Are we richer than we think?
Alternative investments in wine and art are on the rise, but John Watson finds that they can easily fall off the insurance radarThis summer’s widespread flooding across Britain showed that our green and pleasant land is also a rich and prosperous one. In many cases, the values covered by home insurance fell well short of the actual losses. An analysis of household flood claims by the British Insurance Brokers’ Association (BIBA) found that one in five properties were seriously underinsured, much of which was due to growing household wealth.
Peter Staddon of BIBA says: “You can see examples of the increasing wealth in almost every room in the home. I went round my son’s bedroom the other day totting up the value of his possessions, including the computer, games consoles, and the games and DVDs that are played on them. It came to almost £8,000. One teenager’s bedroom.” Multiply that across the house and you quickly see the potential for underinsurance.
The ‘new rich’
As you move up the wealth ladder, the risks of underinsurance increase. Austyn Tusler, head of Art and Private Client at Hiscox, says: “The fastest growth in wealth is coming from new money, not inherited money. People are getting richer quicker through changing commerce and business.”
This so-called ‘emerging wealth’ is manifesting itself in quite different ways to traditional high net worth clients. Home for the ‘new rich’ is more likely to be an urban penthouse than a rural pile, and possessions are for enjoying and showing, not to be locked away and passed onto another generation.
But these customers don’t always see themselves as wealthy or realise that their insurance needs have evolved beyond basic cover, which is creating new opportunities for brokers and insurers. Austyn says: “Historically we’ve missed a trick in not picking up clients earlier in their life – say, the young banker who is earning a lot of money but doesn’t necessarily have the big property in the country.”
Designer clothing, for both sexes, is one way the nation is displaying its wealth. Wardrobes packed with tens of thousands of pounds’ worth of designer labels are no longer just a Chelsea phenomenon – and can easily be missed in conventional risk assessments and property valuations.
There is also a trend for more wealth to be held in alternative assets, such as wine, art, stamps, rare coins or memorabilia connected to sporting or musical heroes. A study by wealth consultants Ledbury Research estimated that this type of investment has more than doubled in the past decade and now counts for £1 in every £20 of wealthy people’s assets.
And, unlike portfolios of stocks and bonds, many of these new investments live right at home, which can present an insurance headache in terms of security and ongoing valuations. Fine wine, for example, is rising in price at the fastest rate for a decade, with prices for vintage Bordeaux up by almost a third over the past year.
It is up to brokers and insurers to help their customers appreciate where the risks lie. The client may not think of themselves as a wine investor, missing the connection between buying a few cases to stick in their cellar to drink in a few years’ time and inflation in global wine prices.
Paul Dickson of broker Dickson Insurance says: “The new wealthy grew up in the 1970s and the 1980s. They love music and sport and are likely to use their money indulging these passions rather than buying jewellery. I know of clients with guitar collections worth £100,000.”
Art is another area where prices are changing rapidly. Events such as the Affordable Art Fair, held three times a year in London and Bristol, have made original art fashionable among younger buyers. Some quickly graduate to buying works above the exhibition’s £3,000 price limit.
Ledbury charted a 50 per cent rise in fine art prices overall during the past decade, but certain artists and sectors have seen far higher rises. Auction prices for Asian art have shot up in the last three years, as buyers from newly rich China and India rediscover the works of their ancestors.
Brokers need to remind clients who may be unused to the art market of how these investments can rapidly change in value.
Regular valuations
Steve Winn of brokers Bartlett & Company in Leeds says: “Underinsurance is a problem across all sectors. People do underestimate the value of their possessions.”
He feels the best way to tackle underinsurance is through a home visit. “When you are sitting down with someone at home, you get a taste for their lifestyle and warning bells can go off pretty quickly if the sums insured look out of kilter.”
Dickson Insurance has developed a template that can help customers set out exactly what they have in the home. Paul says: “It is designed to make sure that the book collections, the record collections and the designer dresses are all picked up fully.”
Regular reappraisals, using professional valuers, are essential. And customers need to be educated to get into the habit of telling their broker or the insurer as they add to their collections – annual renewal may be too late to find out about the new sculpture, the signed David Beckham shirt or the glittering Alexander McQueen dress that your client is now wowing their friends with.