RISK MANAGEMENT FOR THE RICH & FAMOUSThe Insurance of High Net Worth and Celebrity Clients

Introduction 2

Chapter 1—More than Jack and Jill’s Insurance Policies 4

Why entrepreneurs, investors, executives, athletes, entertainers and celebrities are uniquely exposed to risk.

Chapter 2—Top Vulnerabilities and Exposure Blind Spots 8

The assets and exposures that make your client uniquely vulnerable to financial loss.

Chapter 3—Beyond Insurance 12

Why the best protection for your client is far more than a few insurance policies.

Chapter 4—The Road to Risk Management 20

Help your client find long-term success through risk management.

Conclusion 26

TABLE OF CONTENTS

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INTRODUCTION

One thing is for certain: The lives of the rich and famous are never boring. !Between business ventures, vacation homes, time zone hopping and a personal staff, the lifestyles of your high net worth and celebrity clients are complicated, and their risks are equally complex. Are your clients adequately protected? !In the following ebook, we explain why your high net worth and celebrity clients are uniquely exposed to risk, what the most commonly ignored liabilities are, and how to develop a comprehensive and strategic risk management plan. !As an advisor and confidant, you help your clients spend and save their money. You have learned how to juggle many responsibilities, handle a demanding schedule, and manage a variety of personalities and needs. Now, it is time to help them protect what they have and position them for continued success.

INTRODUCTION 3

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CHAPTER 1: !

MORE THAN JACK AND JILL’S INSURANCE POLICIES

Why entrepreneurs, athletes, executives, entertainers and celebrities are uniquely exposed to risk.

From the outside, wealth and celebrity appear to be a life of indulgence, luxury and security. In reality, a great deal of hard work goes into building and sustaining a high-profile life, as well as managing the challenges that accompany fame. High net worth and celebrity clients face unique personal characteristics that put them at greater risk than the general public:

CHAPTER 1 | MORE THAN JACK AND JILL’S INSURANCE POLICIES

• Public Prominence: Your clients’ personal fame and high-profile whereabouts single them out, making them a potential target for stalking, robberies, lawsuits and other liabilities.

• Potential for Loss: The amount of assets, as well as future earning potential, of high net worth individuals puts them in a position of having a large potential for loss that surpasses normal policyholders.

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• Perceived Tolerance for Loss: Wealth, particularly quickly earned wealth, can create an illusion of impenetrability by insulating the client with more comfort and status than they are accustomed to. Fame can also create an unrealistic perception of one’s financial assets and one’s earning potential. For example, athletes’ high salaries make wealth seem endless, but even a healthy athlete’s career may last for only 5 - 10 years.

• Excess Assets: The ability to fund expensive purchases, fueled by peers’ conspicuous consumption, can leave a client with an extensive collection of possessions including cars, vacation homes, boats, jewelry, designer clothing and more.

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• Unusual Assets: Wealth gives individuals access to exclusive products and experiences not available to the general public, creating the potential for niche and difficult-to-insure assets, such as memorabilia, unique collections or exotic pets.

• Complex Exposures: Wealth, and particularly fame, draw attention to individuals and make them more susceptible to liabilities and lawsuits in a plaintiff’s pursuit of personal financial gain. High net worth clients must take added precautions to protect themselves and transfer risk when possible.

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CHAPTER 2: !

TOP VULNERABILITIES AND EXPOSURE BLIND SPOTS

The assets and exposures that make your client uniquely vulnerable to financial loss.

For all the reasons outlined in Chapter 1, high net worth and celebrity clients are more likely to have insurance claims, lawsuits or other challenges come their way. While circumstances are unique to each client, the most commonly overlooked risks include:

• Sponsorships and Endorsements: Sponsorships and endorsements are a source of income for many celebrities, but they come at a price. Whether a product recall or a class action lawsuit, lawsuits and claims often follow those with the deepest pockets and the best-known names.

• Business Ventures and Entrepreneurship: Wealth and celebrity open doors of opportunity, allowing your client to pursue extracurricular passions, such as opening a business or owning a private vineyard. However, business ventures bring their own risks, and can be difficult to insure.

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CHAPTER 2 | TOP VULNERABILITIES AND EXPOSURE BLIND SPOTS

Endorse at Your Own Risk: Former baseball player and celebrity spokesperson Steve Garvey was sued for by the Federal Trade Commission for his infomercial endorsements of The Enforma System, which were said to include deceptive advertising and weight loss claims.

