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, with industry estimates ranging from just three major players now in the space to upwards of six.
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 on this space 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 for financial institutions and professionals, with appropriately specialized offerings, to serve.
In the North American insurance industry, where the number 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 for the high net worth segment and how this market differs from the market generally is key to making the right investment in this business.
Developing such an understanding means more than just asking high net worth customers what they want and need and what they don’t want or need, because many times the customers do not know. 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 drives 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 customer satisfaction efforts that destroy margin.
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 the leadership position Chubb had with high net-worth Insureds and any prospect of capturing more share of this segment will generate efforts to do so.
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 of the insurance needs of this segment is not enough to stand out in it.
Matching a clear knowledge of customer satisfaction specific to this group with reliable and understandable measures of insurer operational performance is the best way for a company competing for this segment to capture market share within it and the likely follow-on commercial insurance business it brings with it.
About the author: Gregory Hoeg is vice president, Insurance Operations at J.D. Power
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