Establishing Family Office Insurance Standards
“If you’ve seen one family office, you’ve seen one family office” is a statement that rings extremely true for those who are part of or work with a family enterprise. Each family is uniquely different, and the services provided by the family office are typically customized based on the family’s unique needs.
Tax and wealth management reporting, daily oversight of asset acquisition, risk management insight, and financial advice and counsel are some of the key wealth management services a family office provides. Another key service many family offices are offering family members is an established set of insurance standards that provide clear governance framework for decision making.
Research Analysis Offers Insight
Some family offices are looking for data in order to establish insurance standards for family members. The US business of Marsh’s Private Client Services (PCS) conducted an in-depth Family Office Benchmarking Study in 2018 that identified trends among family office personal insurance programs and concerns. The results showed that 56% of large family offices utilize some sort of family insurance standards as part of their overall risk management program. The standards are established and customized by the family office in conjunction with the family to help set clear expectations for the management of the insurance program. These standards are then captured in a clear and concise summary typically provided to family members, the family office, and the insurance broker.
Family standards often include stipulations such as:
- All family members must carry a specific minimum liability coverage.
- All homes must carry primary overland water coverage.
- All homes over a specific value must carry a specific deductible.
- All family members are provided with a minimum level of art and jewelry coverage.
- All family members obtain estimates before submitting any property claim.
Involving Family Members Creates Engagement
Insurance program standards created as a group allow family members to participate in choosing minimum requirements and also create an easy way to educate newly added family households about the insurance program. For example, in a hypothetical case, one family wants to establish different levels of excess liability coverage based on assets, net worth, and future earnings. In this case, the first generation would carry a minimum of $50 million in liability protection, the second generation would carry a minimum of $25 million, and the third generation would carry $15 million. Insurance could also be arranged if the family felt it was important that every household carried equipment breakdown and overland water coverage. Within the standards, families can create uniqueness and uniformity, while maximizing value.
Establishing minimum standards is a good starting point to bringing structure and a framework to the insurance program. This strategy helps ensure that the family or families you serve are confident in the approach to preserving family wealth throughout generations to come.
This document and any recommendations, analysis, or advice provided by Marsh (collectively, the “Marsh Analysis”) are not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update the Marsh Analysis and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, tax, accounting, or legal advice, for which you should consult your own professional advisors. Any modeling, analytics, or projections are subject to inherent uncertainty, and the Marsh Analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. Marsh makes no representation or warranty concerning the application of policy wording or the financial condition or solvency of insurers or reinsurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage. Although Marsh may provide advice and recommendations, all decisions regarding the amount, type or terms of coverage are the ultimate responsibility of the insurance purchaser, who must decide on the specific coverage that is appropriate to its particular circumstances and financial position.