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• Board Membership and Advising: Many high net worth individuals use their means to support philanthropic efforts or advise on a board in an officer’s or director’s role. If your client participates in a board of directors for a public, private or nonprofit organization, high-limit directors and officers liability should be put into place to protect them.

• Hobbies, Possessions and Experiences: Expensive cars, beachfront vacation homes, private jets and priceless art—with more possessions comes more responsibility. Your client’s assets must be documented and properly insured to offset a potentially devastating loss. Experiences and travel must also be considered. If a claim were to occur when on tour, on a private jet, or surfing with friends in Hawaii, your client could be held liable. The proper precautions and policies can help reduce losses in the event of an accident.

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• Employees: Employees are possibly the most risky, and the most overlooked, aspect of risk management. Personal assistants, drivers, nannies, household employees, cleaning staff and more must all be properly vetted and insured. This includes legally required policies such as workers’ compensation, and other insurance best practices, including employer’s liability and employment practices liability.

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CHAPTER 3: !

BEYOND INSURANCEWhy the best protection for your clients is far more

than a few insurance policies.

Risk transfer includes a portfolio of actively managed insurance policies. But for individuals with significant wealth or fame, offsetting risk should go much further. !What is Risk Management and How Does it Complement Insurance?

CHAPTER 3 | BEYOND INSURANCE

Risk management is a more comprehensive approach to offsetting personal liability and risk, and is tailored to the unique lifestyle and liabilities of the client. !A risk management strategy begins with risk identification; risks can be identified with the help of checklists, in-depth interviews, site visits, asset inventories, activity logs and studying income streams. !

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Once identified, risks can be ranked by potential severity and relative likelihood of harming a client. Solutions can then be evaluated, such as avoiding the risk, transferring the risk (through legal contracts or insurance policies), or reducing the likelihood of loss through loss control and/or safety engineering. After solutions are selected and implemented, the program must be monitored and updated as circumstances change. !Characteristics of Responsible Risk Management !When developing a risk management strategy for your client, keep the characteristics of sound risk management in mind: !• Holistic: To be truly effective, risk management must be comprehensive. Mitigating

risk is successful only when all of your client’s assets, lifestyle, goals and outside factors are taken into consideration. Otherwise, devastating blind spots could be ignored.

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• Strategic: Risk management complements income development and wealth management strategies. The plan put into place should strategically position your client to preserve and grow wealth over time. To do this successfully, your client’s short-term and long-term goals must be factored in.

• Evolving: A risk management strategy cannot be developed, implemented and then put on the shelf. It must be a living document that is reevaluated at regular intervals and as the client’s lifestyle, assets, goals, or needs change.

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Essential Components of a Risk Management Strategy!When your client’s lifestyle is complex and risks more severe, the strategy put in place to manage these exposures must be equally sophisticated. A risk management strategy will differ based on the client, lifestyle and tolerance for risk, but the following are important pieces to include: !• Initial Consultation: Development of a holistic risk management strategy begins

with a comprehensive initial consultation. During this conversation, your risk management partner will work with you, and your client, to uncover personal and professional liabilities, as well as to identify the client’s short-term and long-term goals. This meeting will create the framework for determining which insurance products and risk management strategies are most appropriate for the client.

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• Catalogue of Assets: Proper documentation of your client’s assets will allow them to be appraised and/or insured as desired. In some situations, documentation can also help reclaim items or replace them in the event of the claim.

• Portfolio of Investments and Insurance Policies: Record of all held investments and policies can help keep your client’s affairs in order, to make sure they are kept up-to-date, and are properly managed by qualified and reputable professionals.

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• Contract Language: As mentioned in Chapter 2, high net worth and celebrity clients can fall victim to claims, and lawsuits, as a result of their means and status. Offsetting liability in the event of a claim is an important part of risk management, and often includes contract language, waivers or similar documentation.

• Employee Handbook: Employees often have high interaction with, or even control over, a client’s assets. As a result, these individuals should be properly vetted, including a thorough background check, physical evaluation and investigation into workers’ compensation claims or other potential red flags. Standards of proper conduct should also be outlined, as well as processes for handling non-compliant staff.

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• Safety and loss prevention consultation: Additional recommendations should be provided by a risk management professional to prevent or reduce the severity of loss. For example, the risk management professional might suggest that fire prevention measures be taken in the client’s home, or additional security systems be purchased.

!Ultimately, the recommended strategy should be uniquely tailored to your client’s life. Full disclosure and transparency with your trusted risk management consultant will ensure no blind spots remain and none of your client’s vulnerabilities are left exposed.

