Risk reducing strategies for HNW individuals to stay insured

Homeowners’ insurance rates are anticipated to increase 6% during the 2024 renewal period. This rise follows a staggering 19.8% average annual increase between 2021 and 2023, spurred by inflation and the escalating frequency of severe weather events.

In total, 66 billion-dollar weather and climate calamities occurred in the last three years. As a result, some of the largest U.S. insurance firms have ceased offering coverage in high-risk geographical zones such as California and Florida. This has left many high net worth properties and assets exposed and subject to heightened risks.

Previously, measures like smoke detectors and security systems could earn homeowners modest discounts on coverage rates; now, these measures are often mandatory for eligibility in the insurance program. Similarly, risk mitigation is no longer an optional “perk” but a fundamental cornerstone of a robust coverage application, and the costs of insuring individuals not doing risk mitigation properly will be infinitely higher.

For example, the surge nuclear verdicts — substantial settlements granted to plaintiffs in liability legal battles — has prompted insurance providers to reevaluate their risk exposure across various policies, including auto coverage. Insurers are now placing greater emphasis on proactive risk management tactics like defensive driving programs and vehicle safety technologies such as automatic emergency braking systems.

Relying solely on insurance for protection against risks is no longer sufficient for HNW individuals, and it’s important for brokers and agents to make their insureds aware of this. To portray the property owner as a desirable, low-risk entity, it’s crucial to address and manage asset vulnerabilities using proactive risk mitigation strategies, technology and diversified risk management methods.

Here are six risk mitigation strategies that insurance professionals should give to their HNW clients to reduce risks and ensure ongoing coverage:

1. Secure entryways. Nearly 38% of burglaries in the U.S. occur without forced entry. Neglecting to lock doors, whether for a car or home, and leaving valuables in plain sight can result in substantial losses. Insurers prioritize assessing the security level of properties and vehicles, considering the difficulty of unauthorized access. In addition to basic door locking, evaluate the type of locks installed on doors (and windows) for added security measures. Property owners should consider impact glass to protect against both high winds and intruders and investing in a heavy-duty water/fireproof safe for valuables.

2. Add surveillance technology. With the implementation of smart home systems, real-time data on a property’s security, environmental conditions and utility consumption can demonstrate an owner’s diligence against risk. For instance, modern technology can identify dangerous situations like electrical arcing within walls, which occurs when electricity leaps across a gap in a connection, such as wire splices, circuit breakers and wall switches, and can cause a fire within a property’s walls. Recommending updating a home’s electrical wiring is the most effective method to prevent such fires.

Insurers can advise the following best practices to prevent arcing from turning into something serious.

• Don’t overload outlets.
• Check for black or brown discoloration around electricity sources.
• Avoid placing wires under carpets or heavy furniture where they can overheat.
• Inspect appliance cords for fraying or damage.
• Take proactive steps to repair or replace any electrical issues.

3. Maintain property perimeters. Every state and insurance provider maintains a detailed list of recommended property maintenance tasks that, if completed by homeowners, can result in substantial benefits. Insurers knowing the risk factors by state and local municipality for the homes their clients own quite literally gives property owners the house advantage. Insurers should recommend that homeowners clear vegetation around their property to help prevent fires and perform other proactive measures such as upgrading windows or replacing roofs to boost safety and qualify for significant premium discounts.

Another best practice is to advise homeowners to perform routine inspections of the property, both inside and out. Noticing a significant number of damaged or missing shingles from a garage roof, for example, is a warning sign that action should be taken to correct the issue before a significant rain comes and further compromises the roof and any assets that may be stored inside.

4. Prevent water damage. Water-related issues and freezing incidents make up close to a quarter of total home insurance claims. Unlike natural disasters, water damage often originates from leaking pipes, appliance failures, roof flaws or foundation fractures. To address water risks, recommend that homeowners use water monitoring apps equipped with smart technology, which can detect abnormal water flows within the property and promptly alert the homeowner via their smartphone. Installing such leak detection systems or strengthening plumbing infrastructure can mitigate leaks and reduce potential damage significantly.

5. Driving record assessment. Despite technological strides in vehicle safety such as airbags and anti-lock brakes, human error is still a major cause of auto incidents because of distracted driving. HNW individuals can reduce accident risks through driver education — such as learning who has the right of way in a certain intersection — and using route optimization apps that lessen traffic-related distractions. Establishing good habits such as using a turn signal, never running red lights, not texting while driving, preventing DUIs by using rideshare and more is crucial advice as well. This approach showcases responsible driving habits and helps mitigate potential accidents.

6. Be aware of cybersecurity risks. HNW individuals face elevated cyber threats, evident from incidents like bank account breaches and compromised social media accounts. Families can serve as entry points or contribute to vulnerabilities through their online activities, and insurance companies are incurring significant costs from cyberbullying claims as a result. Employing strong cybersecurity measures like implementing monitoring applications and parental controls on devices and obtaining cyber insurance can shield against financial losses and protect reputations. Encourage your HNW clients to stay on top of their online transactions and double-check with the service provider if an online request was performed in their name, but they didn’t do (or authorize) it.

The evolving risk landscape calls for a strategic and integrated approach to asset protection, supported by knowledgeable brokers who can guide and fortify their clients. Make sure your HNW clients stay insured with smart risk mitigation practices.

Robb Lanham is chief sales officer, HUB Private Client. Contact him at [email protected].

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