Managing family wealth: 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. Marsh McLennan Agency Private Client Services (MMA PCS) conducted an in-depth Family Office Benchmarking Study 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 flood 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, one family wanted to establish different levels of excess liability coverage based on assets, net worth, and future earnings. We helped them outline that 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. The family also felt it was important that every household carried equipment breakdown and flood 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.

For more information, please request a personal risk review.