The Client Experience
I’m sure many of your high-net-worth clients recall growing up with their cherished toys. Maybe it was a miniature car that they rolled around the rug, imagining life at the Indy 500. They loved that toy car, and cried loud and long when it broke.  But no big deal—dad just went out and replaced it. No harm, no foul.  Then it was off to the races again.

But times change, finances change, and many years later that favorite toy is a Mercedes-Benz SLS AMG.  And if some bad fate befalls it, trust me, a simple trip down to the local department store is not going to make things better, especially if someone else is injured.  Does the car owner have the ability to make someone else whole for his or her pain and suffering?  All of a sudden, the liability associated with the broken toy puts the owner’s wealth at risk.

Whether it’s their expensive cars, big houses or fancy yachts, your high-net-worth clients have tremendous liability exposure, probably more than they are aware of. Their local insurance agent, who probably makes far less money per year and can’t grasp the magnitude of the client’s potential loss, may not realize it. Most likely, neither do the large insurance companies that try to shoehorn wealthy individuals into a one-size-fits-all umbrella policy.

I recently met with a client in Connecticut who had a local agent—someone he worked with for more than 20 years—who talked him out of getting a high-limit umbrella policy because he felt it would be too expensive. The problem was, the client really needed it. And for the $20 million in coverage, the cost was only $5,121 per year. This seemed like a burdensome amount to the agent, as it came out to about 6.4% of the agent’s $80,000 annual income. However, the client has made over $13 million per year for the past five years, so the premium amounted to only .039% of his annual income.

It isn’t that the agent was doing a bad job. He simply didn’t understand that what he perceived as an expensive purchase was literally a drop in the ocean to his more affluent client.

This is not to say you have to be wealthy to properly design an insurance portfolio for affluent clients. But you have to at least put yourself in their high-priced shoes. You have to be conscious of everything in their financial universe, from the high-priced objects in their garage to the family situation under their roof. Forget the phone calls, the texting and the e-mails. Go out and meet with clients on their home turf, no matter where they are located. That’s the only way to measure and understand the world they live in.

In another example, we met with a new client in Georgia with a net worth of more than $50 million. The client has two teenagers driving to school every day with a total of $500,000 in liability on the cars and a $5,000,000 umbrella policy.  In addition, the client frequently allows full-time employees to travel to and from school to pick up their younger children.  The full-time housekeeper is also using the family’s vehicle to go grocery shopping.  It amounted to a perfect storm of liabilities for the client, who was obviously given coverage advice that was not well thought out. His insurance policy, for example, covered neither the worker’s compensation exposure nor the auto liability exposure of the employee using the vehicles. 

What the client needed was a risk manager that could consult with him, his family and his trusted advisors to develop a comprehensive plan that considered all his liabilities.  Instead, he used an agent who was a friend from his college days.

Advisors need to be aware that insurance carriers are all unique companies; while one company may cover a loss, another may not.  Understanding these coverage gaps is a full-time job and understanding the difference between the carriers is absolutely crucial to securing proper coverage. For example, we have a client who has a group liability policy with one carrier and underlying coverage for his yacht with another.  The client often hires a captain when the yacht is used for events, but these events are not covered by the group liability policy. This means the client has no protection against a large claim arising from anything that happens while the captain is on the boat. Uncovering holes such as this is critical, and the reason why clients need a risk advisor.

Affluent individuals often have a bull’s-eye on their back. The people with all the toys will always be a liability magnet. The risk manager’s responsibility is to help ensure there is enough coverage in place to keep these types of clients from losing what they worked so hard to create.

So how do high-net-worth individuals end up being under-insured by their agents?  It stems from the frantic pace of their everyday lives.  Many have enormous responsibilities, which means early mornings and late evenings. Taking care of personal insurance becomes secondary—until they really need it. But by then, it may be too late to get the right coverage.
What are some signs that your clients may be underinsured and unable to weather a liability event? Here are some red flags:

1. A client has an excess liability policy but doesn’t remember the name of the carrier.
2. The client doesn’t remember the last time he discussed liability insurance with an agent or advisor.
3. The client uses a captive agent.
4. The client owns a home outside of the U.S.
5. The client does not know how much coverage he currently has.
6. The client employs full- or part-time staff.
7. The client has one carrier for underlying liability and another carrier for excess liability.
8. The client has more than one insurance agent.

Why is liability insurance so important? In a worst-case scenario, a judgment could wipe out a client’s entire net worth. In a forced liquidation, it is not uncommon to get 10 cents to 30 cents on the dollar, which means a client may have to liquidate $75 million of actual assets to raise $20 million. But for $5,121 per year, the client could have secured $20 million in coverage in the form of an excess liability policy.

In the end, it all comes down to math and empowering a client to make a financial choice. Ask your high-net-worth clients to stop and look around at what they have acquired. Then ask them to imagine their lives without it.  These first few steps go a long way toward making sure your clients are covered for any situation.

Timothy D. Radcliff is the CEO of Private Client Insurance (, an insurance agency dedicated to the personal insurance needs of high-net-worth individuals and families.  He can be reached at or 301.245.0130.