Although experts predict the property-casualty insurance industry won’t see a significant increase in profits this year, the opposite may be true for independent agents who serve high net-worth clients.

Today, 10.4 million U.S. households have a net worth of $1 million or more, not including primary residence—a new record that marks an increase of 300,000 households since 2014, according to Spectrem Group’s Market Insights Report 2016.

While the opportunity to expand your books to include high net-worth individuals is growing, there’s a lot to learn before jumping in. Here’s a basic rundown of the complexities you might encounter:

Categorization

For starters, a client classified as “high net-worth” is not simply a larger personal lines account. Similar to specialty segments in the commercial insurance world, the label comes with unique exposures.

Many agents commonly make the mistake of categorizing high net-worth individuals according to their net worth. According to Peter Houldin, president of Ericson Insurance Advisors, “having more money doesn’t necessarily mean you need more sophistication with your insurance program. Someone who inherited family money and a self-made millennial are two different people.”

For example, consider the difference between a client worth $100 million with a home, two cars and some jewelry, but who “doesn’t require a lot of expertise,” Houldin says. “Then there may be someone worth $10 million who’s got some toys and is a young family with domestic staff. Their needs become much more complex.”

Under the high net-worth umbrella, it makes more sense to categorize clients according to their passions, says Jerry Hourihan, president of AIG’s private client group. “Since 2008, there has been an increase in investments in people’s passions across all classifications of collectibles—fine art, jewelry, antique cars, wine. People have found investments in their passions could bring a better return on investment than other traditional places,” he explains.

Insuring them, Hourihan says, depends largely upon those passions, since each has a different exposure. “High net-worth insurance is more about risk management assessment and understanding an individual or a family lifestyle, then matching appropriate products and services to the client’s preferences,” he points out. “It’s a much more consultative approach than people might think.”

Exposures

Unlike the average client, high net-worth individuals often require a mix of personal and commercial lines policies. “They tend to employ people, which requires not only the statutory coverages like workers compensation and disability in some states, but also employment practices liability,” Houldin explains. “You need to look at things like risk management—things like background checks for domestic staff. It’s not just about making sure they’re in compliance with the law, but making sure all risks are identified.”

Jim Fiske, senior vice president of Chubb, points out the complexities that arise when someone’s home is in the name of a trust. “That’s happening a lot,” he says. “It matters from an insurance perspective because a policy is a contract between a carrier and an individual. When you start mixing in an entity, you could have some significant gaps in coverage for the customer.”

Because most high net-worth insureds have policies with mainstream providers that offer products designed for the masses, many are underinsured—especially when it comes to personal liability. “It’s extremely common that we are introduced to a high net-worth client who doesn’t even have an umbrella, or has never heard of an umbrella,” Houldin says.

What’s more: High net-worth clients are often overpaying to be underinsured. “Sometimes mass market carriers are out of their comfortable place with higher-value dwellings and larger collections, so they may feel compelled to charge more in order to feel comfortable,” Fiske points out.

Your ability to offer high net-worth individuals more personalized coverage gives you an advantage—but the hard part, Fiske says, is “convincing them they need to switch from their current carrier when they’re already satisfied.”

Once high net-worth clients become aware of the gaps in their coverage, “they’re mortified,” Houldin says. “Once a year we run into a client who calls their spouse and says, ‘Do not drive that car until I get back to you.’”

Marketing

As with any client, agents need to meet high net-worth clients where they are. High net-worth millennial clients, for example, may be difficult to reach face to face. “Historically, you could join a country club and have an entire network of high net worth people,” Houldin points out. “But millennials aren’t hanging out at country clubs.”

At the same time, most high net-worth individuals aren’t comfortable buying their insurance online. “They understand they have more to lose,” Houldin explains. “They understand risk transfer and the importance of insurance in their overall planning process.”

One of the most effective ways to write new business with high net-worth clients, Fiske advises, is through referrals from existing customers. “Most agents don’t have a specific strategy in place to encourage referrals,” he says.

“Oftentimes, high net-worth agents are developing their clients on referrals from other advisers—attorneys, accounting firms, other professionals who are asked to provide insurance recommendations,” Hourihan suggests. “A great way to build the high net-worth pipeline is to develop relationships with other high net-worth advisers in your community.”

If you serve a high net-worth individual who’s passionate about art or jewelry or cars, getting involved in those communities can attract new customers as well. “A lot of the best agents are going to auctions and exhibitions,” Hourihan says. “Clients are far more likely to want to talk about things they’re passionate about and want to protect. Then that can be extended into a conversation about their personal risk management needs."

Jordan Reabold is IA assistant editor.