New millionaires leave themselves exposed

In Jane Austen’s time, a man in possession of a good fortune may have been in want of a wife, but in today’s day and age it seems that correct insurance is what he is most in need of.

Unfortunately, the vast majority of South Africans who have moved into the high net worth individual (HNWI) category over the last few years have left themselves massively exposed to financial loss as a result of failing to insure their assets correctly.

That is the view of Clint Harker, Head of Insurance at Pinion Insurance Brokers (Pinion) – who says that while underinsurance has always been a problem in the high net worth market, the rapid increase in the asset bases of tens of thousands of South Africans has exacerbated the problem further.

In the five years between 2002 and 2009, the number of home-grown dollar millionaires in South Africa has more than doubled from 25 000 to over 50 000. There has also been a huge increase in the number of South Africans worth at least R1 million. “This increase in wealth has been accompanied by the purchase of a lot of expensive new toys such as cars, boats, planes and audiovisual equipment which are either underinsured or not insured at all.”

Harker says that unlike most of the population, for whom ordinary vanilla insurance products are sufficient, HNWI’s often require personalised insurance solutions to cater for their varied asset bases. “While many of these individuals recognise the need to use the services of private bankers and wealth management experts, they fail to see the risks involved of not engaging with highly skilled short-term insurance brokers, who understand how to provide the best possible solutions for their needs.”

These needs could include asset all risk cover, for which it is not required to specify each and every item. They could also include pet cover or letting cover for people renting out their properties for the 2010 FIFA World Cup.

He says that as their situations change so rapidly, it is crucial for HNWI’s to remain in close contact with their broker.

“It is equally important, however, that a wealthy client values the service a broker offers. Brokers are there to get the right deal for clients but they need all the facts to do so. Meeting with a broker can sometimes be viewed as an inconvenience, especially for those that are ‘cash rich time poor’, yet it is crucial that high net worth clients ensure they put the time aside to speak to their broker, preferably at least once a year. Insurance coverage should be adjusted in line with changing needs, and a broker needs to be aware of these in order to make sure a policy is fully up-to-date.”

He says that while it may be simpler and easier to roll over an existing insurance policy, it is only by constantly reviewing what your insurance actually covers that mistakes are avoided.

Harker says that because HNWI’s have a tendency to underestimate the value of their assets, particularly on a replacement basis, it is important for a broker to provide an Asset Inventory service to clients to ensure that their insurance is adequate for their needs and that their coverage is correct.

He says that because HNWI’s are accustomed to receiving high service levels, it is important that they are able to engage with a broker who guarantees not only their own service levels, but also those of various third party service providers such as underwriters, panel beaters and assessors.