The rich get richer, and in­sur­ing their toys is a boom­ing busi­ness

De­cem­ber 14 — De­cem­ber 20, 2015 ▶ ▶ Writ­ing poli­cies for the pos­ses­sions of the 1 Per­cent is a $40 bil­lion busi­ness ▶ ▶ “We see ev­ery­thing from tra­di­tional art to the world’s largest col­lec­tion of shrunken heads”

Bloomberg Businessweek (North America) - - Contents -

Filled with oil paint­ings, water­col­ors, and other art­works, the of­fices of Priv­i­lege Un­der­writ­ers Re­cip­ro­cal Ex­change (PURE) in White Plains, N.Y., look like a Man­hat­tan gallery— that’s been through a storm. “We have a wa­ter-stained Salvador Dali, we have an an­cient Chi­nese plate that is cracked and re­framed in a box,” says Ross Buch­mueller, the in­surer’s chief ex­ec­u­tive of­fi­cer. “And ob­vi­ously we have this glass struc­ture that greets ev­ery­body when they come in,” he adds, re­fer­ring to a 5-foot sculp­ture with a crack in it that the com­pany got from a client af­ter pay­ing his claim for its full value. “We have now in­stalled dam­aged art through­out the build­ing,” Buch­mueller says. “It’s a con­stant re­minder for why we are in busi­ness.”

PURE spe­cial­izes in in­sur­ing the man­sions of the ul­tra­rich and their con­tents, a niche that is ex­pand­ing rapidly as the ranks of U.S. bil­lion­aires swell. The com­pany has about 50,000 pol­i­cy­hold­ers; rev­enue from pre­mi­ums has climbed 40 per­cent or more an­nu­ally since its found­ing in 2006 and will come close to $500 mil­lion this year. Al­most all its pol­i­cy­hold­ers buy home­own­ers in­sur­ance, more than 80 per­cent also buy ex­cess li­a­bil­ity cov­er­age, and about 75 per­cent pay ex­tra to in­sure col­lec­tions of art, wine, and other items. The busi­ness isn’t only about pos­ses­sions: This year, PURE formed a part­ner­ship with Con­cen­tric Ad­vi­sors, a cybersecur­ity firm run by a for­mer Scot­land Yard of­fi­cial, to help pro­tect pol­i­cy­hold­ers from hack­ers, iden­tity theft, and breaches of fi­nan­cial data and em­bar­rass­ing in­for­ma­tion.

In­sur­ing em­blems of wealth is a $40 bil­lion busi­ness, says Evan Green­berg, CEO of Ace, the in­dus­try leader in the U.S. The over­all property and ca­su­alty busi­ness gen­er­ates al­most $600 bil­lion in an­nual pre­mi­ums. Still, in­sur­ers like the lux­ury busi­ness be­cause few col­lectibles are ever stolen or dam­aged and clients are will­ing to pay a lot to pro­tect them, a com­bi­na­tion that keeps profit mar­gins high. Pol­i­cy­hold­ers also take very good care of their prized pos­ses­sions, says Buch­mueller, who helped launch AIG’S pri­vate client group be­fore leav­ing to start PURE.

The mar­ket keeps get­ting big­ger. The wealth of the rich­est peo­ple in North Amer­ica is ex­pected to bal­loon to $62.5 tril­lion in 2019, from $50.8 tril­lion last year, says Bos­ton Con­sult­ing Group. Next year the top 1 per­cent will hold more than half of the world’s wealth, ac­cord­ing to Ox­fam In­ter­na­tional. “The 1 Per­centers have done pretty well in life, and they have a lot of toys to in­sure,” says Cliff Gal­lant, an an­a­lyst at No­mura Hold­ings who cov­ers the in­sur­ance in­dus­try.

