Unlock the Family Office

Unlock the family office

Family offices represent a promising growth niche for brokers with high net worth clients.

Nearly every commercial insurance agent has them. Often, they’re hiding in plain sight, right inside a business operation. Their structures may vary, but the ingredients are often similar: family members, a business, money — and plenty of risk.

This often-overlooked opportunity for agents is called a family office, an entity created by a single family for the purpose of centralizing management of personal financial assets, oftentimes in the name of tax-efficient protection and transfer of wealth. According to Patricia LeBon, a family office underwriting expert and personal lines manager at Burns & Wilcox Chicago, many family offices are nestled inside a family-operated commercial business. Exactly where a family office resides can be difficult to pinpoint.

“There is no single structure for a family office. Sometimes they are inside an operating company where an accountant and lawyer are on staff, and sometimes they are established in a separate location to maintain the family’s privacy,” LeBon explains. “These are multi-generational family businesses that have acquired wealth, and each one of the members shares in the success of the family endeavors, as well as sharing in the risk. “

Think about it: Grandpa started the business, then the second generation grew the business, maybe with a few siblings,” she continues. “Then the third generation grew it even bigger and the focus has always been on growing the business, not taking the time to address the increasing personal risks faced by the family’s growing wealth. They often have been with the same standard carrier for years. But now there are more family members, there’s substantially more wealth, and with that, the family has more expensive cars, houses, boats, jewelry and thus, an increasingly more complex risk profile. Simply put, their risk management needs have changed dramatically.”

Voice of Experience

LeBon is regarded as a trailblazer in the family office insurance business, having begun writing policies more than 25 years ago. She likes to tell a true story to her potential clients to illustrate how important coordinated insurance programs are for middle-market or larger family owned businesses.

“I was calling on a family business, whose name was on the door,” she recounts. “Their successful business had made the family wealthy. There were three generations of family members in the business. When I was assessing their risk exposure, I learned that each family had separate insurance coverage on their autos. A 25-year-old family member had purchased a new car and bought $25,000 worth of auto liability. That was it. As soon as that was disclosed, the lawyer in the room turned to me and asked, ‘How fast can you get an umbrella?’ Within 30 minutes, we had a $2 million umbrella. This young man never considered, with his family’s prominent name, that if he were in an auto accident it would have a potentially negative financial impact on his family.”

She uses this story when talking to retail agents about the importance of offering comprehensive personal risk management services to high-net-worth commercial customers, and the opportunities in doing so. “Someone is going to get this family’s personal insurance so it may as well be you, the commercial lines agent.”

LeBon suggests that agents trying to focus on prospecting family offices simply turn the spotlight on the family owners of the commercial businesses that the agents insure. Often the personal financial affairs of the family are being addressed in the context of the family business. The company’s risk manager or CFO could confirm the “version” of the family office services the business owner uses. Ask to be introduced to the family lawyer or accountant, who is usually the person overseeing the personal wealth emanating from the family business.

Foot in the Door

To connect with key contacts — mainly professionals who serve business owners, senior executives and successful professionals — she advises agents to get involved in attorney, accountant, financial advisor and risk management networking groups that focus on high-net-worth clientele. “Embrace the opportunity to network with affluent and high-net-worth financial advisors,” she suggests. “The high-net-worth and family office world is an underserved market where people are seeking trusted insurance resources and searching for advice and solutions to complex, unanswered insurance needs.” Here are a few key points LeBon recommends agents raise during their dialog with high-net-worth commercial clients: 

The agent says:

“For families such as yours, many clients have found value in having the quality of their insurance program reviewed to make sure it corresponds appropriately to the risks faced by family members, and of course, to see if the premium pricing is competitive. It is recommended that at a minimum the program be reviewed once per year.”

The agent says:

“Just as risk management principles are critically important for your commercial insurance program, for a successful family such as yours, your personal insurance portfolio should also utilize these same principles to address the myriad of risks that your family members face.”

The agent says:

“When you selected our agency to provide your business insurance program, we were honored to meet the expectations of your due diligence process. How did you select your personal insurance agent? When did your personal agent last review your insurance program?

If in using these sound bites an agent uncovers an unaddressed need or finds that a business owner is receptive to exploring new opportunities, he should schedule a consultation appointment and solicit help from a high-net-worth or family office expert, LeBon suggests. “When we work with a family office, we develop a family risk profile. Utilizing a personal risk management process, we start with risk identification, we do a risk assessment, examine risk control, develop a risk transfer plan and design a risk management program.”

High-net-worth clients may offer increased challenges, says LeBon, but they are often extremely rewarding personally and professionally to have as clients. They often bring large accounts that can yield 35 percent profitability over three years if they are well structured and well placed. What’s more, they can easily turn into long-term relationships built on helping multi-generational families protect the assets they have worked so hard to accumulate.

“We help these people coordinate their need for comprehensive insurance protection,” LeBon sums up, “and to avoid risk exposure, while they continue operating the business they have nurtured.”

And when these types of relationships yield referrals, that’s good for your business, too.