High net worth individuals (HNWIs) form a distinct, highly profitable and sought after market niche within the insurance services sector. Insurance services provision for HNWIs has the overriding objective of maintaining, preserving and protecting their financial assets. As a simple rule of thumb, the more assets one has then the more effort is needed to maintain, preserve and protect those assets. This has given rise to a distinct range of personalised insurance services for HNWIs. Last updated by the author September 2015.
Providers (mainly insurance companies, brokers and private banking services) may offer specialist services to cover one area of need or seek to build a wider, holistic relationship with a HNWI. The underlying differentiator throughout is the provision of personalised, tailor-made or bespoke solutions to meet the needs and aspirations of the individual with the aim of preserving and protecting their wealth. Pretty much anything can be insured, to any value, through individual underwriting if one is willing to pay for it.
This fact-file will look at the provision of insurance products and services for HNWIs, and how these differ from the mainstream where applicable. The fact-file will illustrate the major insurance services and product areas impacting on HNWIs, with examples or links. A separate but linked fact-file describes general financial services products for HNWIs.
In the provision of financial services and insurance products, "High-net worth individuals" (HNWI) form a distinct market niche.
The definition of what constitutes a HNWI varies globally - for example Merrill Lynch define such persons as having more than $1 million in liquid financial assets; and those individuals with such assets between $100,000 and $1 million as being 'affluent' or 'sub-HNW'. Further sub-divisions occur, using this model, at above $5 million liquid assets ('very HNW') and $30 million (where an individual is said to be 'ultra HNW'). Boston Consulting Group defines ultra-HNW as those individuals with assets exceeding $100 million.
All definitions distinguish HNWIs as holding a significant value in disposable or liquid assets - as distinct from residential property or insurance termination benefits (e.g. those that may be payable on death or retirement), which are excluded from the 'assessment'.
Back to basics
Liquid financial assets are accounts or securities that can be easily converted to cash at little or no loss of value.
These include cash, money in bank accounts or simple savings accounts, money market funds, and government securities.
Actively traded stocks, bonds, and investment funds are liquid in the sense that they are easy to sell, but the price is not guaranteed and could be less than the amount paid to buy the asset.
In contrast, selling fixed assets, such as property, usually requires time and negotiation.
The Finncial Conduct Authority (FCA) operates a looser interpretation of its Financial Promotions Order and allows a greater range of promotions and products to be made available to "sophisticated investors" with higher levels of personal assets, which the regulator defines as those individuals with an annual income >£100,000 and with net assets (crucially excluding a person's main residential home, life assurance and pension benefits) greater than £250,000. Different FCA definitions apply for mortgages and lending on residential homes.
Many UK insurance and financial services providers offer a distinct range of products and services to customers with liquid financial assets of more than £100,000 and this is the simple threshold we will therefore take forward in this fact-file.
The sector is distinguished by products and services that are aimed at maintaining and preserving the assets of a HNWI. As a simple rule of thumb, the more assets one has the more effort is needed to maintain, preserve and, hopefully, grow those assets.
This has also given rise to a range of personalised insurance services for HNWIs. These include bespoke insurance solutions to cover high-value items, insurance for gardens and grounds, second home insurance (including cover for properties abroad), private fleet auto insurance, maritime and aircraft insurance and bespoke policies for life, critical illness and family and personal income cover in line with a HNWI's income and wealth.
This fact-file will look at the provision of insurance products and services for HNWIs. A separate but linked fact-file will explore general financial services products for HNWIs.
Recent research shows ever increasing numbers of HNWIs, which may reflect decades of general prolonged economic Numbers of HNWIs continued to increase even during the financial crisis. The recent increase in numbers of HNWIs also reflects a growing pool of such individuals in the fast-moving emerging economies, and also the salaries and bonuses paid to top managers and specialist professionals.
Research published in August 2015 states that there are now 715k millionaires in the UK (or 1:65 of the adult population). This is an increase from 508k in 2010. One forecast predicts this will increase to 1.7 million individuals by 2020.
