnify you for the actual loss, if in fact you lost real money. Late last year we introduced PURE Starling which is our program that we can actually provide from $100,000 up to $1 million in coverage to indemnify you for actual loss associated with a bad actor stealing your money in a cyber theft scenario.
IJ: You also mentioned higher limits in liability as well?
Taylor: Yes, there hasn’t been within the mass market, the availability of higher limits and most of those personal lines carriers, if they sell an excess or umbrella product, they had offered $1 million in coverage; $5 million would be extremely high for some of those, if it’s available at all. Clearly, as you look at the assets held by high net worth individuals, we realize that is not nearly adequate.
Pricing was also prohibitive for higher limits. Even those carriers and markets that did provide the ability to buy coverage in excess of $5 million, the pricing methodologies for those higher limits was disproportionate to the actual risk.
IJ: What role does the surplus lines market play into today’s high net worth segment?
Taylor: The surplus line space is a growth area for the high net worth segment because let’s face it, high net worth individuals and families have means to own properties in highly coveted locations that afford privacy or exclusive views, but often also means they’re on the fringe. Those properties are either extreme coastal, or on the edge of the urban/wildland interface, which then brings them a wildfire risk.
And while those properties are coveted and in exclusive locations, they certainly have proven a higher risk to insure and in some cases, those risks are beyond the appetite for the standard offerings of most carriers, even high net worth carriers.
Because of that reality, some of those risks look for solutions in the surplus line space.
Realizing that while the surplus line space may give us more flexibility to write those with terms that make sense from an insurer’s bottom line perspective, the customer’s expectations and needs for service were still the same as if they had a place/property that held less extreme risk.
PURE Programs is a platform that we introduced to extend our underwriting expertise and our service platform to customers who had risks with complexity or exposures that don’t fit in our standard market, but still want that standard market treatment.
It’s been a tremendous success, growing at a rate approaching double year-over-year.
IJ: The PURE Group of Insurance Companies has seen substantial growth in recent years. What are a few of the reasons behind that growth?
Taylor: I think the primary fuel for our growth is satisfied members. One of the unique things about our business model is this [is a] member-owned insurance company. The old American Express tagline of “membership has its privileges,” I think that’s certainly the spirit that we like our member-owners to feel. They are part of a unique insurance solution for like-minded individuals who are conscientious about protecting their homes and other personal property, and thoughtful about that.
IJ: Is there a particular threshold of what you consider a high net worth client?
Taylor: Pretty simply, we are a market for the conscientious homeowner of high value properties with a replacement value of $1 million or greater.
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