If you enjoy a luxury lifestyle, you know that building and maintaining wealth isn’t easy. A thoughtful and proactive high-net-worth insurance strategy can safeguard your assets and protect your lifestyle, while also upholding your values.
State of the Market: Luxury Asset Protection
If you own luxury properties, you’ve probably faced some steep property insurance rate increases. You’re not alone. According to a 2023 Home Insurance Pricing Report, average home insurance premiums increased by 21% nationally, and by 27% in Texas, between May 2022 and May 2023. Several factors are behind the price hikes, including general inflation and higher construction costs as well as a rise in natural disaster losses.
Inflation has cooled, but natural disaster losses may become worse. Gallagher Re says 2023 is expected to be the sixth year since 2017 with annual insured losses of more than $100 billion from natural catastrophes. The New York Times says major insurance companies are pulling out of states like California, Florida, and Louisiana as wildfires, floods, and hurricanes cause growing losses. This is particularly concerning for luxury homeowners whose homes are often located in areas that can be prone to natural disasters.
In addition to mounting natural disaster losses, affluent policyholders face increased risks due to cyber exposures. Chubb found that wealthy individuals have a higher risk of cyberattacks involving money. In fact, 30% of high-net-worth survey respondents said they fell victim to such an attack, which is twice the average for all income groups.
When you put all this together, it makes for a challenging risk management landscape.
Innovative Insurance Solutions
Although technology is creating new risk exposures in the form of cybercrime, it’s also leading to innovative insurance and asset management solutions. In 2023, advancements in generative AI earned substantial attention. Insurance and risk management tools using generative AI will continue to find new practical applications in 2024.
According to EY, many financial service organizations are already using AI in their operations and the uses continue to mature. Generative AI could help in many ways. For example, policyholders may soon have access to AI-driven insurance copilots that provide 24/7, multilingual insurance and risk management guidance, quotes and policy services.
Technology can also help high-net-worth individuals manage their risks. For example, smart leak detectors and security systems can detect potential losses immediately, and some can automatically dispatch help, accelerating loss mitigation. This is important for all properties, but it can be especially useful for vacation homes and other properties that are vacant for extended periods.
For recording and valuing home contents and collections, personal home inventory tools will become much more sophisticated with AI-driven video recognition capabilities. Likewise, AI may enable insurers to provide personalized risk management advice based on itemized declarations.
Parametric insurance has also emerged as a tool to insure against specific events, such as the occurrence of wildfire or wind. These policies pay based on occurrence, rather than damages incurred, and can fill coverage gaps that arise when traditional insurers decline or limit coverage, which is occurring more frequently with coastal and wildfire exposed properties.
Risk Solutions for Unconventional Assets
If you store significant wealth in unique assets, such as wine, art collections, vintage cars, sports memorabilia or crypto, you will need specific coverage.
Market Decipher says the collectibles market size is growing at a CAGR of 6.2% and is expected to exceed $1 trillion by 2033. The sports memorabilia market alone is expected to be worth $227.2 billion by 2032 and is growing at a CAGR of 21.8%.
Risk management strategies include custom insurance coverage as well as loss prevention techniques. Since each collection is unique, specialized knowledge is necessary.
Crypto exchange accounts are not insured by the FDIC or SIPC, so you may wonder if you can personally insure crypto coins. While you can’t insure for loss of value, insurance can be purchased to protect against the risk of crypto coin theft. You may also be able to purchase loss of access coverage to protect against the risk of losing access to your coins.
Digital assets such as NFTs are not insurable under traditional insurance as of this writing, however, they may be insurable in the future.
Global Coverage and International Trends
International travel is on the rise again, hitting 90% of pre-pandemic levels at the end of 2023, according to the World Tourism Organization.
Affluent individuals are especially likely to travel globally, whether for pleasure or for business. There are many risks involved with global travel including cancellations and health emergencies. To manage these risks, travelers should have comprehensive insurance solutions that cover emergency transportation out of the country if needed.
Wealthy globetrotters should also be aware of the risk of kidnapping and ransom. Global Risk Manager warns that these exposures are rising. Demand for kidnap and ransom insurance (which provides crisis response services as well as financial protection) is on the rise.
A Holistic Approach to Luxury Lifestyle Insurance
For high-net-worth individuals, securing insurance is about more than just mitigating financial loss: it’s also about protecting a luxury lifestyle, managing wealth and partnering with companies that share their values.
A broker who is experienced in this market can help you craft a comprehensive insurance solution to cover your unique risks and priorities. The team at Watkins Insurance Group is here to help.
