Here’s how the ultra-wealthy prepare for the worst
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- Affluent homeowners have higher-value property and assets to protect during national disasters.
- Insurance experts told Business Insider that high net worth individuals typically opt for "private client insurance" from high-end carriers, which offers certain protections and services that average homeowners' policies do not.
- According to architects who specialize in hurricane-proofing, there are many (generally pricey) ways to custom-build more resilient homes or modify existing builds to stand up to the impact of a storm.
- And it doesn't stop at homes: Yachts, cars, and wine collections need to be insured, too.
- Here's how the ultra-wealthy prepare for hurricanes.
- Visit Business Insider's homepage for more stories.
Hurricane Dorian — which has left many people dead in the Bahamas, was once again upgraded to a Category 3 storm, Business Insider previously reported. People living along the east coast of the US face dangerous storm surges, rain, winds, and even tornadoes.
While preventing loss of life is the priority for public officials and relief workers, many homeowners worry about the possibility of damage to their property — or, worse, total destruction. Homeowners' insurance generally covers basic weather-related issues, but for those who own higher-value property (and other assets, like yachts or fine art), financial losses can be massive.
There are marked differences between how affluent homeowners and the "average" homeowner handle oncoming storms when they live in hurricane-prone areas.
According to experts, the differences are two-fold:
- Luxury homeowners opt for a higher level of insurance coverage — complete with added options to protect their watercraft and pricey personal collections — to better deal with potential damage.
- High net worth individuals take precautions by adding "hurricane-proofing" features (or custom-building homes with that in mind) to head off potential damage.
Given that many of the most in-demand areas for luxury homes are coastal — and often in hurricane-prone areas, including Florida cities like Key West and Miami — the likelihood of a storm touching down near an affluent homeowner's property is pretty high. Here's how the ultra-wealthy prepare for hurricanes.
The ultra-wealthy buy (and build) "resilient" homes.
In October 2018, when Hurricane Michael touched down in Mexico Beach, Florida, only one of the oceanfront homes was left intact: Sand Palace, a two-story property that had been built only the year before. Most of the surrounding properties, which were older constructions built before more stringent building codes were enacted in 2007, were decimated in the wake of the Category 4 storm.
This was no stroke of luck — the homeowners, attorney Russell King and his nephew, Dr. Lebron Lackey — specifically built their "dream home" to withstand "the big one," they told the New York Times shortly after the storm hit.
SevereStudios.com via AP
King and Dr. Lackey declined to tell The New York Times how much they'd spent to hurricane-proof their home, but their architect, Charles A. Gaskin, did tell the Times that "building a house the way they did roughly doubles the cost per square foot, compared with ordinary building practices."
Geoff Chick, an architect building hurricane-resistant homes in the Gulf of Mexico, told Business Insider in 2018 that building a hurricane-resistant property comes down to a select few foundational features and accessories. Impact windows, for example, are designed to withstand the impact of a 2x4 stud heading toward them at 150 miles per hour — but they're about double the cost of a normal window package ($40,000 compared to the standard $18,000).
Speaking again more recently with Business Insider, Chick said that, if a home is custom-built with hurricane-resistant features in mind, there's not much the homeowners need to do before the storm hits — other than maybe bringing unsecured patio furniture inside.
"Most of my [clients] leave town and enjoy a vacation until the power is back on and the coast is clear," he said, adding that one Albany, Georgia, family he designed a beach house for actually moved to that coastal home for two weeks when their inland Albany property's power was knocked out by Hurricane Michael last year.
For many wealthy homeowners, the extra costs are a small price to pay for the peace of mind knowing their investment is better protected.
"While the Florida building code has done a great job of increasing the design and construction standards in Florida to protect residents from hurricanes and other natural disasters, the luxury buyer has a unique perspective on what is important to them, and [they] are willing (and able) to pay for it," Ryan Homan, the Director of Finance of privately-owned real estate investment and management firm Blue Jay Capital, told Business Insider.