Al­though pre­mium lev­els vary, PURE says in­sur­ing fine art val­ued at $1 mil­lion might cost $1,000 a year,

and cov­er­ing the same amount of jew­elry might run about $8,000, be­cause the jew­elry is more likely to be lost or stolen. AIG has be­gun in­sur­ing cloth­ing, shoes, and hand­bags, charg­ing about $5,000 a year to cover cloth­ing val­ued at $1 mil­lion. “We see ev­ery­thing from tra­di­tional art to the world’s largest col­lec­tion of shrunken heads,” says Jerry Houri­han, $500 who runs AIG’S pri­vate client busi­ness. The lat­ter is hard to value, he adds, “be­cause you can’t find a new col­lec­tion of shrunken heads.” He de­clined to pro­vide de­tails to pro­tect the owner’s pri­vacy.

Ace’s July agree­ment to buy Chubb for $28.3 bil­lion will triple Ace’s high-net-worth an­nual pre­mi­ums to $4.6 bil­lion, giv­ing it 12 per­cent of the U.S. mar­ket, ac­cord­ing to Bloomberg In­tel­li­gence. AIG’S pri­vate client unit took in about $1.5 bil­lion this year in pre­mi­ums and in­sures about 40 per­cent of bil­lion­aires in the U.S., Houri­han says. PURE plans to fo­cus on the U.S. AIG and Ace are tar­get­ing places such as Dubai, China, and In­dia. Cincin­nati Fi­nan­cial and Na­tion­wide Mu­tual In­sur­ance also have an­nounced plans to boost of­fer­ings for the wealthy.

At AIG, Buch­mueller helped se­cure a con­tract with a fire­fight­ing team in Cal­i­for­nia, al­low­ing the com­pany to of­fer a pri­vate emer­gency crew to de­ploy in neigh­bor­hoods prone to wild­fires. Wealth­ier clients “like to build homes where the wind blows, where there are wild­fires, where the earth shakes,” says Kel­ley Beach of in­sur­ance bro­ker Marsh & Mclen­nan.

AIG also has a for­mer Amer­ica’s Cup sailor on staff to ad­vise yacht own­ers. When a 65-foot Vik­ing Sport­fish val­ued at $2.5 mil­lion was stolen from a Palm Beach (Fla.) ma­rina in 2010, it took only a few hours to re­trieve the boat. The search was helped by AIG’S con­nec­tions with au­thor­i­ties and fill­ing sta­tions along the coast and in the Caribbean. The in­surer hired a plane to search for the yel­low-hulled ship and had a le­gal team on the ground to ob­tain war­rants to se­cure it.

Don­ald Kir­son buys in­sur­ance from PURE for the six-fig­ure col­lec­tion of duck de­coys he keeps at his farm in Glyn­don, Md. Kir­son, who re­tired af­ter sell­ing his med­i­cal equip­ment busi­ness in 1998, has been buy­ing de­coys for about 12 years, trav­el­ing the U.S. to find them. He’s never had one stolen, and the wooden carv­ings rarely break. He lends out pieces only to lo­cal mu­se­ums so he doesn’t have to ship them.

Most re­cently, Kir­son spent about $175,000 to buy a piece carved in 1880 in Cobb Is­land, Va.—a rare item be­cause the re­gion was dev­as­tated by a hur­ri­cane in 1902, he says. “It’s got move­ment, it looks real, it just talks to you,” he says. “Beau­ti­ful form, old paint. It’s got shot marks in it be­cause it was hunted over. It’s ev­ery­thing you would want in a de­coy.” That kind of pas­sion makes for ideal pol­i­cy­hold­ers, Buch­mueller says: “From an in­surer’s per­spec­tive, you can only dream of peo­ple who care that much.” �Son­ali Basak

mil­lion The rev­enue PURE expects

to get from pre­mi­ums in 2015 The bot­tom line PURE’S busi­ness cov­er­ing homes and pos­ses­sions of the ul­tra­rich has been grow­ing at least 40 per­cent a year since 2006.

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