In 2015, the World Wealth Report indicated there were 550,000 millionaires in the UK, which as a nation contained the fifth highest number in the world (after the USA, China, Japan and Germany). It should be noted, however, that all these states are ranked much lower on the scale when millionaires are looked at as a percentage of the population - on that index Singapore, Switzerland and some Middle Eastern oil states score highest. The population of HNWIs was seen to be still increasing in nearly all nations. Interestingly, from a market and potential product perspective, 83% are over 45 years of age and 73% are male. Note this survey uses a specific definition of HNWI - the requirement being $1m of tradable liquid assets. The trend, however, is the same.
Boston Consulting Group's (BCG's) 2014 Global Wealth Report showed similar results for the UK. Interestingly the UK also had the third highest number of ultra-HNWIs (defined by BCG as those with private financial wealth exceeding $100 million). This is a change from 2 years earlier as China now has the second highest number of the mega rich, behind the United States.
Providers of insurance services to HNWIs
In the UK insurance services to HNWIs are provided by insurance companies, usually as part of a tailored offering to individuals via its mainstream business or through a separate division which seeks to differentiate the sector it is targeting in its marketing (sometimes with separate branding and marketing hooks). An example is the 'Distinct' brand from Aviva, which even uses the slogan "designed for people with more".
Specialist brokers have a very large role to play in the market and some have direct links to insurance companies or to Lloyds of London for underwriting of bespoke policies. Such brokers may specialise in a single area of insurance (for example maritime) or offer a wider range of services which seek to build multiple relationships with the client. An example of the latter can be seen here.
Finally private banks are also actively involved and may offer insurance services to their HNW clients as part of a portfolio package. They may use their own bancassurance outlet or have arrangements in place with partner insurance companies to provide these services.
The sector is particularly attractive to providers and brokers. Although client needs and demands will be greater than mainstream customers and therefore a higher level of specialism, training and skills are needed to address these, the potential for profitable relationships and higher premiums, commissions and fee income are commensurate with the effort.
Insurance products for HNWIs
This fact-file has explained the concept of 'high-net worth' and explored definitions in use. We will now look at insurance services products and services for HNWIs and how these differ from the mainstream if applicable. Where possible we will illustrate the product or service area with examples or links. A separate but related fact-file will explore general financial services products and services for HNWIs.
The underlying differentiator throughout is the provision of personalised, tailor-made or bespoke solutions to meet the needs and aspirations of the individual with the aim of preserving and protecting their wealth. Pretty much anything can be insured, to any value, through individual underwriting, but this section aims to provide a concise introduction to the sort of products available specifically in the HNW sector.
Home and contents insurance
Home and contents cover for HNWIs are really variations on a theme with mainstream products. The main differences are they are designed to provide higher levels of cover (remember Aviva's marketing slogan "designed for people with more"); they may cover a wider range of risks; and they can be personalised to the individual's exact needs.
Examples of distinct features include a minimum of £75k contents cover up to maybe £500k (standard policies may have limits of typically £35k to 50k); £1.5 million buildings replacement cover; inclusive cover for fine art and antiques; higher levels of cover for non-specified items (e.g. a £5k threshold rather than £1k or £1,500 on a standard policy) to reflect the greater scale of possessions; cover on specific items up to £250k, or more subject to further underwriting; inclusive loss or accidental damage cover; cover for business items in the home etc.
Special non-standard conditions may also be included in a home and contents policy for the HNW sector. Examples may include cover for guests and their possessions during a visit, or protection against accidental damage of items by a guest.
Specialist cover may also be needed for period or listed buildings; buildings with non-standard features, such as thatched roofs; or properties with significant outbuildings. Gardens and grounds cover may be a separate requirement - please see section below.
An example of home insurance cover for HNWIs can be found here.
Second home insurance
Many HNWIs may have second homes. These require special insurance provision for when the property may be vacant for extended periods or when the property is let, in addition to those standard requirements for adequate buildings and contents cover. Recent research shows that more than 10% of owners of second homes do not have adequate cover for these properties.
Special features of second home insurance may include: cover for accidental or malicious damage caused by guests; cover for swimming pools; cover for loss of income due to cancelled reservations; extended level of legal expenses cover; and public and employers liability insurance, the latter particularly relevant if the property is let as a business.
A number of insurance products and brokers exist to cover this segment. An example is given here.
A range of providers offer services for buy-to-let landlords, some of whom may fall into the HNW category. An example is provided here.
HNWIs have higher levels of assets than mainstream consumers. Where lifestyle is also linked to income, it is particularly important to provide protection for the family against loss of income. This is, of course, important for everyone and is perhaps the raison d'être of the life insurance industry.
