Being an advisor, and not just an insurance salesman, is crucial for those agents working with this class of business because their needs are diverse and sophisticated, and their losses are expensive. But taking on this role can open agents up to errors and omissions exposures that they may not realize.
“When you really think about the nature of the high-net worth individual and the differences they pose compared to main street America, there are so many more potential E&O [exposures] out there,” said Laura Sherman, founding partner at Baldwyn Krsytn Sherman Partners, an agency in Tampa, Fla., that concentrates on the high-net worth space.
Sherman spoke on the “Errors & Omissions Issues When Insuring Private Clients” panel to a packed audience of insurance agents at the first-ever Council for Insuring Private Clients (CIPC) conference in Dallas, Texas on April 10th.
The panel addressed some of the high-net worth specific E&O exposures, including: their more active and expensive lifestyle; reliance on staff and advisors; more assets and more moving parts; and the methods and frequency/infrequency of communication.
Some of the other topics the panel covered included:
- The most common allegations against insurance agents, such as: failure to procure appropriate coverage or adequate limits; failure to advise of policy exclusions or limitations; and negligent determination or inappropriate property values
- And the most common errors attorneys see when defending agents, including: agent’s failure to discuss updating coverage as the client needs grow; failing to document coverage discussions where the client declined to purchase coverage or higher limits; or an agent acting as an expert or risk manager when they are not.
Sherman says she wasn’t surprised at the turnout for the discussion or the amount of questions that were asked of the panelists – including Steve Brown, president of Hoffman Brown Co., and Spencer Houldin, president of Ericson Insurance Services – because there are so many variables that go into working with these clients.
For that reason, Sherman says, agents in the high-net worth space need to be focused on being an advisor and providing the assistance these clients can’t get online.
“[High-net worth individuals] are looking for advice and counsel because, one, they are so busy with their lifestyle that they don’t want to have to take the time to sort through all the available options,” she says. “They want someone who understands the contracts, that reads the contracts, that does all of that. Especially when you think about, really, there’s no price differentiation between going direct versus having an agent. Once they see that, they really want to have someone like us.”
Michelle Impey, fine art director for Fireman’s Fund, says agents and brokers working in the high-net worth space are not always comfortable with the personal collection aspect of a high-net worth individual’s assets because they do not have all the necessary knowledge.
However, she says there is a growing trend of wealthy individuals putting more and more of their money into collections or “passion investments”.
“Knowing that [collection] makes up a big portion of their net worth, we need to know how to insure and protect it,” says Impey. “If you don’t have that day-to-day experience with collections, sometimes it can be difficult to have those conversations.”
Impey says it’s impossible for an agent or broker to know everything about how to insure a high-net worth collection, but working with vendors, service providers, and other resources like carriers who specialize in this segment, can help agents make sure they are covering all the bases.
“The key is education and knowing what kind of questions to ask the high net‑worth collectors,” says Impey. Building strong relationships with reputable firms is also important. “So that then when the collector comes to them and needs advice they're able to provide that.”
Perhaps the biggest lesson that high-net worth agents and individuals learned was in the aftermath of Hurricane Sandy. Many wealthy individuals expected their expensive assets, such as their fine arts, would be covered by their insurance policy only to find out it wasn’t because they didn’t buy enough coverage or they never disclosed all their valuables to their insurance agents.
Sherman says agents can protect themselves from E&O claims in these instances just by having the important conversations with their high-net worth clients.
“When you think about wealthy individuals, when they go to work they immediately think, ‘this is my workplace and I have to have policies and procedures.’ There is the crossing of T’s and dotting of I’s. When they go home, they kind of abandon that,” she says. “When I start talking to clients about their lifestyle I think they’re completely confused. We’ve had to change the dialog with those types of clients.”
In other words, clients don’t know what they don’t know.
Impey says Sandy has also reinforced the importance of disaster preparedness, and how high-net worth people will expect their insurance advisors to be more proactive in helping them protect their tangible investments going forward.
“Everyone says that you don’t realize how valuable insurance is until you’ve experienced a loss. So certainly for those who have experienced a loss, unfortunately they are going to be thinking more about it,” says Impey.