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CHAPTER 4: !

THE ROAD TO RISK MANAGEMENTHelp your client find long-term success through risk

management.

If your client is a good candidate for more proactive risk management, you have taken an important first step with this ebook. Now, it is time to find the right partner to help you develop a strategy. Because your risk management consultant is responsible for helping you manage many other partnerships—financial advisors, wealth managers, security staff, etc.—it is paramount that you and your client trust, and feel confident, in the professional or firm you choose.

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Characteristics of a Risk Management Partner!Look for the following qualities in a risk management consultant or firm: !• Competent: Thorough knowledge of insurance and risk management practices,

with experience in protecting the interests of celebrity and high net worth clients. Exudes confidence and expertise in writing niche and difficult-to-insure exposures. !

• Consultative: Knowledgeable on the policies your client must legally hold, as well as other insurance products and services applicable to their needs. Provides thorough explanation behind recommendations and what they are intended to protect.

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• Comprehensive: Insists on a holistic approach to the risk management process. Leads an in-depth conversation with your client to uncover possible risks and discuss long-term goals.

• Collaborative: Once all vulnerabilities have been identified and solutions recommended, works with you and the client to craft a strategy that fits your client’s needs, goals and tolerance for risk.

• Continually Invested: A trustworthy risk management professional knows that your client’s strategy must be revisited and revised over time as needs change, and will keep a pulse on your client’s life and investments, knowing when to reevaluate the existing strategy.

!Is Your Client Over- or Under-Insured?!The signs of over-insurance and under-insurance are often the same, and stem from a poorly managed insurance portfolio. Some red flags to watch out for: !“I don’t know what policies I have.” Not having a complete record of all current insurance policies could mean your client is not carrying enough to cover their assets—or, that were persuaded to purchase policies they don’t really need. !“I don’t know why I have this insurance, but I think I have to have it.” A good insurance professional will explain what policies your client needs, and what they are intended to protect.

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Is Your Client Over- or Under-Insured? (Con’t)!“I can’t remember when these policies were last reviewed or renewed.” If your client’s insurance policies are collecting dust, they are not providing adequate protection. Plus, many policies automatically renew annually, which means your client may be overpaying for coverage that is no longer needed. !“My policy limits might be high enough, but I’m not sure.” A standard renter’s insurance policy may not sufficiently cover the penthouse apartment’s marble floors and custom wall finishings. And $200,000 might sound like enough insurance for a piece of art—unless it is valued at $2 million. Your client’s assets must be thoroughly documented and professionally appraised to ensure the limits of their policies provide sufficient coverage.

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Getting Buy-In From Your Client!If you believe your client would benefit from formalized risk management services, begin by emphasizing the potential risk and benefits seen through more holistic management of insurance and wealth. Even some of the wealthiest and most famous individuals have run into devastating claims, lengthy legal battles and even bankruptcy because they failed to take the proper precautions. Remind your client that the more they have, the more they stand to lose. !Also, remember to highlight the positive—risk management is not looking to place unnecessary burdens or restrictions. In fact, adopting a proactive risk management strategy will free your client to pursue the lifestyle they want without worry, and while responsibly planning for the future.

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CONCLUSION

Wealth and fame bring both privilege, as well as responsibility. Public prominence, a large bank account and an out-of-the-ordinary lifestyle creates unique vulnerabilities that must be protected, and insurance often is not enough. Risk management is one way to preserve and perpetuate the livelihood of your client. !But first, you need to find an ally you can trust. INGUARD consultants develop tailored risk management programs for celebrities, as well as high net worth individuals and families, to protect and preserve wealth. Our risk management consultants work with you and your client to develop an appropriate, responsible risk management strategy. !We provide guidance and consultation on potential vulnerabilities, legal and regulatory requirements, and risk management best practices. Because we realize that when it comes to risk, you want a partner—not a policy. !If you’d like to learn more, contact INGUARD to schedule an initial consultation.

CONCLUSION

Schedule a Consultation

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Previously Beauchamp McSpadden | Morrison Galliher, INGUARD is an insurance and risk management firm headquartered in Wabash, Indiana, providing holistic insurance and risk management consulting services to individuals, families and businesses. INGUARD specializes in niche markets and portfolios with complex needs, including celebrities and high net worth individuals and families. INGUARD provides personalized financial and insurance consulting services to illuminate areas of risk. Learn more about INGUARD at www.INGUARD.com.

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