Family Office Elite Spring_16

Alternative Risk Management
for Family Offices
Stand Alone Captive Insurer
A “captive” insurance company
is effectively an “in-house”
insurance provider formed
primarily to insure its owner and
can be viewed as a form of “selfby
Dennis M Govan
Whether a Single or Multi-Family
Office the challenges and demands
in meeting your client’s needs,
objectives and expectations are
huge. Each family has its own
priorities depending upon the
evolutionary stage of the family
office, family culture, values,
demographics, size, age, education,
ambitions and other factors.
Since the financial crisis of 2008-
09, it has become obvious that
robust risk management is a crucial
service that Family Offices (FOs)
must provide for their clients. With
this said, from discussions with FOs,
Trustees, and other professionals
together with various surveys on
this subject, it would seem that
many FOs unfortunately still fall
short in this regard.
While most FOs do of course have
specialist investment portfolio
risk analysis, measurement
and reporting capabilities and
tools; they typically do not have
comprehensive risk management
processes and policies in place that
cover many of the other inherent
risks experienced by families and
their businesses.
The recent investment market
volatility continues to highlight the
importance of appropriate portfolio
strategies, tactical allocations,
and regular reassessment and has
already had extensive industry
commentary. Therefore, in this
article, I will concentrate on the
wider subject of risk management
and especially the use of insurance
to cover other asset classes and
risks.
As families evolve and invest more
into custom and multiple homes,
fine art, collectables, jewellery,
yachts, aircraft, and car collections,
whether this is for purely personal
enjoyment or investment
diversification, there is nevertheless
an increased need to consider how
to protect the real value of these
assets. The heightened threat
of Cyber-attack and Kidnap and
Ransom must also be given serious
consideration.
Recently introduced and proposed
UK tax changes in respect of
domicile and UK residential
property, including potential IHT,
do create additional challenges
and insurance considerations. It is,
therefore, imperative that the proper
attention is given to the assessment
of current insurance requirements,
adequacy of existing policies,
security options, contingencies and
of course what happens if you have
to make a claim.
Traditional Insurance
Insurance coverage for a FO is not
a simple single product. In many
cases, the FOs have multiple brokers
or agents covering different asset
classes and several policies. Even
if the family/FO has worked with
“trusted” brokers for many years,
the lack of transparency in the
level of brokerage commission can
be an issue. Do you know if you are
paying 5% or 40%?
Families with substantial assets
who insure their homes, yachts,
and valuable collections through
these traditional brokers or agents
and with some of the betterknown
market carriers, frequently
overpay for protection that still
leaves them exposed to significant
financial loss.
Furthermore, the diversity
of the risk exposures for the
extended family often tends to
be overlooked with the insurance
program focused only on the
needs of the patriarch/matriarch.
It is not uncommon for families
to view the cost of insurance
prohibitive and rather run the risk
of loss, believing that this is “selfinsurance,”
which it is certainly not!
There are, however, alternatives
that can achieve significant cost
savings and flexibility in cover.
The Alternatives.
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FAMILY OFFICE ELITE MAGAZINE