How to integrate P&C

Ten property and casualty insurance questions to add to your needs.

Change significantly affects a practice’s future growth and direction, yet successful implementation of change is a big challenge in any business. Integrating property and casualty (P&C) insurance advice into the advisory practice is gaining significance as a way to add value and sustain a long-term competitive advantage.

First, realize the importance of P&C insurance in the overall wealth plan, and the benefits of offering this discussion to your high-net-worth (HNW) clients who may be at risk. Second, learn about the specific insurers these clients should deal with, and the types of brokers who represent these insurers.

Here, we discuss the third step: implementation and integration. While each advisory practice — from family offices to international banks &mdash operates differently and under its own rules and regulations, enough commonalities exist when integrating P&C insurance advice for all advisors to use.

Determine the need

You must first understand potential exposures your HNW client faces and determine if a review is needed by a P&C insurance professional. In previous articles (see May and August 2011, Advisor’s Edge Report), we examined five questions that provided a good starting point for such discussion.

To formalize this process and to help you lead the conversation, identifying questions should be incorporated into your financial planning questionnaire or needs analysis. Also, ask your HNW clients to bring in their current policies, so all the information is at your disposal from the onset should you determine later that a professional review is required.

Each practice’s needs analysis is different from another’s, but the end goal is the same: a comprehensive financial plan that addresses all major aspects of wealth. If you’re serious about integrating P&C insurance reviews as part of the wealth plan, then the following are 10 suggested questions for a client questionnaire:

• Who is your primary insurer or broker? This determines if your client is currently insured with the direct or broker distribution channel, and if the insurer and broker are focused on providing tailored offerings to affluent individuals.
• What is the total approximate value of your personal fixed assets?These fixed assets include residences, personal belongings, vehicles, watercraft and collections, such as jewelry and art. This answer will assist you and your preferred broker or advisor to determine what the exposure is.
• What percentage of your net worth is represented in the form of fixed assets?The greater the percentage, the greater the exposure, so the greater the need for a review to ensure the current policies are properly protecting your client. Personal fixed assets often represent a significant portion of your clients’ net worth and a well-advised P&C insurance plan will protect these investments.
• Have your residences been appraised for reconstruction (insurance) value?The Insurance Bureau of Canada states approximately 80% of residences are underinsured by 27%. If a significant loss were to occur involving one of your clients’ residences, they may be underinsured, which can represent a significant after-tax loss for your HNW clients.
• Are any of your fixed assets owned by an active corporation, trust or holding company?This determines if your client is facing exposures, such as the insurance policies not reflecting proper ownership.
• What limit of liability do you currently have?Personal liability insurance provides protection against a covered third-party property or bodily injury claim. This is the primary liability that accompanies a homeowner’s, automobile or watercraft insurance policy.If your client’s net worth exceeds the current liability limit, an exposure exists. The amount of liability required should be based on your client’s exposures, which include aspects such as lifestyle and the legal environment. For example, the U.S. is a litigious society, so any exposures involving the American system need to be closed.
• Do you have an excess or umbrella liability policy?Excess or umbrella liability provides coverage once the primary or underlying liability policy limits have been exhausted. It also provides additional coverage on top of the primary homeowner’s policy.
• Do you serve as a director, officer or member of the board for a public, private and/or non-profit organization?Excess liability policies also include additional coverages that aren’t included on a primary liability policy. Libel, slander, defamation of character, or directors’ and officers’ not-for-profit liability are some examples. For the affluent, an excess liability policy should be employed to protect them from incurring a devastating financial loss in the event of a major legal settlement against them.
• Do you have all of your P&C insurance policies consolidated with one advisor or insurer (including international properties)?Consolidation is important, as it can provide time savings and increased convenience in dealing with insurance each year. It also provides direct premium savings and helps close gaps in coverage.
• What are your main concerns regarding your current P&C insurance needs/policies (eg. service, coverage, premium, claims experience)?This will help gauging what is most important to your client, and determine which previous questions and identified exposures are most relevant to further discuss. Remember, sometimes clients may not view one aspect as important but if a loss occurs, this aspect becomes the most important.

Review or straight referral

Depending on your company regulations and adhering to all industry regulations, you can directly refer a client to your recommended insurance broker/advisor, or be more involved in the review process with the client and insurer.

Integrating new offerings into your practice is not easy. But by starting with your standard needs analysis questionnaire, your practice shows it’s an early mover for integrated approaches to wealth preservation.

Kevin Solomon, B.Comm(Hons), CAIB, CPIB, is managing director of Leipsic Private Risk Management. ksolomon@leipsic.ca Enging Chan, B. Comm(Hons), Msc Innovation & International Business Strategy, is manager of operations of Leipsic Private Risk Management echan@leipsic.ca
Kevin Solomon and Enging Chan