In the face of escalating climate-related catastrophes, particularly wildfires, the insurance landscape for the high-net-worth (HNW) sector is undergoing a seismic shift. Insurers are grappling with reduced capacity, driven by the increasing frequency and severity of natural disasters that disproportionately impact affluent regions and their valuable assets.
This constriction in the market not only heightens the challenge for HNW individuals seeking adequate coverage but also underscores the urgent need for broker innovation. As traditional underwriting models face unprecedented stress, brokers are now at the forefront of devising creative, tailored solutions that ensure their clients' assets remain protected in an era of climatic unpredictability.
Having announced its HNW excess wildfire program earlier this year, HUB International has declared itself at the forefront of a new wave of solutions that keeps in mind a limited capacity amid an already challenging environment. However, executive vice president and Private Client division head Katherine Frattarola believes that there is still more work to be done as affluent clientele seek to protect their valuable assets.
“I think one of the biggest challenges continues to be capacity,” Frattarola said in an interview with Insurance Business. “That stems from rate inadequacy that exists in the marketplace today, whereby carriers aren't able to charge a rate that's consistent with the risk. And so, over the last few years, there have been profitability challenges for a number of our high-net-worth carriers.
“As a result, they've had to retrench or pull back from the marketplace. Reinsurance costs have gone up, and the frequency and the intensity of catastrophes have increased dramatically over the last couple of years,” she said. “Labor and supply inflation, much of it a hangover from COVID – it all means that the cost to replace is now much higher than when the policies were initially bound. All of these kinds of factors work in aggregate to create this situation that makes it very difficult for our carriers, particularly when they can't charge the rate that they want.”
Being bound by each state’s own insurance regulator, carriers will have no choice but to wait for the approval of rate increases, which are there to alleviate the tightening capacity. However, Frattarola notes that this is not an overnight affair, leading to capacity posing an issue, and continuing to be an issue in the coming years.
“For clients who are looking for solutions, it's important that they work with risk advisors that are consultative and innovative, those that have the expertise in high net worth and have leverage with the markets to be able to sort of create innovative product design and to be able to get access to that hard-to-get capacity,” she said.
With expertise such an integral piece of the capacity puzzle, Frattarola said that a broker with a proper program in place will take the lead as these constraining issues continue.
“In HUB Private Client, as one of the top high-net-worth personal lines brokers, we do have that leverage and strength of partnership with our carriers. We have our own learning, development, and training program that is geared towards the evolution and the transformation within the high-net-worth and ultra-high-net-worth marketplace, specifically geared towards product design, and making sure that our risk advisors are prepared,” Frattarola said.
For affluent clients finding themselves in catastrophe-prone areas, Frattarola emphasized that they need a strong partner who are both experts in their domains and have strong ties to carriers who have the capacity.
“There are good and bad cat years,” she said. “You’ll always see some cycles, where, in one year, you'll feel good, because there wasn't a lot of wildfires, or there weren't a lot of hurricanes – but the pendulum goes back and forth.
“I think that what we've done in terms of innovating around both capacity and product design, so that we can better partner with our carriers and provide better solutions, is really the new path forward, because our carriers can't do it all. We need to be able where and when the most appropriate to lean in, so that together, we can provide the best, most appropriate solutions to meet our clients’ risk management needs,” Frattarola said.
Read the first part of Katherine Frattarola’s interview with Insurance Business here.
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