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High Stakes

Those with high net worth have personal lines business that can lead to valuable commercial, but don't let your reach exceed your grasp.



When the calls come in, it doesn’t matter if they’re about a prized collectible car, a vacation property or some newly acquired art—Cathy Coleman and the rest of the VIP team at Lloyd Sadd Insurance Brokers Ltd. are poised to act fast. A client might call en route to their cabin, eager to get a new boat in the water, and Coleman, a personal lines VIP account executive at the Edmonton-based brokerage, must ensure proper coverage before they reach the dock.

Such requests have become more common as the high net worth market grows, and they often cross lines of business as personal insurance clients seek the same white-glove treatment for commercial accounts. That crossover is a boon for business when clients are happy, but can be tricky when valuable linked services don’t meet lofty service standards.

The HNW population in Canada rose by seven per cent in 2013, according to last year’s RBC Wealth Management-Capgemini World Wealth Report. That growth has tweaked the traditional profile of a HNW individual as new Canadians and younger clients build sizable wealth. “The digital economy being what it is, you’ve got a significant number of [younger] clients who did something nifty on the web and suddenly they’re worth millions,” points out Jeremy Bowler, senior director at J.D. Power and Associates in Detroit.

But there’s more to a HNW client than a rarified level of assets. Their attitudes about service and accompanying expectations are different, too. “Their satisfaction levels [in general] aren’t higher, but lower, specifically around price,” notes Bowler.

A case in point: a J.D. Power Canadian property insurance survey found that overall satisfaction scores were actually lower for HNW homeowners—who rated an average of 749, compared to a 771 score for other respondents. Those findings, he says, “highlight the need for personal attention.”

Something to keep in mind as many affluent Canadians previously covered by the standard market have entered the HNW one in recent years. As pricing in certain areas of the standard market respond to cat events—like the 2013 floods in Calgary and Toronto—a higher tier of service gives them more for their premiums, notes Paul Johnstone, senior vice-president at Chubb Insurance Company of Canada. “The concept of ‘moving on up’ to the HNW space is really quite alive and well.”

One reason? Many who experienced losses during the 2013 cat events found that their level of assets needed more protection and service. “They found themselves without the coverage they thought they had,” says Marilyn Horrick, national vice-president at The Guarantee Company of North America, and in that case, “they might say, ‘Maybe I’m not insured with the right type of company.’ It was a difficult lesson.” She says that newer members and accompanying needs put higher expectations on the industries serving this segment, and suggests that this poses a clear question for brokers: “What do we need to do to address that?”

The Personal Lines preview

That question is a crucial one for those serving both sides of a HNW client’s insurance portfolio. Accenture’s 2012 A Path to Riches report argues that most clients in this segment prefer to work with so-called “Main Street” personal lines brokers, rather than larger shops. J.D Power survey findings crystallize that preference, suggesting that 41 percent of respondents turn to their personal lines agent or broker for commercial insurance matters, too.

And the pool of potential business owners is sizable: a 2014 Investors Group survey found that 32 percent of high net worth Canadians owned other commercial or residential properties. In a segment where personal lines premiums can run between $10,000 and $50,000, adding commercial premiums “presents this tremendous opportunity for brokers to really grow this space,” says Paul Johnstone. “Clients are looking for an engaging and rewarding customer experience.”

It works both ways. Although Lloyd Sadd is a commercial brokerage, Cathy Coleman says it handles personal business for commercial clients through its VIP department, and still gets referrals for personal lines matters via business connections.

Clients understand the distinctions, but Bowler stresses that the personal lines client-broker connection holds a great deal of weight; for one, the trust that clients put in insurance brokers exceeds that for other financial advisory roles, like bankers or investment advisors. “The more personal information I share with you, the more I have to let you know where I have risks or assets that might not be protected.”

And their experience on the personal lines side can be a preview, of sorts. If they see how a broker handles their million-dollar home or a special risk—like a jewelry or art collection—they understand the kind of tailored service they’ll get on the business side, he adds.

A loss experience also forges a specific bond. “If you’ve helped your customer through a personal lines claim and had a positive experience getting a family back on its feet, that’s something you can’t replicate in the commercial world,” says Marilyn Horrick. “They say, ‘I wouldn’t want to trust my commercial insurance anywhere else, I’ll renew with you,’ or, ‘I want to bring my commercial account your way.’”

