High-net-worth (HNW) individuals are facing significant challenges in three key areas: wildfires, hurricanes and cyber attacks.
These macro issues are driving change within the insurance industry; each come with unique concerns. With the right guidance and proactive mitigation strategies, HNW individuals can navigate the hurdles of the evolving insurance market.
Wildfires Threatens Property and Insurance
Wildfire “season” is now a near-year-round phenomenon, devastating communities from the American Rockies to the West coast. Climate change, along with lack of a proactive forestry management strategy, is intensifying the impact of wildfires, making it difficult for carriers to predict risk. Carrier appetite to write Property policies in wildfire-prone CAT zones has diminished in recent years.
The area most prominently affected by this overall trend is California, especially Southern California. Due to frequent and severe wildfire-related losses, many carriers have limited their exposure in the region–either by greatly reducing coverage limits or exiting the market altogether. With dwindling capacity, carriers have tightened underwriting guidelines, dramatically increased pricing and pushed more business into the non-admitted market where they believe there is more flexibility to react to the current market conditions. The lack of available markets, both admitted and non-admitted, continues to put more stress on the California Fair Plan, the state-run program of last resort, which already has limitations from a coverage and total limits standpoint.
Currently in California, there is one carrier insuring more generously, but many experts question whether their broad underwriting is sustainable given the high risk and near guarantee of continued wildfire loss.
To demonstrate to underwriters that they are a higher quality risk, and to prevent damage as much as possible in the event of a fire, HNW individuals in CAT zones mitigate losses through the following techniques:
- Treat homes and decks with wildfire protection pretreatment
- Clear brush on the property
- Use metal instead of wood fencing when possible
- Cut trees, branches, and vegetation back from the home’s perimeter
- Regularly clean and clear roof and gutters
- Use/install tempered glass for windows
- Ensure the roof has a Class A fire rating
- Work with loss prevention experts, engineers, and risk advisors to receive tailored recommendations
Hurricane Preparation and Considerations
Hurricane season ravishes communities coast from June through November. Properties along the US Atlantic Coast, Gulf Coast or the Caribbean are at high risk of being impacted by a severe storm. In contrast to wildfire regions, property coverage is still available in hurricane-prone zones–though premiums and rates remain high. The higher pricing has attracted new carriers into the space, but if extreme hurricanes and large payouts continue, capacity could restrict.
The best way to mitigate risk is to make a preparation plan and take extensive measures to protect your home. Hurricane damage preparation efforts include:
- Install storm shutters/impact glass over all exterior openings, including garage doors, entry doors, windows and skylights
- Identify and seal any potential leaks
- Trim back trees and landscaping that is close to your property
- Remove loose tree branches, outdoor furniture, gardening equipment and anything around the home that could potentially become a projectile and damage your home
- Regularly maintain roof and storm drains
- Safely shut down equipment, fuel supplies, and utilities in advance of a storm
- Consistently update homes’ exterior and utilities. Underwriters are looking more closely than ever at the age of a home and the condition/age of the roof, especially in CAT zones
Your broker can put you in touch with loss prevention experts and risk advisors that can assess your property and recommend actions. As an additional measure, homeowners nationwide should secure flood insurance, in hurricane-prone regions. Traditional homeowner’s insurance will not cover floods and flood zones are expanding with changes in weather systems. FEMA’s slow pace in updating its flood maps means homeowners could be at risk of flooding and not know it.
As they seek coverage, it is important for HNW individuals to understand that carriers are more likely to underwrite a property risk in a CAT zone if the portfolio also includes properties in non-CAT zones. For example, a property owner on the hurricane-prone Florida coast will have an easier time securing coverage if that risk is balanced with another property in lower-exposure Michigan.
Cyber Attacks on HNW Individuals
Cyber attacks are a growing problem with no end in sight. HNW individuals are frequent targets of identity theft, phishing, extortion, and illegal collection of private data. Currently, cyber coverage is offered as an extension of a homeowners’ insurance policy. Standalone cyber policies for individuals are still relatively new, but they are expected to grow in popularity and availability in the coming years.
It is crucial for individuals to take all necessary steps to protect themselves from cyber threats, including:
- Multi-factor authentication
- Updating systems frequently
- Implementing firewalls
- Deploying threat detection software
- Strengthening passwords
Your broker can help you get in front of the threat by putting you in touch with experts that will make sure that you have all the proper protocols and security measures in place.
Protection in Uncertain Times
Though wildfires, hurricanes, and climate change are the top issues driving dynamic change within private client/HNW individual insurance, many more challenges loom. Climate change and socioeconomic factors are making it more difficult for carriers to predict risk, which significantly impacts coverage availability and affordability within the private client market.
The right specialty broker and advisor can help HNW individuals navigate insurance issues and secure proper protection despite uncertainties.
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Connect with the Risk Strategies Private Client Services team at privateclient@risk-strategies.com.
Email me directly at amurphy@risk-strategies.com.
