Family offices provide a wide range of services to a single ultra-wealthy family or a group of related families. Standard policies may not adequately cover your family office’s risk profile. Let's delve into the top five insurance risks management considerations: do you have these coverage options and compensating controls in place?
Professional liability: Also known as errors and omissions (E&O) insurance, this type of policy provides essential protection against financial losses resulting from negligence, errors, or omissions in the provision of professional services.
Legal protection. In today's litigious environment, people are quick to take legal action. This can cover the legal costs of damages that may arise from lawsuits, shielding your family office.
Reputation management. A lawsuit or client dispute could harm a family office’s stellar reputation, and this coverage allows situations to be handled discreetly and effectively.
Risk mitigation. Family offices provide a range of professional services, including estate planning, tax guidance, and investment management. If any mistakes, oversights, or failures occur, it can lead to significant losses. Insurance acts as a financial safety net.
Regulatory compliance. Failure to meet regulatory requirements may result in legal consequences. Professional liability insurance can cover expenses associated with regulatory investigations and penalties.
Cybersecurity: In the digital age, family offices handle vast amounts of sensitive financial and personal data. This makes you a prime target for cybercriminals. Managing cybersecurity risk – before and after a breach - is paramount. A few areas where a robust cyber and data security risk strategy should be considered include:
Evaluations. Some insurers offer better rates once they have evidence that the family office has taken proactive steps to reduce the risk of a breach. This typically involves conducting vulnerability audits, implementing best practices, and helping your family office improve its security posture to reduce the likelihood of an incident.
Financial protection. This policy covers costs associated with investigating the breach, notifying affected parties, and mitigating the damage. It can also help pay for legal fees and regulatory fines, which can be substantial.
Data recovery. One of the most important ways a cyber policy can be applied is for recovery and restoration, allowing your family office to regain lost or compromised data.
Ransomware. A rapidly growing threat, this type of insurance provides coverage for ransom payments or the cost of negotiating with cybercriminals in the event of an attack.
Business continuity. Cybersecurity coverage can mitigate expenses related to downtime, lost revenue, and extra expenditures required to maintain business operations during a digital disruption.
Real estate: Family offices are responsible for a variety properties, from multiple domestic residences to international vacation homes. In addition, there are often ancillary properties such as hobby farms and charitable foundations to consider.
Assessments. Hire risk mitigation specialists to assess landscapes and structures and make recommendations for damage minimization ahead of a storm.
Natural disasters. The devastation that accompanies a weather event is both physical and emotional. Taking steps such as installing water and temperature sensors, or clearing nearby vegetation, make sense if real estate is located in risk-prone geographies.
Water. Most water damage isn’t from outside flooding. It’s from leaking or burst pipes within the home, especially when a home is vacant for a portion of the year. Installing automatic water shut off devices can not only help save you from a costly claim, but it can also save you premium on your homeowners policy. Ensure you have onsite management, cameras, and sensors so that issues can be addressed before significant damage occurs.
Staffing. Related to the properties on which they serve, family offices need to consider all aspects of staff wellness from benefit coverage through workers’ compensation. Be sure to select a broker who can assist with secure background checks and understands local requirements.
Physical assets: Protecting a family office’s valuable assets from damage, theft, or loss is critical to your overall financial stability. Whether at home or abroad, the memories these possessions hold are often more important than ensuring replacement value.
Vehicles. Vehicles are particularly tricky, as damage can occur from so many different directions. Family offices are responsible for cars, motorcycles, and recreational vehicles – all of which could sustain damage from accidents spanning traffic to natural disaster. And speaking of natural disaster, you may want to move less-used vehicles to a safer location prior to fire, hurricane, or winter storm season.
Art. Fine art has a specialized set of risks. From transportation to restoration, fine art pieces have inherent risks associated with them. Even hanging them incorrectly can add to the risk of damage. Depending on the extent of your collection, you may want to consider engaging the services of professionals to protect them as they are enjoyed.
Collections. Jewelry. Wine. Memorabilia. These items often take decades to acquire and have personal significance to family members. Proactive measures are required to protect them from damage from water, temperature, or theft. Increasingly, fraud is being discovered during the appraisal process, so be sure to take that step before purchasing new pieces.
Marine. No matter if it’s a catamaran, boat, or yacht, many of the risks are similar. If a vessel was involved in a collision or causes harm to others, the legal and medical expenses could be enormous. Crew welfare needs must also be considered, particularly when international logistics are involved. And of course, this coverage is essential for personal belongings and equipment on board the yacht, further safeguarding your family office's assets.
Personal security: For successful individuals, personal security is a significant concern. Family offices often have to manage risks associated with kidnapping, extortion, and other security threats.
Planning. Implementing proactive protocols may include employing personal security personnel, maintaining a low public profile, and investing in surveillance and alarm systems to reduce overall risk. Consider adding kidnap & ransom coverage to your family’s risk management program.
Risk position. The more controls you put in place, the better policy rates you may be able to attain as carriers see these actions as ways to lower their potential exposure.
Insurance is a critical investment for family offices, given the multifaceted nature of financial activities. While there is no one-size-fits-all solution, an approach that includes assessment and tailored risk management strategies can help you navigate these challenges more effectively.
We’re the largest privately held insurance brokerage in the world. Because we continue to be led by members of the Lockton family, we deeply understand the needs of family offices in way many other publicly traded brokers do not.
At Lockton, we craft customized risk management strategies that address the specific needs and personal preferences. If a claim occurs, we’ll handle it on your behalf to minimize business disruption. Knowing there is a comprehensive risk program in place lets you focus on your core mission: managing and protecting your family office.
This article is for informational purposes only and should not be considered as professional advice. Please consult with a Lockton representative for information regarding specific insurance products and services.