Have You Outgrown Your Insurance?

October 19, 2019

The Fourmile Canyon wildfire outside of Boulder in 2010 burned 6,181 acres and destroyed 169 homes. It resulted in $217 million in insurance claims, making it the third-costliest wildfire in Colorado history.

It also highlighted the importance of reviewing your insurance coverage on a regular basis. Nearly two-thirds of the homeowners affected by the 2010 fire were under-insured by an average of $200,000, according to a survey by United Policyholders, a consumer advocacy group.

One of the most important aspects of protecting clients’ financial well-being is making sure they have insurance tailored to their specific needs. The thing people often don’t consider is that their needs are constantly changing. They get married, have kids and buy a home. As they advance in their careers, they accumulate more wealth and assets, maybe a second home or valuable art. To be effective, their insurance has to match their current situation.

This is especially true for wealthy individuals and families, whose complexity of risk increases with their growing wealth.

A recent report from Chubb Group of Insurance Cos. found that about 75 percent of affluent consumers are not in the right insurance program. The company surveyed more than 600 independent insurance agents and brokers, many of whom said their clients are over-insured against minor threats and under-insured against major ones.

“Families with substantial assets overpay to be under-insured primarily because they fail to adjust their personal insurance program as they build wealth,” Chubb reported. “Faced with the complexity of insurance policy contracts and often reluctant to think about bad things that could happen, these families leave their insurance relatively unchanged year after year.”

Many wealthy families choose to go with mass-marketed insurance carriers offering cookie-cutter approaches that emphasize profits over policyholders. Those carriers often have limits on homeowner’s policies that don’t come close to covering the full replacement cost of the policyholder’s home and other structures.

Perhaps even more disconcerting, 40 percent of wealthy households have less than $5 million in umbrella liability coverage, including 21 percent who have none at all, according to Chubb. Umbrella coverage is a key part of an overall personal insurance program, because it kicks in when the liability coverage cap (often $500,000) in home and auto policies is reached.

Other insurance concerns for affluent families include:

• Valuable Collections. Wealthy families often hold part of their total wealth in jewelry, fine art, wine and other valuable collections. Chubb reports 86 percent of brokers said those collections are likely under-insured.
• Not-for-profit directors and officers liability. Many high net worth individuals volunteer as board members of nonprofit organizations. That creates liability risk because board members can be held liable for the actions of the organization. Chubb reports that 65 percent of brokers say their clients are likely under-insured for this risk.
• Deductibles. Many wealthy families insured by mass-marketed carriers have homeowners and auto policies with really low deductibles that increase their premiums substantially. Those families should consider how much they could pay for a loss without affecting their lifestyle.

To ensure your insurance program provides the appropriate coverage for your current needs, it’s best to do an annual review of the changes in your life. The worst time to discover that you’ve outgrown your insurance is at the time of a loss.

Mike Rosser leads the Private Client Group practice at CCIG. Reach him at Mike.Rosser@thinkccig.com or 720-212-2068.

CCIG is a Denver-area insurance brokerage with the full-service capabilities of a national brokerage. We do more than make sure you have the right policy. We also help you lower your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence. 

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