But the crossover relationship—and accompanying business—isn’t guaranteed. Keeping HNW clients satisfied on one front can be challenging, and meeting their needs on two even more so. A slipup or even a perceived oversight means “the client won’t hesitate to bring it up with the commercial producer,” says Coleman. In a worst-case scenario, “if something goes sideways, he could consider cancelling all his insurance. I’ve seen it happen.”

Some major missteps with HNW crossover business are rooted in service. Jeremy Bowler notes that large brokerages might have extensive teams handling auto, home and commercial needs that can fragment the service experience. “Imagine that you want to place more business with that broker, but you end up getting shuttled between producers.”

An annoyance for some, but not an option at the HNW level, he says, where the satisfaction threshold is higher. Even more challenging: retaining VIP business if a brokerage partnership dissolves, he adds. Even in the most harmonious brokerage, notes Coleman, HNW clients tend to align themselves with the broker they have the most contact with, regardless or the coverage or risk issue. That can give rise to communication issues.

And, in some cases, it can be tricky to forge the kind of personal connection that creates the foundation for a long-term business relationship if an intermediary— like a lawyer or accountant or business manager—handles all of a client’s financial dealings. “In some cases, those individuals have more powerful influence than a spouse,” says Horrick.

More “broker bandwidth”

Horrick argues that from the outset, they’ll need more capability. “A broker’s bandwidth becomes a game-changer.” Most high-end clients see their insurance services as part of a larger wealth management portfolio, and the brokers who are equipped to handle “full portfolio” services outside traditional services—which might include specialized insurance coverage for niche risks like home theatres or watercraft or even wealth management—are better positioned. “Their relationship with that client is going to improve because they have more penetration into that customer’s universe.”

In Paul Johnstone’s view, having a high net worth niche within a brokerage—at a certain point—is a shrewd move.

The Accenture report highlights two gaps for such a niche to address: HNW clients tend to be both underinsured and in some regions, underserved. Underinsurance is common in this market, since many HNW clients have never called on their coverage and don’t know if the limits are adequate, says Johnstone. “Even if they fit the profile of the HNW customer, they are potentially underinsuring themselves.” That gives brokers the chance to dig deeper on core insurance services here, and they should “look at the extent and scope of coverage available and [whether] it matches up with these unique needs for insureds.”

It’s also where the right value and the right replacement cost become part of the HNW broker or insurer’s value proposition. “You can’t underwrite from within a box,” says Horrick. “You have to go out and see [the situation].” That assessment might also include specialized services, like customized appraisals, risk reports or high-tech tools like infrared water detection that can find a problem before it’s too late.

Bowler points out that continuous contact and interactions—like the reviews and assessments Horrick describes—often compound service goodwill. “The [more] frequent those interactions … the greater the value to the agency or brokerage.”

But that takes clear communication and cooperation between brokerage team members. It’s especially important, says Horrick, in cases where the personal lines premium may outstrip the commercial premium. “The financial implications can be more important on the personal lines side. [Brokers] need to be respectful on both sides. Everyone needs to respect how important that person is to the company and to the brokerage.”

For Coleman, such cooperation is essential and can also help rebuild a relationship that might go wrong on one side of the business. If one producer loses business, the producer on the other side might be able to suss out exactly what happened. “It’s that relationship building. Down the line, there could be another opportunity for the commercial producer.”

And what about retaining a relationship that only exists on paper? When a lawyer or another HNW intermediary handles a client’s financial affairs, how can a brokerage solidify the same kind of connection? Horrick advises brokers to focus on the things that will resonate with that person. “Articulate the value of what you’re offering in way that they’ll understand.”

Above all, brokers must leverage chances to cross over in the HNW segment, even if it seems prudent to stay on one side. “From a broker perspective, a bird in the hand is worth so much, especially with a HNW prospect,” notes Bowler. But clients are actually open to doing more business with someone they’ve already invested so much trust in, he points out.

Johnstone agrees. “I’ve heard [commercial] brokers say, ‘I don’t want to do personal lines because something might go wrong,” he says. That’s a misstep, he warns. “By not taking the opportunity, you’re leaving the door open for another broker.”

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Copyright 2015 Rogers Publishing Ltd. This article first appeared in the February 2015 edition of Canadian Insurance Top Broker magazine

Copyright © 2017 Transcontinental Media G.P.
Transcontinental Media G.P.