Superstorm Sandy and other recent natural disasters may prompt client discussion around the insurability of valuable collectibles, like antique jewelry, art, rare books, fine wine, or vintage toy soldiers.
While a basic homeowners, condo or renters policy should provide protection for many possessions, it may not do the job for certain valuables, says Jeff McCarthy, manager of the Woburn, Mass.-based insurance broker, Harrington Insurance Agency.
A standard policy typically provides only $1,000 of coverage for jewelry, watches and furs—not individually, but for the entire claim, McCarthy says. With silverware, $2,500 is the standard limit; for firearms, it’s often $2,500.
There are two ways to get more coverage, McCarthy suggests. The simplest and usually least expensive is to buy an endorsement that will upgrade the policy. Most insurers offer them, marketed under various names. An enhanced homeowners policy might give you $5,000 of protection for jewelry and furs, $5,000 for silverware, and some coverage for antiques and fine arts.
Clients wanting more coverage may need to buy a policy rider. “Scheduling” your valuables for insurance purposes not only provides higher insurance limits, but also covers nearly all causes of loss. A basic homeowners policy is limited to specified causes, such as fire, windstorm and theft.
To schedule an item, the client typically must provide an insurer with an inventory of items that have been valued by an appraisal, a bill of sale or statement of replacement value based on the current market price. Insurers generally want scheduled items reappraised every three to five years.
Appraisals should come from qualified professional appraisers, like The American Society of Appraisers (www.appraisers.org), The Appraisers Association of America (www.appraisersassoc.org) and the International Society of Appraisers (www.isa-appraisers.org).
While costs vary, scheduled jewelry typically costs $12.50 per $1,000 of value, so a $2,000 ring can be protected for $25 a year.
The same insurance company that insures a client’s home generally will schedule any item. However, if a client has something extremely valuable, like a $250,000 concert grand piano, they may need to turn to “surplus” lines or “non-admitted” companies, like Lloyds of London or Lexington Insurance as a last resort. Fortunately, AIG and Chubb are admitted carriers. ‘Admitted’ coverage just means that the insurance is covered by state regulator. Together these insurers had more than $5 billion in estimated sales of high net worth coverage in 2012.
These two companies offer a suite of products, including coverage for the replacement cost of the home, along with coverage for autos, yachts, art and antiques. Also, they provide excess liability insurance to protect against claims of personal injury or property damage.
Compensation to registered representatives and financial advisors for insurance referrals can be attractive. Reps with property and casualty insurance licenses can share in property-casualty commissions, which can total 15% to 20% percent of annual premiums for new business and renewals. Property-casualty agents often will share with licensed reps.
However, beware that non-admitted carriers may not be regulated by the client’s state. Nor may they contribute to the state’s guaranty fund, which protects clients if the insurers go belly-up.
Many non-admitted carriers are based offshore, often in places such as Barbados, warns J. Robert Hunter, director of insurance for the Consumer Federation of America.
“When the Martin Luther King riots hit Los Angeles, there was a lot of damage,” Hunter recently reflected. “Civil disturbance insurance was bought offshore. One-quarter of the businesses that had insurance couldn’t reopen because they couldn’t collect.”
Either the insurers didn’t have the money or they took off with it, he says. If clients need a non-admitted carrier, Hunter notes that Lloyd’s of London has been paying claims for more than 300 years. Carefully check the claims-paying history of a carrier your client is considering, he advises.
High net worth property insurers increasingly have focused on risk prevention. For example, a team of experts routinely conduct onsite residential inspections to determine how a home may be at risk. They also provide complimentary background checks on private staff members.
Assuming complete coverage is purchased, including coverage for a yacht, $1 million home, autos and collections, persons with a net worth of $2 million to $5 million can expect to pay about $10,000 annually, says Jerry Hourihan, executive vice president with AIG, New York. But prices can vary, based on the home location and other risk factors.
Clients with high-end coverage also get concierge or personalized service for their property.
“A policyholder was on her boat at a marina when her diamond bracelet, a gift commemorating the birth of her child, fell off her wrist into the water,” Hourihan says. “Rather than simply pay the claim, we recognized the item’s sentimental value and hired a diver who successfully recovered it.”
In Vino Veritas
Katja Zigerlig, vice president of art, wine and jewelry collection with the AIG Private Client Group, says the financial professionals don’t realize some well-heeled clients may have a valuable wine collection. Global sales of wine auctions over the past year are over $450 million.
But, contrary to popular belief, your client can’t just use a wine cooler or wine cellar for protection. An AIG property analysis shows that the top five causes of wine insurance claims include power outages, temperature control malfunctions and water damage.
Insurance coverage typically costs 45 cents to 55 cents per $100 of coverage depending on where the collection is located and how it is maintained. So the cost to insure a $100,000 collection could range from $450 to $550 annually. Expect higher premiums for clients who reside in disaster prone areas.
The most comprehensive coverage for a wine collection is usually found within a “blanket” wine insurance policy. This option affords the flexibility to add and remove bottles without having to notify one’s insurance broker or carrier. Such a policy should provide worldwide coverage, and address specific risks, such as damage, breakage, spoilage and losses due to catastrophic events.
Alternatively, if your client owns high-priced bottles and/or intends to hold onto the collection, a ‘scheduled’ policy is better. With this option, each bottle is itemized and insured individually.
Laura Clark, signature underwriting manager at Chubb Insurance, Warren, N.J., says Chubb's policy provides a $10,000 per bottle limit under its blanket provision.
“Any bottle with a replacement value of more than $10,000 must be itemized on a Chubb policy, or risk being subject to the $10,000 per bottle limit,” she says. ”The cost to insure wine on a blanket is the same as the cost to insure wine on an itemized schedule.”
She also stresses that insurance coverage is based on replacement cost.
Most insurers settle claims on an "agreed value" basis, she adds. That means the maximum a client will receive for a covered loss to a given bottle of wine is equal to the amount of itemized coverage for that one bottle. For example, if you've got a bottle of 1945 Chateau Mouton Rothschild insured for $15,000, and it was stolen in a burglary, most carriers would pay the client $15,000 for the covered loss.
“But the best policies pay the amount of itemized coverage for that bottle of wine, plus an extra amount if the market value of the wine right before the loss,” she says.
Fraud generally is excluded from coverage.
