Rich often neglect personal-lines insurance, experts say

NEW YORK — The rich are different, and so are their insurance needs, but many wealthy people may be leaving themselves unprotected, according to personal-lines-property-casualty-insurance specialists.
“This is not your father’s homeowners insurance,” Gregory Niccolai, a managing partner for Madison Insurance Inc. in Morristown, N.J., said of personal-lines insurance for “upscale lifestyles.” Madison works with about 25 advisory firms to make sure their mutual clients’ property-casualty risk management programs are on par with the clients’ financial plans.
For instance, employing domestic servants creates several serious loss exposures, Mr. Niccolai noted.
The servants can sue the client for sexual harassment, discrimination or wrongful termination, or injure themselves and demand medical benefits. Mr. Niccolai recommends employment-practices-liability insurance with a minimum $1 million limit, as well as workers’ compensation coverage.
Many rich people like to party, and canceling an extravagant bash can cost clients a small fortune, noted Robert Nuccio, chief executive of R.V. Nuccio & Associates Inc. in Toluca Lake, Calif. The firm provides coverage for canceled engagement, birthday and anniversary parties, as well as for weddings and bar/bat mitzvahs.
“Many people don’t realize that the deposits they put down on food, flowers, photographers and the like are totally non-refundable,” Mr. Nuccio said. The caterer gets paid whether the bride shows up or not, he added.
Hazards of wealth
Rich people and their family members are more likely to be kidnapped, especially if they travel frequently overseas, Mr. Niccolai said. Coverage that will pay the ransom and the costs of negotiating with the kidnappers is available, he noted, as are travel advisory services that warn about international danger hot spots.
“I had a high-net-worth client who went to Argentina on a hunting trip who was worried about kidnapping,” Mr. Niccolai said. He told the client about a common scam in that country involving impostor limousine drivers who try to pick up wealthy Americans, which he learned about from insurer-provided risk management materials.
Home invasions are another concern for the wealthy, noted Mark Schussel, a spokesman for the Chubb Group of Insurance Companies, a Warren, N.J.-based insurer that offers personal insurance to the high-net-worth market. Chubb’s policy provides up to $300,000 in psychological counseling, temporary additional living costs and additional security to thwart repeat invasions.
American International Group Inc. in New York also provides home-invasion coverage.
Other insurers that specialize in personal insurance for the rich include Atlantic Mutual Insurance Co., Fireman’s Fund Insurance Co. and The Travelers Cos. Inc.
AIG last month introduced enhancements to its homeowners policy that cover up to $100,000 for loss from embezzlement by fiduciaries such as financial advisers, as well as loss from unauthorized withdrawals from bank, investment and retirement accounts, and donations by unsuspecting clients to fraudulent charities, Mr. Niccolai said. The enhancements also cover up to $250,000 for the breakdown of in-ground-pool filtration and pumping systems.
Separate policies must often be purchased to insure wealthy clients’ yachts and aircraft, as well as their collections of fine art, vintage automobiles, wine, and other high-value items, Mr. Niccolai added. Individual collection items over $250,000 should be appraised to avoid future claim disputes, he noted.
Carry an umbrella
A key coverage shortfall for the rich is having inadequate or no umbrella liability — which provides additional coverage above other policies’ liability limits — Mr. Niccolai said. Wealthy people’s assets make them targets of liability lawsuits, so this insurance is crucial, he noted.
The minimum limit is usually $5 million, with many wealthy clients opting for limits of $50 million or more, Mr. Niccolai added. “All of the clients’ properties — including the Palm Beach [Fla.] home, the villa in Italy and the ski home — must be listed on the umbrella or there will be no coverage for accidents that occur there,” he said.
“Also, wealthy clients often serve on the boards of condominiums and other non-profits — we make certain those organizations have directors and officers insurance to cover the client if the organization is sued,” Mr. Niccolai said.