Property & Casualty Coverage Is Essential Risk Management
Most high-net-worth clients who walk into Diesslin & Associates have an exposure they could cover with better property and casualty insurance, says advisor Melissa Villegas. The Fort Worth, Texas, firm doesn’t sell insurance or take commissions, but it does have extensive talks with wealthy clients in hopes they’ll get proper coverage and stop looking at insurance as a commodity.
Advisors at the firm, which manages over $723 million in assets, explain to clients how reducing premiums on homes, vehicles and businesses also reduces coverage. They also show clients how to compare carriers by cost and coverage, Villegas says.
“A lot of advisors don’t address property and casualty because of their revenue model,” she says. “They often advise strictly on AUM, or commission on life insurance. Property and casualty is outside of that scope, so it gets overlooked.” In fact, money spent on property and casualty premiums may come from assets the advisor oversees, or at the expense of life insurance the advisor otherwise might sell.
Inadequate property and casualty insurance can leave wealthy clients vulnerable to major financial losses, experts say. Physical damage to a vacation home or yacht is bad enough, but a slip-and-fall or equipment-malfunction claim at a business owner’s shop can be ruinous. Yet clients are prone to think of this insurance as an expense for unlikely events instead of protection against devastating outcomes. While some advisors may hesitate to recommend products that don’t generate financial gains for clients, they should overcome their reluctance in the interests of sound financial planning, experts say.
Advisors whose revenue model doesn’t favor property and casualty discussions might not develop relationships with insurance representatives who specialize in that coverage — as they do with life-insurance reps, for example. The lack of familiarity with these services hinders understanding, according to David J. Byrne IV, a risk-management advisor with Starkweather & Shepley Insurance Brokerage in East Providence, R.I. The frequency of high-stakes lawsuits ought to encourage FAs to seek better ties with property and casualty reps, he says. Byrne hasn’t forged ties with many FAs, even though he’s been operating for eight years.
Advisors versed in property and casualty insurance must determine how to initiate talks. It’s best to begin with a question, according to Kevin Meehan. He’s regional president in Itasca, Ill., with the Wealth Enhancement Group, which manages $4.5 billion. First, he asks clients which provider they use for home, automobile and “umbrella” liability coverage, which goes beyond other coverage the client holds. Depending on the answer, he may then ask how actively the client shops around or reviews policies to ensure coverage is current, since new possessions can require new coverage. Finally, Meehan might ask to review the client’s basic policy documents and suggest the client get a second opinion on the appropriateness of coverage.
Clients who’ve already experienced litigation, or were born into wealth, know the value of insurance, Meehan says. But others may assume basic protection on property and businesses is sufficient, without factoring in how much their accumulated assets are worth. Generally, the more they’re worth, the more vulnerable they are to damages.
“We’re trying to address whether this is a risk they want to keep or can afford to keep, or it’s a risk to shift to an insurance company,” Meehan says. “When you phrase it that way, people are less likely to put up resistance.”
It might help advisors to get acquainted with property and casualty reps, but it can be troublesome for clients to befriend insurance people. Advisor Mark La Spisa recalls a client who refused to switch his umbrella coverage — which the advisor deemed insufficient — because the client’s insurance rep was also the client’s dog walker and next-door neighbor. La Spisa is president of Vermillion Financial Advisors in South Barrington, Ill., which manages $123 million.
Even where clients don’t have conflicts, agents sometimes do, he warns. Captive agents who work for Allstate or State Farm can’t discuss higher-end policies from Aon or Chubb. And although brokers are free to pick across providers, if the broker specializes in life insurance while selling property and casualty on the side, that’s not top-tier expertise. “I don’t have a horse in the race, but I have to be respectful when suggesting they switch agents,” La Spisa says. “I make it clear that it’s a decision the client must make.”