High-net-worth insurance has undergone a fundamental shift as the complexity of global lifestyles and assets outpace traditional risk models, according to Celia Santana (pictured), president and CEO of the Personal Risk Management Solutions, LLC and president-elect of the Private Risk Management Association.
“The wealthiest people, they're always the ones with the biggest balance sheets. They're always trying new things, acquiring assets in vulnerable areas that are vulnerable to risk, identifying trends and opportunities, adjusting their lifestyles,” she said.
For decades, the industry tried to keep up, but the stakes have changed. “What is new is, you know, the industry's been unprofitable due to a variety of reasons – catastrophe risk, for example,” Santana said. “So what's different is these insurers are making tough choices about their capacity, right? So they can remain stable. So you have these very successful people in a position where they have less options. Their costs have increased exponentially. Some of them are in a position where there's no insurer that will accept the risk.”
Santana pointed to a recent survey by her association indicating that “20 percent of these clients have struggled to get insurance. And in vulnerable areas, that's as high as 30 percent.” The traditional model of catering to affluent clients is breaking down. “These people are catered to, and they're finding themselves in a position where maybe they have high deductibles, limited coverages. It's not what they want,” she said.
The response from her firm was to double down on client education, teaching clients how to present themselves more favorably to insurers and to understand the pros and cons of their actions from an insurer's perspective. “The amount of time that we're spending educating them has really increased,” she said.
Santana urges clients to contact her before making significant decisions, such as property purchases or renovations, because the wrong move could make coverage impossible. “I have a client in Colorado in a multimillion-dollar home with a very old roof that is extremely flammable. And so the insurance company wanted him to replace the roof, and we had a conversation about it. This client ended up deciding to sell the house. He ended up buying a new, multimillion-dollar house with new construction and eliminated those issues,” she said.
The challenge of managing risk is compounded by the sheer variety and frequency of changes in high-net-worth lifestyles. “You have to build a relationship, there has to be trust, they have to know that you're their advocate. They have to know that insurance is complicated and they need to know when to call you,” Santana said. She described scenarios ranging from shipping Ferraris to luxury events in Switzerland to managing fine art acquisitions and yacht contracts. “Almost every day I'm getting a question I haven't gotten before and I have to research to find the answer to,” she said.
Santana said that “88% of these people are concerned about cyber attacks and 28% of them have actually experienced a cyber event. So whether that's identity theft or fraud, or breach, or something like that. Sixty-seven percent of them are concerned about weather risk, and 60 percent of them are concerned about lawsuits.”*
The legal environment has become harsher, with “nuclear verdicts” and rising settlement amounts, while post-pandemic juries show less sympathy for the wealthy. “We see in our office two-thirds of clients that are coming to us, either, they don't have coverage for, proper coverage for a lawsuit. Or they have very minimal coverage for a lawsuit,” she said.
Cyber risk, in particular, is a moving target. “Sometimes they do, sometimes they don't, because this is an emerging industry. Literally, there are companies that all they do is help you put yourself back together after a situation like this. So it depends,” Santana said, describing how insurers sometimes relied on third-party specialists to handle cyber claims. “If the volume of activity is such that they have to create their own team to do it, then they will. So I would say in this particular area, it's still developing.”
The role of wealth advisors and family offices has grown as insurance has become more complex and less accessible. “Over time, these people, they upgrade their investment advice,” Santana said. “They upgrade their legal advice. They upgrade their accounting advice. They upgrade their medical advice. The insurance stays at the bottom of the list. Just people, nobody wants to focus on this.”
Yet, as options shrink and risks multiply, clients turn to their advisors for help. “The combination of those two things has caused these clients to really rely on their wealth managers and their family offices to be more involved. Because this is a real headache for them,” she said.
Santana works closely with these professionals, noting, “There was an Oliver Wyman study done not too long ago that showed that less than 30% of successful individuals have ever had a professional insurance review. And that 80% of them want their financial advisor or family office to quarterback this for them.” She saw insurance brokers as doing the “heavy lifting with the analysis and the placement and the advice around how to look at that.”
*[Editor’s note: These statistics are based on a survey cited by the interviewee and have not been independently verified.]
