Family Wealth Report talks to the risk management and insurance provider, Crystal & Company, about industry trends and its business model.

In the most basic sense, the insurance needs of the high net worth are complex because they often own numerous entities such as trusts, operating businesses and foundations – each of which has a unique risk profile.

But as the world grows ever more inter-connected, with people traveling more frequently and ultimately expanding their global footprint, the need for comprehensive risk management has arguably never been greater.

Generally speaking, the lifestyles of high net worth individuals – sometimes due to the origin of their wealth (having a high-profile job, for example) - are by nature more risky. It's big business for those operating in the wealth sector. Indeed, John Hancock recently noted, for example, that the growth of the global high net worth market has created an increasing demand for US life insurance for those individuals who have ties to the US and are seeking solutions to meet their estate and tax planning needs.

Crystal & Company has specialized in the risk management and insurance sectors for 80 years, with its heritage firmly rooted in the financial services arena. Headquartered in New York, the firm has around 400 professionals based across the US, placing over $1 billion in premiums annually in the global insurance market.

One of its core offerings caters to the high net worth community and their families (Crystal & Company serves around 5,000 families), as well as financial institutions including investment advisors, trust companies and multi-family offices.

Private client

Crystal & Company's private client services cover several areas including: home and personal property; fine art; global wealth; executive protection; life disability; personal liability; private aircraft; and yachts.

Equally important are clients' lifestyles, for which the firm takes into account factors such as frequency of travel and the nature of an individual's line of work.

Jonathan Crystal explained to Family Wealth Report that the firm takes a consolidated approach of what he described as the “family enterprise.” The family enterprise represents all the entities owned as well as individual family members' insurance needs and lifestyles.

“We structure insurance programs to address their risk exposure and then negotiate on behalf of our clients to obtain a portfolio or package of insurance policies,” said Crystal, whose role is executive vice president and chief financial officer.

In terms of compensation, he said that – as is standard in the insurance brokerage industry – the firm is generally compensated on the basis of commission paid by insurance companies. It is however occasionally engaged for specific consulting projects on a fee basis.

Trends

Besides basic insurance needs such as travel, personal assets and home insurance, Crystal has observed a few emerging trends that are creating demand for certain services or advice.

The risk of information attacks on personal or financial data, for example, is a very real and growing threat to anyone with an online presence – regardless of their net worth. 

The focus on data protection in the wealth management sector has indeed intensified in recent months, at both the firm and individual or family level. The term “digital assets” has become a crucial element of modern wealth management and financial planning (see a related article here). In 2012, ACE Private Risk Services, the high net worth personal insurance business, added complimentary identity protection and fraud resolution services to its personal insurance program, in a move signaling the importance of these issues in wealth management.

Crystal said the firm is “much more in dialogue with clients around issues around privacy and online security than before.”

However, he noted that while there are some insurance structures available to address related needs, it's not just a question of insurance coverage but more about mitigating the risks. 

Someone with a career in the entertainment sector may have concerns about their reputation, for example, and if such an attack is made, how to remedy the situation may not be as clear-cut as reimbursing for a physical asset. For these cases it’s important to be “proactive rather than just reactive,” Crystal said.

Meanwhile, Crystal & Company recently rolled out client-facing technology including a mobile application for managing fine art collections. The firm has also developed whatsmyliability.com, a free online self-assessment tool for liability insurance.

Another big trend highlighted by Crystal relates to how the globalization of wealth is generating more multi-jurisdictional families (or indeed vice versa), whose insurance needs will be even more complex due to the dispersion of assets across regions, for example.

He also reinforced the importance of taking into account next-gen family members and how their lifestyles impact the overall risk profile of the family enterprise. This is particularity pertinent given recent estimates that some $41 trillion is expected to be transferred from one generation to the next between 1998 and 2052 - the largest wealth transfer in history.