Protection policies for HNWIs would therefore have the same features as for mainstream customers but be written for higher levels of cover and may require bespoke underwriting. Products in this category would include life assurance and critical illness and disablement/ incapacity cover.
Various types of income protection or family income policies would also come into consideration in this area. These are usually written on a level-term basis and would pay-out an agreed level of tax-free income, usually monthly, for the remaining plan term should the insured die or become incapacitated during the term. Forms of payments protection insurance (for example that pay mortgage interest in the event of loss of income through sickness or redundancy) may also fall into the category of protection products that may suit a HNWIs needs.
As well as meeting the needs of any mainstream driver, special motor insurance services are available for a wide range of risks that might appeal to the HNWI. Examples include cover for high value or prestige cars, vintage cars, car collections, and owners of multi vehicles sometimes referred to as family fleets.
This segment is typical of insurance for HNWIs in general - solutions can be tailor-made, may involve individual underwriting and cover and are for higher sums [and of course premiums] than the mainstream.
An example of a specialist service from an insurance company can be found here.
Gardens and grounds insurance
HNWIs may well need specialist insurance to cover their gardens and grounds that is well outside the provisions of cover of a mainstream home and contents policy. Special features in this category might include cover against theft or damage for garden statuary and fountains; antique garden ornaments and furniture; cover for valuable plants; cover for machinery or expensive tools; shed or garage contents; and cover for damage by third-parties, perhaps to include accidental damage by guests or malicious damage by trespassers.
Such cover would fall into the category of private client insurance. An example of such a special policy is given here.
Maritime and aircraft insurance
Again special policies and broker services exist for the HNWI who requires cover for his boat or aircraft. Typical maritime policies in this category include cover for yachts, motor boats or other small craft against the usual range of perils (theft, fire, damage, third party liability etc). The range of cover may also extend to medical expenses arising from an accident or illness when using the boat, cover for effects kept on board, cover for trailers and when transporting a boat, and third party employer liability for crew members.
An example of insurance for boat owners is shown here.
Aircraft cover is another specialist insurance sector and may include insurance for the aircraft itself, personal and public liability cover, and protection against loss or damage to hangars and airfields. An example of the sort of cover and service that can be provided for HNWIs in this category is shown here.
As we have seen nearly anything can be insured, to any value, through individual underwriting and a bespoke delivery strategy. For HNWIs this extends to the field of alternative investments. Some of these areas (e.g. fine art, antiques, stamp or coin collections) may be provided for under specialist provisions in home contents policies (please see section above) or may require separate insurance policies.
One area of the latter is fine wine insurance; with wine being a significant growth area of alternative investment over the past few years. This insurance would apply normally when the wine is stored in the person's home (rather than at a cellaring service provided by a vintner, where insurance would be part of a paid for service package). The perils that may be insured against would include cover for theft, flood or exposure to extremes of temperature which would ruin the wine and the investment. An example of a fine wine insurance service is provided here.
HNWIs may require special levels or conditions of public liability insurance and legal cover - for example if they have employees or have large estates with public rights of access across land.
Another form of insurance policy that might be linked to their business interests is 'Key Man' insurance. This is designed to financially protect a business from the effects of prolonged illness or even death of key staff members who are central to the prosperity of the company. The insurance can't replace people but it can provide cash to buy time and cover the costs of temporary staff, recruitment, loss of profits or provide a cash injection to assist in any transition period.
This form of insurance may be important if a HNWI's family lifestyle is linked to income provided by a business where he or she is 'key man' such as self-employment or proprietary businesses.
Other forms of bespoke insurance for HNWIs may include travel insurance (e.g. where travel periods are outside the scope of mainstream policies).
Apart from the many useful links provided in the text, the following sites may also be helpful:
Financial Conduct Authority (FCA)
The body responsible for regulating the UK financial services sector. Publishes comparative information on many product types.
One of many consumer-oriented price comparison website, providing access to a database of financial services products.
Provides a key resource by listing and comparing all investment and savings products both online and in its monthly publication Moneyfacts.
The leading UK finance newspaper.
This Is Money
A good source of general financial articles aimed at the consumer.
Insurance trade journal.
World Wealth Report 2015
Boston Consulting Group
Global wealth report form the leading business consultancy firm