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HUB International 2021 Outlook

High Net Worth

 

Transforming Uncertainty into Opportunity

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Catastrophic Claims Threaten Lifestyle and Legacy

High net worth families must address wide-ranging risks from natural disasters, rising home replacement values and cyber crime.

There’s more to lose than ever before.

It’s not uncommon for high net worth individuals (HNW) to have multiple properties in desirable, but high-loss locations.

Sub-Zero refrigerators and European textiles mean higher labor and material costs when rebuilding after a hurricane or fire. Homes and cars are more costly to replace than they were a decade ago. Combined with a rise in catastrophic (CAT) claims due to increasingly severe weather events across the country, homeowner's and auto insurance rates have risen significantly.

“Comprehensive insurance coverage needs to be top of mind ahead of a new home purchase.”

In the last two decades, the frequency of $1 billion+ dollar weather and climate events in the U.S. have more than doubled and wildfire season is now year-round in California. For many properties, this could mean a 30% across-the-board policy rate increase. For homes in high-loss areas, this number could be even greater.

The days of buying a home and then calling one’s insurance broker to run a quote are gone. Instead, comprehensive insurance coverage needs to be top of mind ahead of a new home purchase. In fact, more HNW homeowners are reaching out to their insurance advisor before signing a contract. If insurance coverage is cost prohibitive or unavailable, many are even prepared to walk away from the deal.

Here is more on the current state of the HNW individual and family office insurance market and how it will be further impacted through 2021.

“CAT claims have led homeowner’s insurance costs to rise beyond what has previously been seen.”

“Reaching out to an insurance broker ahead of property renewals is critical to reducing risk and preserving the bottom line.”

1. Catastrophic claims continue to increase premiums.

According to the National Academy of Sciences, the severity of global weather-related events, like hurricanes, is increasing due to global warming. Every time there’s a catastrophic or CAT event — a hurricane, wildfire, major wind or storm — homes are adversely impacted. If the CAT-affected home is a second property that’s unattended for longer periods of time due to the COVID-19 pandemic, additional losses may ensue as well.

CAT claims on HNW homes have led homeowner’s insurance costs to rise beyond what has previously been seen. More comprehensive policies further contribute to this inflation. For example, many policies include additional living expense (ALE) which provides coverage for the additional costs of living if temporarily displaced due to a loss.

In other cases where costs have risen beyond what is economically feasible or capacity in a specific geography is of concern, insurance carriers are simply not renewing coverage, or worse — they’re opting out of the homeowner’s insurance market, in a state, all together. HNW homeowners will want to think twice before purchasing a property on the coasts, in California or Midwest/Plains high-loss areas. Reaching out to an insurance broker ahead of property renewals, or prior to purchasing additional property, is critical to reducing risk and preserving the bottom line. A HUB advisor will help HNW individuals understand the potential total cost of ownership for the desired property. This discussion covers replacement costs and the preventive safeguards needed to reduce risk and earn favorable coverage, pricing and limits – all specific to the area in which the HNW individual is looking to purchase a home.

The frequency of $1 billion+ dollar weather and climate events in the U.S. have more than doubled.

“It is critical for the insurance broker to evaluate alternative coverage options and counsel on risk management strategies. ”

2. Growing number of HNW individuals are no longer able to insure to value.

As more insurance companies challenge renewals and it becomes harder to place new coverage for the same limits, some HNW homeowners are opting to renew coverage for less than the value of the property. While not recommended, for many it may be the only viable option.

This is an unprecedented dilemma for the insurance industry and the HNW homeowner. It is critical for the insurance broker to evaluate alternative coverage options and counsel on risk management strategies.

“More than a quarter of international HNW individuals, family offices and family businesses with an average of $1.1B in assets have been targeted by a cyber-attack.”

3. HNW and Family Office Remain a Popular Target for Cybercriminals.

HNW individuals and their families are often in the public eye. The problem often starts with their Millennial or Gen Z children who may have a social media presence that can expose them -- and their parents -- to real threats. Because personal information on social media is more accessible to the masses than ever before, more than a quarter of international HNW individuals, family offices and family businesses with hundreds of millions and even billions in assets have been targeted by a cyber-attack. Through phishing, malware and social engineering, cyber criminals are searching for bank and investment information, personal emails, SSN, DOB, passport number and even personal photos and videos.

Cyber insurance could be a sensible purchase to aid in post-breach response and covers any defense costs that arise out of litigation based on a breach. It may also provide training and risk mitigation for the family in an effort to prevent a breach scenario.

Comprehensive insurance coverage needs to be top of mind ahead of a new home purchase.

4. Travel Coverage Still Critical for HNW Individuals and Families.

Traveling both for business and personal interest can present multiple risks. In addition to trip insurance to help defray the costs of a planned trip not taken, HNW individuals need to consider additional services, such as security sweeps, background checks on personnel, and pre-arranged evacuation services – all set in advance of the travel date.

2021 Growth and Beyond

There’s no doubt that seeking alternative options and opportunities when it comes to safeguarding family and valuable assets will be key to surviving this unique period. For the HNW individual and their family, this will require working alongside your HUB broker to determine your options — both for your most immediate, upcoming renewal and your long-term risk management plan.

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