Societal changes bring about new features in
high-end homeowners products
By Phil Zinkewicz
Whenever new insurance products hit the marketplace, they are almost always signs of the times. Workers compensation insurance came about because of factory fires during the early 1900s. Medical malpractice insurance was born out of society's recognition that doctors were not gods and could make mistakes and, in some cases, should be held accountable for those mistakes. Product liability insurance, after years of being a give-away in commercial packages, became a stand-alone product when the general populous became "informed" about their "right to sue" during the early and late '70s, a recognition that gave rise to a great many new liability insurance products in subsequent decades.
It is not very much different in today's chaotic global environment. As usual, insurers are creating new products intended to respond to new, perceived threats to financial security, especially threats to upscale buyers of insurance.
For example, American International Group (AIG) announced earlier this year that its AIG Private Client Group is offering employment practices liability (EPLI) coverage to protect individuals against allegations of sexual harassment, wrongful termination and discrimination made by "nannies, housekeepers, gardeners, personal assistants and other domestic help employed by the insured."
It is interesting to note that EPLI is a product that was introduced less than 10 years ago. The original target audience was large corporations where the threat of an employment liability insurance lawsuit was most evident. Later, it moved into the small business community. Those markets have not performed well for insurers over the last 10 years. But, now, AIG is offering EPLI to individuals of wealth--again a sign of the times.
"According to the Bureau of Labor Statistics, there are nearly one million people employed in private residences across the United States," says Ross Buchmueller, president, AIG Private Client Group. "At the same time, new laws have been enacted protecting the rights of the employee, and employment-related complaints and jury awards have dramatically increased. In our discussions with our brokers, we recognized that there was a need for an EPLI program designed specifically for employers of private help, especially high net worth individuals with significant personal assets at stake."
Again, this insurance product is a sign of the times. In 1999, five cooks and cleaners, previously employed by a high net worth couple, filed a lawsuit alleging they were fired without cause. The former staff alleged that the couple wrongfully terminated their employment after only six days on the job in the couple's Miami home. In addition to the lawsuit, two of the employees drew further attention by conducting a television interview with "Headline News L.A."
Another high-powered couple found themselves the subject of a wrongful termination lawsuit filed by their personal assistant of five-plus years. The assistant filed a 21-page lawsuit in the Los Angeles County Superior Court seeking unspecified damages. The suit states that the plaintiff was never disciplined and did not receive any warning regarding her job performance.
In another case, after nine days of employment, a personal assistant filed suit in New York's Supreme Court against her employer, alleging "severe injuries" and "mental distress." The suit, accompanied by the large sum she was requesting in damages, drew the attention of the national press.
In yet another case, a former employee of a high net worth individual filed suit in the Los Angeles County Superior Court accusing her former boss of sexual harassment. She alleges that he fired her after she turned down his repeated advances. In addition, her complaint seeks damages stemming from discrimination, wrongful termination, retaliation and emotional distress.
So this new product has emerged out of societal developments affecting the upper level of the financial community.
Also a sign of the times is a new insurance program being offered by The Chubb Group of Insurance Companies. In October 2001, Chubb introduced its Masterpiece Family Protection program, again a product that targets upscale personal lines insureds. The product covers a broad range of expenses if the policyholder or a covered relative is the victim of a home invasion, child abduction, carjacking or stalking threat. Chubb maintains that these threats occur almost anywhere in the world, these days.
The insurance reimburses the policyholder up to specified limits for various expenses, including fees for medical and psychiatric services, reimbursement for lost wages, fees for professional security consultants and security guards, and the cost of recuperation, improving household security and temporarily relocating one's residence. The policy also provides a reward for information leading to the arrest and conviction of the responsible party. An accidental death and dismemberment benefit up to $250,000 applies in Connecticut, Illinois and Massachusetts. Covered relatives include one's spouse, children, grandchildren, parents, grandparents, siblings and their children.
"Many of our policyholders and their families lead active lifestyles. The policy provides peace of mind by helping to mitigate the emotional and financial impact of one of these incidents," said Peter Spicer, assistant vice president of Chubb and new product manager for Chubb Personal Insurance. "Just listen to the nightly newscasts, and you find that these incidents happen everyday. Unfortunately, most people will think that it can't happen to them or their loved ones."
According to the U.S. Department of Justice, nearly 1.3 million cases of forcible or unlawful entry of residences, 1.4 million stalkings, 50,000 carjackings and between 3,200 and 4,600 non-family-related child abductions occur each year, says Spicer.
"The need for the coverage is quite clear and its cost--$70 to $80--is quite minimal," he says. "The question, however, is whether people will want to face the disturbing facts. After introducing the product in Colorado, Connecticut, Illinois and Massachusetts, we hope to make it available nationwide."
A recent nationwide survey of more than 300 people conducted by Impulse Research of Los Angeles concludes that families feel that home invasion, child abduction, carjacking and stalking represent considerable threats, says Spicer. Nearly two-thirds of Americans (62%) worry that their child may be abducted, 58% are concerned about carjacking and 46% fear that they may be stalked. In addition to the emotional issues, 78% of those surveyed said the expenses associated with being a victim of one of these crimes could seriously affect their finances. According to the survey, the average cost of responding to an incident of stalking, carjacking, child abduction or home invasion is $38,000. Nine percent of respondents estimated it would cost more than $100,000.
Families are beginning to address the need for financial protection against these crimes by purchasing Masterpiece Family Protection, according to agents offering the product in the four states. "Our clients feel more secure knowing that Masterpiece Family Protection can provide financial assistance when confronted by a very difficult and emotional situation," says Spicer. "No one should have to worry about the financial costs when a loved one's well-being is at stake."
So, at a time when the traditional insurance marketplace is tightening up, insurers may be looking to market these types of insurance coverages--coverages that target the upscale market and which, unfortunately, reflect the signs of the times. *