Katherine Frattarola is the head of high-net-worth personal lines at Hub International, a global insurance broker and financial services firm that provides risk management, insurance, employee benefit, retirement and wealth management products and services. She talked with Crain Currency about how family offices and ultra-high-net-worth individuals are insuring their homes and assets in the wake of disasters like the Pacific Palisades wildfires in California.
The Pacific Palisades wildfires, flooding in Florida and other forms of extreme weather have devastated residential properties. How are wealthy families and high-net-worth individuals adapting to climate risk?
These disasters are truly catastrophic events. And when you look at inflationary pressures in the market, that all finds its way into risk management. So the cost to replace or to rebuild because of labor shortages and product shortages — which with the tariffs could potentially inject even more pressure into the system — makes it more expensive during a loss. As a result, you wind up seeing insurers paying more money out in claims than they have before, and then they seek rate increases. Rates have to be consistent with risk.
It's particularly important for our ultra-high-net-worth clients and families because they're the ones that are often buying the homes that have unique features. They're the ones that are living on the cliffs in Malibu, on the beaches of Palm Beach, on the ski slopes of Aspen surrounded by forest and brush. Those homes that have unique features often have outsize risks, and outsize risks means outsize costs.
These families should think about how to build and/or manage homes that are more resilient. That's the silver lining, because there are ways to better fortify your homes to manage that risk.
What are some of the ways that you're seeing that are becoming more popular?
It depends. Broadly speaking, homes that are built in the sort of mid-2000s and beyond wind up withstanding wind surge far better than homes that were built prior to that time period. And it's better building materials. So if I were an ultra-high-net-worth family or a family office looking to purchase another property for my portfolio, while the 1930s Mediterranean villa in Coral Gables may have a lot of appeal, it will be much harder to insure, even if the insides have been beautifully restored. It's about the building materials, the roofing materials, the windows, the doors.
As it relates to storm surge and water, negative-elevated properties don't usually fare well. So if you're living on a barrier island — which is really nature's response to protect the mainland — because they're beautiful and you're negatively elevated, you have to go into the decision understanding that you are absolutely taking a risk. There are certain ways to fortify your property against storm surge with various retaining walls and duct systems and pipe systems that go underground.
When it comes to wildfire, folks think it's impossible to protect properties. I challenge them to look at the Getty Museum. It is a masterpiece in architecture that was built as a challenge to nature's wildfires, and it's incredible and largely survived the recent wildfires.
It’s about roofing, using things like ember-retardant ducts, using foliage that's resistant to fire because it absorbs water and holds water closely, not using mulch but other types of materials, having your own fire hydrant that doesn't just pump water out from the public system but potentially from your pool, using water suppression systems that are built onto your house.
Are you seeing clients move assets such as collectibles away from their homes?
Be prepared as you start to look at the risk assets located in the house. That could be collector cars. It could be art collections. It could be jewelry.
All of our family offices and ultra-high-net-worth clients have the opportunity to work with our internal risk management team to build a disaster plan, and that will include assisting with locating vendors who will do things like remove art collections, who will take boats out of water, who will provide security for your jewelry, who will provide security for your home in your absence.
Given the winds with the Palisades fires, the smoke traveled for miles and miles. And so even if your home was intact, the things within your home could still withstand smoke damage.
Water damage can be really devastating. And if you experience a significant water loss, the time to recover could be immense; because once water seeps into the walls of your home, it becomes a very significant undertaking, particularly in a large home. It’s important to have water shut-off systems that monitor for water usage. If you decide to travel away from your home during winter months, it’s good to have a caretaker ensure that there aren't any frozen pipes, to use thermostats where you're able to control the temperature to ensure that your home stays warm enough.
Some of these measures are more expensive, such as installing a fire suppression system on the roof of your home. Others, like replacing plastic gaskets, can be very easy to do. If you have a family office manager, this is something that is easily coordinated and can often be coordinated directly with your insurance carrier.
Do you see people maybe avoiding some of the more risky areas to move to — maybe not building on that cliffside in Malibu but somewhere a little more safe?
Certainly, because in many cases, the cost of insurance has outpaced the savings of living in states that have historically been tax havens for high-net-worth individuals.
As people spend down their retirement, the question is whether they would be just as well-suited in the Carolinas as they are in southern Florida. And so we're seeing that all the time, and as we work with financial advisers around the country, they are also working with their clients to understand the trade-offs of living in areas where there are high premiums associated with their homes and their belongings.
We are also seeing the pursuance of self-insurance. You may have $100 million on your balance sheet; but if you have a $30 million property in Malibu that you've decided to self-insure because in the moment it seemingly made sense, if a fire destroys that home, then you're out $30 million — which is 30% of your balance sheet. Are you prepared to carve out those dollars to rebuild? Are you mentally prepared to try and harness all of the resources necessary on your own to rebuild? When you have a carrier, you have the ballast of them working as your advocate with the right vendor to help get you back on your feet. And so as a lone ranger, so to speak, you're working against the tides of the big insurers like Chubb.