Extended Family: Agents who combine personal lines and commercial coverages can expand their business to give affluent clients and their family offices the protection both need. (Property/Casualty).

Agents who have a large base of high-net-worth clients may be missing out on another way to increase agency revenues. Many high-net-worth individuals rely on a family office to help ensure that they are meeting their financial objectives, such as the purchase of personal lines insurance. But while the agent works with the family-office manager to find insurance solutions for the high-net-worth client, who is protecting the family office from the financial devastation of a loss? Family offices have their own unique professional liability needs as well as other commercial exposures that require insurance protection.

The opportunity for new business exists for agents who can bridge the personal lines and commercial lines capabilities of their agencies and offer the family office and its affluent clients the protection both need.

Managing and Protecting Wealth

The rich are getting richer, and the number of wealthy individuals is growing. A recent study by Merrill Lynch & Co. and Cap Gemini Ernst & Young reports that there are 7 million millionaires worldwide. In the United States and Canada, people with at least $1 million in investable assets increased 2.4% to 2.54 million in 2000. The study also predicts that the holdings of the world's wealthiest individuals will grow 8% annually for the next five years.

These wealthy individuals have unique insurance program requirements. A typical homeowners or automobile policy would leave them severely underinsured or uninsured. From yachts to European summer homes to Renaissance art collections, wealthy individuals need an insurance company that offers specially tailored programs with world-class loss-control and claim services. Agents who can help these clients protect their assets and follow up with the high level of service they expect will find success in a niche market that is growing with opportunity. But there is another opportunity that should not be overlooked.

Managing all that wealth requires professional assistance from entities such as family offices. According to the Family Office Exchange in Oak Park, Ill., there are currently more than 3,000 U.S. family offices, which provide services to some 2.54 million U.S. millionaires. There are two types of family offices. Some are dedicated offices that serve one family with multiple members, while multiclient family offices pool resources to service numerous families. These entities are, in essence, corporations that perform services similar to trust companies and private banks for wealthy families. They are involved in all aspects of the family's wealth-management affairs, including investment strategy, estate planning, tax planning and insurance.

Exposures Can Be Costly

While family-office managers recognize their need for commercial insurance protection to help defray the costs of an office fire or a burst water pipe, they may not be aware of the professional-liability exposures they face as a result of the types of activities they are involved in. For example:

* A family-office manager was sued for mismanaging a $9 million trust set up to benefit the family's grandchildren.

* An employee accused the family-office manager of discrimination upon receiving an unsatisfactory salary review.

* A client accused the family-office manager of churning an account, which resulted in a partial liquidation of the client's trust in the amount of $3.5 million.

In addition to these types of situations, the evolving composition of the family served by the family office can create generational issues, and this, combined with adverse events, can strain even the best of relationships and lead to a liability lawsuit against the family office. Defense costs for allegations of wrongful acts, whether frivolous or legitimate, and settlements for such claims can be financially crippling without appropriate insurance protection. Professional and management liability insurance can help protect the family office from those expenses.

Elements of Protection

Family-office managers prefer to do business with a single insurance carrier, according to market research conducted by Chubb with U.S. family-office managers. Interview participants noted that ease of doing business is critical; the day-to-day insurance buying and management process needs to be efficient.

Personal lines agents may need to team up with their commercial lines counterparts to develop a well-rounded insurance program for the affluent client and the family office. Agents should look for insurance carriers that offer both personal lines coverage for affluent clients and professional liability and commercial protection for the family office. Since affluent clients and family offices have specialized needs, the insurance carrier should have a strong track record with the affluent market, as well as prior experience in meeting the professional liability and commercial insurance needs of financial institutions or similar types of financial advisers.

Protecting Affluent Clients

The insurance carrier should be able to offer affluent clients sophisticated insurance solutions, including personal lines coverages for the following:

* Custom and multiple homes to help protect clients' primary residence as well as any other homes they own.

* International property for clients who spend time abroad or rent or own a vacation home in another country.

* Fine art and antiques for large and/or complex collections such as a client's arts-and-crafts furniture or Ming dynasty vases.

* Jewelry and collectibles to help protect jewelry and other treasured items worldwide.

* Automobile and collector vehicles, including protection for multiple cars, some of which may be registered in other states.

* Watercraft and yachts to protect the client's vessels both in and out of the water.

* Aircraft and aviation for the ownership, operation and maintenance of aircraft worldwide.

* High limits of personal and excess liability to help clients with significant assets to protect.

Professional Liability Program

What types of professional liability insurance does the family office need? Professional and management liability and family trust and trustees liability are just some of the essential building blocks of most family-office insurance programs. Professional and management liability insures the family office and its personnel against claims made by the family office's clients and/or other third parties in connection with the operation and management of the family office. Family trust and trustees liability insures the trust and the trustees against allegations of wrongful acts in connection with the operation and management of the trust.

Insurance agents also may consider other liability coverages for the family office, such as directors and officers liability, employment practices liability, pension and welfare plan liability and private fund coverage for investment entities. Family offices also require general commercial insurance to help protect the family business, including commercial property and liability insurance, commercial auto, excess umbrella liability, workers' compensation and crime.

Coverages for affluent clients and the family office should be backed up by first-rate loss-control and claim services provided by professionals who are experienced in working with affluent clients and understand professional liability issues. To further enhance service offerings, agents may want to look for insurance carriers that can offer options such as complimentary home-appraisal services, online claim reporting, billing and policy information and consolidation of statements.

Strong Relationships

Agents who are ready to tap the family-office market will need to begin by building strong relationships with family-office managers. Those agents who already provide insurance to affluent clients through a family office are in a good position--market research conducted by Chubb indicates that family-office managers rely heavily on their agents for advice and guidance and prefer to deal directly with their insurance agent rather than the insurance carrier. Agents should leverage that relationship by educating family-office managers to the financially crippling effects a professional or management liability lawsuit can have on their operation as well as the insurance solutions.

Agents who provide coverage directly to affluent clients can help educate clients about their family office's professional liability and management exposures--it may result in getting a foot in the door with the family-office manager.

Whatever the scenario, the agent should remember the family-office manager's need for ease of doing business and recommend those insurance carriers that can offer professional and management liability, commercial and personal coverages all under one roof. By offering these capabilities, the agent will further strengthen client relationships with family-officer managers and their affluent clients, leading to increased client retention and client acquisition opportunities--as well as an additional source of revenue.

Susan Ogrodnik-Smith is the director of family office sales for Chubb Personal Insurance, the Chubb Group of Insurance Cos., based in Warren, N.J. Andrew Pritchard is financial products manager for Chubb's Department of Financial Institutions.