Insuring the Toys of the Wealthy Is a $40 Billion Business
Insuring the Toys of the Wealthy Is a $40 Billion Business
“We see everything from traditional art to the world’s largest collection of shrunken heads.”
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.”
Illustration: 731
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.
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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, 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.
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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.”
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