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High Net Worth Insurance – Troubled Times Ahead

Mar 2, 2020

Earlier this year the ratings agency Fitch said that the outlook for the UK non-life company market is negative overall.

One area that is at the forefront of insurer attention is the High Net Worth (HNW) market. In June 2018, MS Amlin pulled out of the HNW household market, as did Dual in January 2019. Lloyd’s have also reported losses driven by weather losses.

With capacity running for the hills, those insurers who remain in the market have been pushing through double digit rate (premium) increases and tightening up on risk selection and risk features.

Why is the high net worth market facing a difficult time?

The reality is that returns have proved to be not as good as most observers thought. Intense competition is eroding profit margins with aggregators purposely looking to grow. You can see why – there are more millionaires than ever before in the UK and only China, the US and Japan have more.

It looks like a growing market so why the distress signs in the market with capacity reduction and rate increases. Have carriers correctly judged the customer base and the expectations it has?

Astute market players would point to a changing and evolving customer base – old money V new money. It’s made knowing your customer very important and involves investing greater energy into understanding sources of income. It’s a fact that money laundering is prevalent in the UK and the HNW market does well to pay close attention to where its premiums come from.

Are changes in customer type and claims type impacting the high net worth insurance market?

Whilst the older generation is expanding for sure there is a change in the traditional demographic of the market taking out HNW insurance. There are plenty of wealthy individuals emerging from the technology sectors, sports leisure and entertainment and social media to highlight the changes. This requires different underwriting that reflects lifestyle changes. Note for example high profile home robberies and personal attacks on the street which are on the rise.

Customer expectations in this space appear to be pretty consistent. The need for personal attention, the ability to respond quickly and to overcome objections and get things sorted are all still there. Insurance needs for the HNW customer do not appear (as yet) to be met by the direct aggregator route to market. Being flexible enough to respond to individual and often unusual requests, being able to deal with regular travellers and those with homes located in different countries appears to be ensuring price inelasticity in buyers.

Claims are prevalent with escape of water claims particularly on the rise alongside the effects of climate change such as storm and flood. Reflecting an evolving customer base also of note would be increased frequency of aggravated burglary , attack and theft generally.

What could be next for the high net worth market?

The HNW worth sector might be growing in size, but it remains a niche area of the insurance market that requires a highly specialist approach if brokers want to operate successfully and sustainably.

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