Half of 600 insurance agents and brokers surveyed say wealthy families fail to get premium credits for loss prevention systems, such as burglar alarms—credits that could save them 30 percent or more on home insurance premiums.
The agents were surveyed as part of a study by ACE Group summarized in a new whitepaper, Wealth at Risk: How High Net Worth Families Overpay to Be Underinsured, which also revealed that high-net-worth customers don’t buy enough liability coverage. In fact, 92 percent of agents report inadequate umbrella limits were purchased by wealthy customers under traditional insurance programs (not customized to the needs of this segment), even though a prior ACE study revealed that four in five wealthy families believe their riches alone make them an attractive lawsuit target.
The new ACE study essentially surveyed the independent insurance agents and brokers about new high-net-worth customers that were previously insured by a mass-market carrier—one not specializing in the high-net-worth segment. The study includes comparisons to 2010, when a similar survey was conducted, and shows that the problem of overpaying and underinsuring has worsened in most areas.
With respect to missed savings, the report says that families with fine homes, valuable collections, and luxury vehicles fail to take advantage of credits for safety systems such as burglar alarms, water leak detection, and power backup systems. For automobiles, safety systems could reduce the comprehensive premium from 5 to 20 percent. For homeowners, the credits for various loss prevention systems can reduce homeowner premium by 30 percent or more.
In terms of dollars, such percentages can add up. The report presents some case studies of wealthy couples who are paying anywhere from $11,000-$40,000 per year in total to cover their homes, cars, valuables and liability exposures.
Giving the example of one particular loss prevention measure—a leak detection system for a home which automatically shuts off water when a leak is detected—ACE notes that the real benefit is avoiding costly repairs and potential harm to individuals. Putting some numbers around the advice, the report says such a system might cost $2,500 to install and earn a 5-7 percent premium credit; a water leak could cause $130,000 of damage in 30 minutes, the report says.
More agents actually identified missed savings in the areas of package discounts and deductibles than loss prevention credits with 81 percent of agents surveyed saying that families had home and auto deductibles set too low and 62 percent reporting missed multi-policy discounts.
Drilling down on the deductible issue, the report notes that many wealthy families that buy their insurance outside of the high-net-worth specialty market carry homeowners and auto insurance policies with deductibles of $250, $500, or $1,000. “Ironically, they pay a substantial amount in premium for these low deductibles, but they don’t file a claim after a minor accident,” since many can easily afford to pay for repairs entirely out of pocket, the report says.
The choice of a higher deductible—say a $2,500 deductible versus a $500 deductible on s $1million home—would put $900 of premium back in a wealthy homeowner’s pocket. But at the same time the homeowner would risk paying an additional $2,000 ($2,500 minus $500) in the event of a loss. Still, ACE reports that a typical client only files a claim for a home once in 21 years, which means that the typical customer would rack up $18,900 in premium savings over the 21-year span by choosing the higher deductible–outweighing the additional $2,000 paid at the time of the one loss by $16,900.
In fact, the typical homeowner would come out $700 ahead even if a loss occurred in the third year, the report says.
As for the underinsurance problem, commonly underinsured risks include:
- Umbrella Liability, with 92 percent of agents reporting inadequate liability coverage.
- Uninsured/underinsured liability, with86 percent saying that high-net-worth families have inadequate protection if they suffer serious injury or damage at the hands of someone else who lacks the insurance or assets to meet his or her liability obligations.
- Valuable Collections, with 86 percent of agents reporting ineffective coverage of jewelry, art, wine and other valuable collections.
- Home Structure, with 83 percent of agents believing families have insufficient coverage of the main home and/or vacation home, even though the home structure often represents the largest component of a family’s net worth.
Comparing the 2012 and 2010 surveys, the ACE report reveals that home structure was one of the few categories that showed some improvement—with a higher percentage of agents (86 percent) reporting that item as “likely to be underinsured” in the 2010 survey. Still, when asked what area was “most likely to be underinsured,” 45 percent selected home structure, while 21 percent said umbrella liability.
Other categories identified as underinsured include workers’ compensation, employment practices liability for domestic staff, not-for-profit directors and officer liability and earthquake.
The report includes case studies and a list of questions that wealthy customers should ask to reveal if they might be underinsuring, such as whether they have made recent upgrades to their homes and whether the values of artwork and collectibles have change over the years.