When was the last time you did an inventory for your insurance policy? Do you know how much your collection of art work is really worth at current market values? Has that sculpture by a formerly obscure artist suddenly increased in value, as the creator becomes an overnight sensation and the latest ‘hot’ property on the art market?
Identifying and managing your high net worth items isn’t a ‘do it once, forget about it’ process. It’s something that needs to be redressed, revisited and re-evaluated on a regular basis. The consequence of not keeping a very close eye on the true worth of your investments against their insured value could potentially leave you seriously under-insured and at risk. So what’s the best way to keep the two numbers balanced?
Know your risks
The first risk to take into account is external factors. It’s estimated that the average High Net Worth Individual (HNWI) has experienced a fall in their total wealth of 20-40% in the past year. So whilst the assumption is that the global recession has left the very wealthy relatively untouched, in fact the opposite is true, proving that nobody is truly immune to external forces.
So risk number one has to be the fluctuations of the markets, and as a result smart investors are looking for areas which are relatively well ringfenced against the slings and arrows of outrageous (mis)fortune.
Exposure to the markets is one thing, but exposure to dangerous or perilous situations is another. Assets are stolen, damaged in transit or affected by the mood swings of the market. But people are also at risk these days, so another risk that has to be assessed is the risk to one’s self. This is particularly true if you are travelling in an area that, whilst it may have been regarded as safe just a few years ago, is now considered to be ‘high risk’. It may seem like a cold thing to say, but personal security and your own well-being also has to have a monetary value placed upon it, particularly due to the risk of being kidnapped and held to ransom in some parts of the world.
Keep an eye on the investment
Investments – if you’re doing it right – should go one way, and that’s up. But whilst high net worth items do tend to hold their value at the very least, it is crucial to be aware of your portfolio’s worth overall not just when the policy is up for renewal, but at any time. Items can be insured individually, but it’s vital that the insurance is an accurate representation of the investment’s true value. By also getting a clear understanding of the risks placed on your investments, you can then begin to build up an accurate picture of your insurance needs. As Charles Hamilton-Stubber from Aon Private Clients puts it: “Once you have identified your important exposures then you can go about placing values on them and managing the risks”.
Look for insurance that is tailored to suit your needs. Insurance for high net worth items and personal well-being insurance cannot be generic – it has to be bespoke. How do you insure a painting by a Dutch master using a standard home contents policy? The risk of under-insuring your investment is too great, so obviously a degree of flexibility has to play a part.
Bespoke insurance shouldn’t just protect the asset. It needs to protect the investment too. The uniqueness of a painting cannot be compared and contrasted to another object, but it can be exposed to the same types of risk. Once you understand the ‘bigger picture’ (for want of a better phrase), then it is easier to construct an insurance policy that protects every facet of your investment, including its monetary value.