WEALTH INSURANCE GROWING

ACCORDING to the latest AfrAsia Bank South Africa Wealth Report, South Africa has the highest levels of total wealth and is home to 43 600 high-net-worth individuals (HNWI) – those who hold net assets of at least $1 million.

With a significant annual increase of 8%, these HNWI currently hold over 40% of total private wealth in the country.

These individuals face unique insurance and personal risk management challenges – particularly in a high-crime climate such as South Africa.

The country has as many as 98 centi-millionaires, each with net assets of $100m or more. The rise in the affluent market highlights the need for a tailor-made, specialist offering that can cater to their specific needs.

Taking into account the clear trend of continued growth of HNWI in the local market, high levels of underinsurance and relatively low penetration of specialist underwriters, the high-net-worth insurance market in South Africa still clearly has plenty of room to grow. In addition, the high-net-worth insurance market in South Africa offers real growth opportunities for brokers who can provide the high level of expertise and personal service required by this segment.

However, in order to do so effectively, it is vital that the key risks faced by HNWI are properly understood.

◆ Higher security risks. Security at home and during travel, including the risks of political turmoil and global conflict, remain a top concern for HNWI. For wealthy families with complex risk exposures, particularly considering the environment of violent crime in South Africa, it is highly recommended that a security expert be consulted.

◆ Sensitivity around depreciation of the rand. A uniquely South African risk often underestimated by HNWI is the impact of the depreciation of the rand on the replacement value of their high value assets often purchased from all over the world such as imported motor vehicles and other collectable items such as jewellery, Persian carpets, furniture pieces and art.

◆ Global consumers to continuously monitor the value of their movable assets where there is a potential currency risk, and to adjust the values upwards where the cost of replacing these items have appreciated.

◆ Employee-related risks. HNWI hire a number of employees to help run their households. Employees bring about risk exposures related to inside job armed robberies and threat of force to the insured families.

◆ Ownership of assets. Last, HNWI tend to register ownership of their assets in private entities such as trusts, companies, and closed corporations. It is crucial that brokers work closely with their clients to understand the ownership structures of all assets – as they would for insuring a business with multiple entities – to ensure insurance cover is properly co-ordinated and adequate risk protection is being provided.

Given the high values at risk, their complexity, and the need for a bespoke service, the wealth insurance segment is far removed from the high-volume personal lines market.

This growing market segment, requires specialist underwriters and brokers to effectively service their complex needs.