Specialty Insurance: Getting Creative With P&C

If you cater to high-net-worth clients, they have probably already made significant investments in property and casualty (P&C) insurance to protect tangible assets like property, art, yachts and antique collections. But it's worth taking some time to explore this market. Some insurance companies have gotten creative with their policies, finding new ways to protect valuable assets.

Indeed, the insurance landscape for the high-net-worth has improved over the last five years, says Charles Williamson, president of the AIG Private Client Group. "Prices are more competitive and services are getting better," he says. In particular, companies are putting teams of experts together to provide better concierge-type service and focusing more on risk prevention.

"A policyholder was on her boat at a marina when her diamond bracelet, a gift commemorating the birth of her child, fell off her wrist into the water," Williamson says. Rather than simply pay the claim, we recognized the item's sentimental value and hired a diver who successfully recovered it."

AIG teams of experts also conduct onsite residential inspections to determine how a home may be at risk, and then take measures to protect against that risk—sometimes using proprietary technology. In addition, insurers like AIG help with disaster planning. AIG's special "Wildfire Protection Unit" visits property to assess wildfire exposure. If necessary, it will spray brush on the perimeter of a policyholder's land with fire retardant. An emergency response team is immediately dispatched if a fire threatens a policyholder's home. Meanwhile, the firm's "Hurricane Protection Unit" is dispatched after a storm to make short-term structural repairs, secure art and antiques and provide electrical generators to homeowners. Further, the firm provides complimentary background checks on domestic staff members, including nannies, housekeepers, drivers, gardeners, chefs, home health workers, private financial advisors and contractors.

Even clients with antiques and collectibles worth a few thousand dollars need to consider coverage via a rider on a homeowner's insurance policy. A Civil War memorabilia collection worth $5,000, for example, may cost about $21 per year to insure. But a homeowner's policy has exclusions and deductibles, warns Janece White, assistant vice president of Chubb Group of Insurance Companies, Warren, N.J. "A specialty policy has broader coverage," adds Christiane Fischer, CEO of AXA Art Insurance Co., New York. "We have different valuations (such as), aggregate, current value and loss limit values to underwrite a specific type of collection."

The Landscape

Compensation to registered representatives and financial advisors for insurance referrals can be quite attractive. Reps with property and casualty insurance licenses share in the upfront commissions that, at AIG, can be 50 percent of the first year's premium, Williams says. They also earn trailing commissions of up to 20 basis points annually. AIG pays a referral fee of as much as 20 percent to reps who are not licensed to sell insurance. Meanwhile, some insurance agents and reps may make referrals to each other in lieu of accepting referral fees

The main players in the affluent property insurance marketplace are AIG Private Client Group and Chubb. Together these insurers recorded more than $2 billion in sales of high-net-worth coverage in 2008. Besides Chubb, AIG and AXA Art Insurance, Lloyd's of London also specializes in high-value art, antiques and collectibles. These companies issue "Inland Marine" coverage, which means they cover all types of losses—excluding acts of war, nuclear attack or government confiscation. This even covers a client who ships his or her Van Gogh back and forth between homes in New York and Palm Beach, Fla.

Insurers have professional art appraisers and experts on staff to provide advice on how to maintain, store, safeguard and ship collections. In general, if you get coverage through a specialist for an oil painting worth $2 million, your client can expect to pay $1,200 to $2,000 per year.

A mid-level collection, worth less than $200,000, is much less expensive. Whenever your clients insure valuable antiques and collectibles, they should appraise them periodically due to their price volatility. At this writing, prices were down, so clients may be able to seek premium reductions due to the lower values. White also recommends that collectors of wine, coins, stamps, memorabilia, and sports and toy collectibles get appraisals when the items are worth $10,000 to $20,000.

Appraisals should come from qualified professional appraisers. The following appraisal organizations test and certify appraisers: The American Society of Appraisers (www.appraisers.org), The Appraisers Association of America (www.appraisersassoc.org) and the International Society of Appraisers (www.isa-appraisers.org). Typically, you must provide an insurer with a schedule—an inventory of the items to be insured. The items must be valued by an appraisal, a bill of sale or statement of replacement value, based on the current market price.

Chubb takes a slightly different approach: It offers the same coverage as a standalone policy or as an endorsement on a homeowner's policy. It requires a bill of sale or appraisal for fine art worth more than $100,000 and jewels worth at least $50,000. Below these amounts, the collector needs merely to provide a list of the items and their current market value. Chubb also offers a 150 percent valuation guarantee in the event of a loss. This means that if an appraisal is not up-to-date at the time of a loss, Chubb will pay 1.5 times the value of the item listed on the schedule.