P&C insurance preserves HNW wealth

Personal fixed assets can make up a significant portion of net worth. So who’s advising your best clients when it comes to their personal property and liability exposures?

In today’s economy, value has a new meaning. Integrated advice is key, time is valuable, and consolidated service is money well spent. So how can you continuously enhance the value to your clients? One way is through incorporating personal property & casualty (P&C) insurance reviews into the wealth preservation component of the financial plan.

After two major financial market crises over the past decade, wealth preservation and capital protection have become top of mind. And since managing wealth goes beyond investment advice, advisors need innovative ways to expand their advice to clients beyond money management.

There are three main components to consider in adding P&C insurance advice to the wealth planning process. First, ask some simple questions your HNW clients may never have been asked before on the topic of personal property and liability protection.

Second, do the research and help your clients identify an insurance advisor who’s qualified to provide advice to the affluent.

And lastly, integrate this advice by incorporating the necessary data into the wealth preservation section of your financial planning questionnaire. In this article we’ll focus on the first step.

Adding value

The affluent often face three major types of exposure that potentially pose major risks to their long-term financial situation:

• 1. Liability limits are often low and inconsistent, failing to cover the individual’s true exposure to financial loss, and often omitting key areas of coverage.
• 2. Insured values of property and other assets are incorrect, often outdated and no longer representative of the true replacement value. At claim time, this could represent a significant financial loss to your client.
• 3. Assets are placed with an insurer that may not have the financial stability and claim-paying ability to settle large and serious losses.

Wealthy families are most interested in protecting their personal balance sheet from a major loss. Yet there are often significant gaps when it comes to all three major risk areas. As a trusted advisor, you are in a unique position to assist your HNW clients in recognizing the specific risks that accompany their wealth.

Here are five questions to ask yourself to help determine whether there’s a need for more qualified P&C insurance advice:

• 1. Preserving wealth means insuring the assets that make up this wealth. What portion of your clients’ wealth is represented in the form of fixed assets? As mentioned, fixed assets can make up a significant portion of your clients’ net worth. So protecting these assets, whether they are a home, cottage, boats, automobiles, or valuables such as jewelry or an art collection, is a part of protecting their wealth.
• 2. Greater wealth leads to greater exposure. Are your clients revising their insurance policies when they reach new heights of wealth, or are they still with the same insurance advisor and insurer they were with before their wealth took off? As your clients’ titles, statuses, reputations, and overall wealth profile change, it is important that they also reflect these changes in the insurance purchased to properly cover new lifestyles, assets, and liability exposures.
• 3. Not all insurers have the capacity to pay the types of claims HNW individuals are faced with. Are your clients protecting their assets with an insurer who has the financial stability to pay significant claims, or are your clients with mainstream insurers who are accustomed to paying small claims for the average family’s assets? The value of insurance is often tested at claim time, and an insurer’s approach to claims — their ability and willingness to make payments — shows their true value. Premium dollars are based on the expected amount of claims. Insurers who insure the average family may not expect total losses of million-dollar homes — exposures typical of the HNW client.
• 4. Value is maximum coverage at the lowest premium possible for that coverage, not low premiums alone. Are your clients receiving the most value for the premium dollars they spend each year? A good insurance advisor will work with clients to maximize the value they receive for the premiums paid each year. There are various ways to do this. Consolidation of policies will save clients a significant amount of time through working with one insurance advisor, one insurer, and one renewal date. Objective recommendations and annual assessments ensure maximum value year over year, and are offered through insurance advisors who represent multiple insurers. Communication of premium reducers, such as credits for additional security measures and increasing deductibles, will balance the cost of additional coverage.
• 5. Claims are losses to insurers. Do your clients have an insurance advisor who is willing to act as a strong advocate in the event of a serious loss? In such a scenario, would your HNW clients know whom to call, and how the claim would be handled?

Would they be confident that their insurance advisor will work with the insurer to maximize their settlement? Claims settlements are often grey, and tangible value is added with the help of an experienced independent advisor who is willing to go to bat for your clients.

P&C advice can strengthen plans

If integrated wealth management also means recognizing your HNW clients’ exposures to financial loss from a fixed asset and liability perspective, then incorporating P&C advice into the wealth preservation strategy of the financial planning process will certainly strengthen the overall financial plan.

You may not be insurance-licensed, and you don’t have to be. By following the steps laid out in this article you will start the process that will allow you to smoothly integrate risk management advice without being an expert.

Assist your clients in recognizing the unique and often changing risks they are likely exposed to, and it’s likely they’ll remember you for it.

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