Family offices are growing in number and wealth with every passing year. But as they become both more numerous and wealthier, it is not just their good fortune that is growing. High Net Worth Individuals (HNWIs) and their family offices are struggling to find succession and inheritance planning solutions that allow them, and their successors, to live their self-determined lives. The right insurance policies will help HNW+ families mitigate risks and build and enjoy generational wealth in a way that suits them.
Wealthy families across the world are getting richer. Globally, 79 percent of ultra-high-net-worth families saw their wealth increase over the past two years, while 86 percent of those in North America reported the same. Of course, this is a cause for celebration, but more money could also equate to more problems without careful consideration.
A growing number of risks threaten the assets of the wealthy, from cybersecurity to social inflation. One of the ways HNW+ families are ensuring their properties, businesses and other assets are being managed according to their wishes is through a family office vehicle. Even so, it is still important for them to find ways to create liquidity and protect their wealth from excessive IHT contributions, for example.
Meeting their niche requirements
For the average person or SME business owner, finding the right insurance policy is a minor inconvenience at best. Typically, a coverage level of 10-15 times your annual income is recommended as sufficient. However, those who own or have a large stake in a multi-million-euro business will find that most insurers cannot meet their needs. If a family office also has high-value assets, such as a multi-million-euro business, large family estate, fine art or racehorses, for example, a generic policy is unlikely to offer the right level of cover.
HNWIs and UHNWIs cannot simply visit a comparison website or call the first broker they find and take out a suitable policy for their bespoke needs. There are a number of factors further complicating their quest for the right insurance.
- Requiring a level of cover that exceeds a typical provider’s limit
- Owning rare assets that are difficult for a retail insurer to accurately appraise and cover
- Needing to create liquidity for inheritance purposes or to prepare their business for a transition in ownership
Insurance policies are a simple way to offer HNW+ families the solutions they are looking for on their unique terms. But what is holding them back?
Overcoming a culture of distrust
While wealthy people are concerned that they do not have the right insurance policies in place, many have a deep-seated mistrust of the insurance industry as a whole. A survey conducted by Chubb found that six in 10 (62 percent) of HNWIs believe the insurance industry is primarily concerned with hitting corporate targets. However, just 30 percent look for an insurer or broker with expertise in high-net-worth insurance and fewer than 20 percent buy policies from a specialist broker.
There are a number of reasons why well-resourced people need to seek specialist advice. 54 percent of HNWIs are worried they are currently underinsured or that the insurance policies they are looking into are inadequate for their needs. Furthermore, many HNWIs are time poor and almost six in ten stress the importance of simplicity in their insurance solutions.
Understanding the lifestyle of HNWIs
The average person’s concerns will differ greatly from those of the ultra-wealthy. If insurers are going to offer tailored policies that are genuinely fit for purpose, they need to appreciate and genuinely understand what their clients both want and need. Jo Nixon, Continental Manager of Personal Risk Services at Chubb, explained:
“Insurance providers need to consistently exceed expectations with a highly personalised solution, informed by in-depth knowledge of HNWIs’ lifestyles, that adapts seamlessly to any change in circumstances.”
Wealthy families are increasingly turning to the family office model as a vehicle to preserve and protect their most precious collective assets. PwC’s US Private Wealth Leader, Brittney Saks, notes that “professionalisation is an emerging trend with wealthy families and their family offices”. By creating a more formal structure to house their liquid and illiquid assets, HNWIs and UHNWIs will find it much simpler to pass them on to the next generation.
Using life insurance to preserve and create wealth
Even though well-resourced people may be sceptical of the insurance industry, they recognise the power that a tailored policy holds in the most important circumstances. When it comes to a topic like succession, EY and AIA discovered that 72% of HNWIs believe insurance plays a significant role in creating and preserving wealth, explaining that:
“Life insurance instils tranquillity in turbulent times by providing liquidity to maintain current lifestyles.”
One common factor with wealthy business owners is that they are keen to constantly assess their level of coverage and ensure it is still suitable. EY found that 44% of global HNWIs regularly revaluate their businesses, meaning tailored and responsive insurance solutions and knowledgeable providers are incredibly important.
In some markets, well-resourced individuals are already keenly aware of the benefits insurance policies bring. It is thought that up to 75% of HNWIs across the Asia-Pacific region are using, or are planning to use, life insurance in their succession planning. They understand that strategic life insurance policies in their personal and professional legacy planning efforts can protect their families’ lifestyles.
Bespoke solutions for HNW+ families
Tailored products such as Swiss Life Generations, which have been created by experts in private wealth planning, will ensure even the most capital-rich family offices have a sufficient level of cover. They can smooth over inevitable transfers of power and wealth, and ensure there is enough liquidity to allow the family to continue investing for their self-determined lives.
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