Ask The Expert: Article

Q: How should insurance carriers think about developing an acquisition strategy to attract high net worth individuals?
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The high net worth personal lines market is top of mind for a number of insurance carriers.  Since the end of the Great Recession in 2008, the insurance market for high net worth (HNW) individuals has rebounded, averaging a near double-digit annual growth rate with premiums climbing toward $40 billion.  At the same time, ACE’s 2015 acquisition of Fireman’s Fund Personal Lines and 2016 acquisition of Chubb has created competitive space for new entrants such as Cincinnati Insurance and Berkley, alongside legacy players such as AIG Private Client Group and PURE.  Widespread speculation that additional players – like Ironshore, QBE, National General, and Travelers – are eyeing the market raises the stakes for companies seeking to enter this lucrative marketplace in the right way.

However, customer acquisition in the HNW market is significantly more complex than in the mass market and not for the faint of heart.  (The same may be said of running HNW operations, but this Ask the Expert will focus on customer acquisition rather than operational enablement.)  Every carrier understands that HNW prospects and customers will behave differently than mass market or even mass affluent clients, but new entrants may not yet appreciate the need for sub-segmentation, the multiple value propositions required for success, and the nuances of HNW marketing.  This brief memo explores some of the idiosyncrasies of this market that a strategy for serving this population must recognize, even embrace.

Sub-segmentation

HNW individuals are often viewed as a segment, but of course there are segments within the segment since not all HNW individuals are the same.  Carriers must distinguish meaningfully between sub-segments and develop sub-segment-targeted value propositions, marketing tactics, and distribution models.

One key dimension for sub-segmentation is the financial wherewithal of the potential client.  On this dimension, we have learned that net worth is a better distinguishing attribute than investable assets or income because it more reliably predicts differences in behavior and attitudes.  For example, there are important inflection points at $250K of net worth and then again at $2.5M of net worth in the trade-offs consumers are willing to make between price and coverage quality.  Channel preference varies similarly, with substantial upticks at each of these thresholds in the preference for advisor assistance relative to online shopping.  At $100M of net worth, which is sometimes regarded as the point at which a single-family office may be cost-justified, purchasing behaviors are radically different because insurance decision-making is often delegated to a staff member.  Carriers concerned that net worth is less actionable because it is difficult to ascertain may use home replacement cost as a proxy that is highly relevant for underwriting, though threshold definitions must vary by geography given variance in real estate markets.

Another key dimension for sub-segmentation is behavioral.  One of the most actionable behavioral sub-segmentations categorizes prospective customers in terms of how well-informed they are about insurance and how well-covered they are by premium insurance.  In this schema, under-insured customers are either “Risk Accepters” who are informed about insurance risks but have opted to economize on coverages due to price sensitivity or skepticism about the ultimate value of insurance, or “Blissfully Ignorant” prospects who are less engaged with insurance and less educated about coverage gaps and pricing.  Premium-insured customers, on the other hand, are either “Wealth Preservers” who understand insurance and affirmatively choose to prioritize asset protection through insurance, or “Delegators” who tend to delegate insurance decision-making to a broker or other advisor that they expect to select a top-of-the-line product.  These behavioral segments (described in greater detail in Figure 1) require very different approaches to value proposition development, marketing, and distribution.

    

Multiple value propositions

The complexity of the HNW marketplace is driven not only by the existence of sub-segments that each require different approaches, but also by the role of brokers and centers of influence (“COIs”).  To win in this space, carriers need three layers of value propositions: for consumers, for brokers, and for COIs (see schematic in Figure 2).

Consumers: value propositions must align with the sub-segmentation addressed above.  For example, for customers with a net worth of $1-5M who are price-aware, “fair” premium discounts or rebates based on favorable behavior (such as claims-free periods, low mileage, presence of home security system) are important features.  For an ultra-HNW client focused on wealth preservation, by contrast, the quality of the risk diagnostic, premium coverage features, customer experience, and claims handling will be paramount.  As a result of these differences, and given that HNW individuals express a strong desire for product choice, advantaged value propositions may include a more robust, higher-priced option and a lighter, more cost-efficient option at each level of coverage.  Beyond price and coverage, the customer experience can differ meaningfully in both the claims experience, which is of course the ultimate “moment of truth” by which HNW customers assess a carrier, and the more routine touchpoints.  Commonly cited customer experience complaints among HNW individuals include, for example, excessive amounts of mailings, separate invoices, unsynchronized renewal cycles, and unnecessarily hard-to-understand language.

Brokers: Broker value propositions are essential because HNW individuals are substantially more likely than mass market consumers to rely on guidance from brokers.  In developing value propositions for brokers, carriers must understand the differing wants, needs, and priorities of various types of brokers, e.g., boutique vs. mid-tier vs. national.  For example, boutique brokers are more likely to prioritize ease, comp rater participation, and price, while national brokers are more focused on carrier appetites, underwriter relationships and flexibility, and coverage limits.  All brokers appreciate leads from carriers, but the extent to which they keep the referring carrier “top-of-mind” during the quoting process will vary by broker segment.

COIs: The third category of value proposition – for COIs such as business managers, wealth managers, attorneys, accountants, and real estate and mortgage brokers – recognizes that HNW individuals are typically surrounded by an ecosystem of advisors.  Both quantitative and qualitative research indicate that COIs are routinely asked by their clients about insurance, and that even those who do not get deeply involved in insurance decision-making regularly make referrals to trusted brokers.  Given that the number one criterion for a broker referral from a COI is making the COI “look good,” premium carriers who wish to specifically address COIs should investigate ways to support top brokers in providing that peace of mind to COIs.  COI education, co-branded educational materials, and tools for insurance-related analytics and risk diagnosis are all examples of how carriers can get on the radar of COIs while empowering their broker partners to build the right COI relationships to gain access to HNW prospects.

Nuances of HNW marketing

Marketing efforts for HNW insurance should be targeted primarily at the intermediaries – both brokers and COIs – that influence insurance decision-making in this arena.  In positioning themselves with brokers, premium carriers must demonstrate not only feature parity but also ease of doing business (for example, speed of quoting and policy processing), underwriting support and flexibility, and claims excellence.  In positioning themselves with COIs, who have limited knowledge of carrier brands, key messaging points include financial strength and responsiveness.

Although the centrality of intermediaries in the HNW insurance space limits the potential for direct-to-consumer marketing, there may be an opportunity around customer education on the difference between premium coverage and mass market insurance.  Our research indicates that a significant majority of HNW individuals are insured with main street carriers.  Almost three-quarters of individuals with net worth exceeding $2.5M report State Farm, GEICO, USAA, Allstate, Liberty Mutual, Farmers, AAA, Hartford, or Travelers as their primary auto insurance provider.

Brokers report high success rates in converting HNW clients to a premium carrier by emphasizing the risk of under-insurance and claims-related disappointment – but only if they get in front of the prospect.  Premium carriers that hope to drive prospects to seek broker guidance should consider framing customer-facing marketing campaigns around feature gaps and the perils of inadequate coverage.  Indeed, there may be an opportunity for a collective, clearinghouse-based campaign financed by multiple premium carriers given that all boats would rise if more HNW individuals were primed to seek premium insurance options.

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The HNW personal lines market is tempting, and we expect multiple competitor entries in the coming years.  However, success in the HNW arena requires a wholly different go-to-market approach.  Those carriers who fail to consider the issues raised here – the need for sub-segmentation, multiple value propositions, and intermediary-focused marketing – will struggle to gain traction.  Those who successfully address these issues and craft a winning strategy for customer acquisition will be rewarded.

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