When people talk about economic recession it usually conjures up images of ‘closed’ signs on factory gates and newly unemployed workers heading for the job centre.
But no one’s immune to the effects of a downturn, not even the seriously rich.
While the effect of a slump might not be so devastating for the well padded, High Net Worth Individuals (HNWIs) are feeling its effects.
It’s estimated that the average HNWI has experienced a fall in total wealth of between 20% and 40% over the last year.
The Sunday Times Rich List shows that Britain’s 1,000 richest individuals are worth £258.27 billion in 2009, compared with nearly £413 billion last year: a 37% fall and the biggest drop in the list’s 21-year history.
As a result, rich people are thinking harder about their assets and how to protect them.
Risk awareness for the well padded
The wealthy are usually intelligent people and they have become more risk aware as economic conditions have changed, according to Charles Hamilton Stubber, director at Aon Private Risk Management.
“In the past, when the economy was booming, thinking about insurance was probably quite low on their list of priorities,” he says. “It’s different now and they are learning more about their risks and their insurance arrangements. They’re more risk aware.”
Downgrading cover
A knee jerk reaction among some HNWIs is to downgrade cover in the teeth of recession.
“Downgrading cover in HNWIs often involves people looking to reduce their outlay on insurance by increasing their excess limits or even self insuring,” Bob Trott, managing director of specialist Lloyd’s insurer Oak Underwriting says.
“People are also saving money by downgrading their security from fully managed security systems, which monitor property offsite, to traditional standard alarms as these don’t require monthly fees to maintain.”
Possessions need covered too
But, equally, many HNWIs are realising that against a background of turmoil in the financial markets and falling investment portfolios, their ‘worldly’ possessions perhaps now represent a larger proportion of their net worth and as such need to be properly protected.
There is some evidence to suggest that antiques are gaining in popularity during this recession, as has previously been the case, Oak’s Bob Trott notes.
“The appeal of an item that can retain or appreciate in value, plus the practicality and longevity of something lasting, is reassuring in times of economic difficulty. This increased desirability does and is having an effect on the value of antiques,” he says.
Changing investment strategies
Changing investment strategies may well mean a risk management rethink around assets for the seriously rich.
But such individuals should think about their personal liabilities, as well as their possessions, Aon’s Hamilton Stubber suggests: “Many HNWIs occupy responsible positions, as board members, non-executive board members or trustees, for example. It is accepted that society is becoming more litigious and economic conditions have increased the scope for litigation. So many HNWIs’ personal liability exposure has grown as well.”
Understanding the full spectrum of exposure is crucial, Hamilton Stubber says.
He advises HNWI clients to draw up a three-part risk checklist that identifies both the tangible and less tangible exposures they now face.
They should ask themselves:
- What is my property exposure? ie my house, my yacht, my fine art…
- What are my personal liabilities in terms of outside responsibilities?
- What about my family as a whole in terms of health care, travel and personal accident (bearing in mind the realities of terrorism and crime today)?
“Once you have identified your important exposures then you can go about placing values on them and managing the risks,” he explains.