Blue Jay Capital built 121 Marina, a development at elite Ocean Reef, a private club community in Key Largo, Florida. In addition to the "standard" luxury amenities, the 27-unit condominium building was designed with a number of hurricane-proofing features, including:
- A 2,400-gallon back-up generator that can keep the building fully functional for 10 days ("Very important, as it allows the AC to run and protect the significant interior investment in finishes, furniture, and art from being damaged by humidity if the power is knocked out for several days after the storm," Homan explained);
- Four pumps at garage level capable of pumping 20,000 gallons of water per hour, in the event of flooding;
- A seawall raised to 5.2 feet elevation (a foot higher than the Ocean Reef Marina seawall);
- Sliding glass doors that can resist 174 mph winds (above the building code's mandated resistance of 150 mph);
- And flood panels to protect against flooding and water damage that can be installed as quickly as one day in advance of a hurricane warning.
Blue Jay Capital
There isn't a "standard" cost of hurricane-proofing a luxury home, according to Homan: "It really depends on the specific project, location, amenities, and number of units. I would say we spend several hundred thousand dollars per unit — [121 Marina has a] total of 27 units — to add additional hurricane-resistant features."
Buying into a newly built hurricane-proof luxury building is relatively more affordable than building a resilient single-family home.
"We can spread costs of these features across 27 homeowners that have all bought $5 million+ units," Homan added.
Residents at 121 Marina also received a "Hurricane Dorian Preparedness Report" ahead of the current storm, detailing what precautionary measures were taken to secure the property. "So owners can have peace of mind wherever they are in the world," Homan explained.
Wealthy homeowners opt for private client insurance.
When you own a multimillion-dollar property on the coast, your home's insurance policy won't look much like, say, the policy for an inland home of average value.
Jon Kelly, the CEO of high net worth insurance broker Kelly Klee, told Business Insider that there are two main differences between private client insurers and ordinary home insurance companies: actual policy terms and how the insurers treat clients once a claim is filed.
The policy terms, in short, are more generous with a higher (and therefore pricier premium) level of coverage.
Unlike standard insurers, who often try to find ways to deny a claim based on the existing policy, private client insurers tend to "really look at the policy to find a way to say yes" and to ensure high customer satisfaction, Kelly told Business Insider. While mass-market insurers generally limit what they'll pay out towards rebuilding a property after a total loss, high-end carriers are more accommodating of the client's wants and needs.
And if the homeowner chooses not to rebuild in the same spot, the carriers will work with them to help make that happen as well.
"Private client policies often allow for the policyholder to opt out of rebuilding and take a cash settlement to rebuild elsewhere — also a big benefit in devastated areas that might be the site of painful memories," Kelly added.
But it's not just homes the ultra-wealthy have to worry about insuring — it's also their cars, yachts, and art and wine collections.
Mark Thompson/Getty Images
Megan Gorman, a managing partner at Florida-based, boutique high net worth tax and financial planning firm Chequers Financial Management, told Business Insider that high end carriers — including Chubb, PURE, and AIG — offer the appropriate level of coverage for affluent homeowners. Their coverage often includes a number of services that go above and beyond the "usual" homeowners' insurance benefits.
"Some [high net worth individuals] work with services that help remove these assets in a disaster," Gorman added.
Similarly, Los Angeles Magazine's Bob Morris reported in April that AIG Private Client Group hires an America's Cup sailor (among the best of the best in the sport of sailing yachts) to find safe storage for luxury watercraft before a storm hits. The costs the company incurs to do so is well worth it: Repairing or replacing damaged luxury items and assets would cost an astronomical amount more.
"As a business model, protecting everything from pianos and antiques to wine collections before a disaster arrives is cheaper for insurers than the billions they would have to spend rebuilding and replacing properties," Morris wrote.
Kelly told Business Insider that private client insurance carriers offer far broader coverage for high-value assets within and around the home.
"For luxury vehicles, they offer 'agreed value' coverage that pays out based on a specific value rather than a lower depreciated amount," he explained. "Thus, if one's $298,000 Ferrari is totaled due to flood, the owner knows she doesn't have to wonder how much she'll receive to replace the car, as it is written into the contract."
Fine art and other collections often have similarly client-friendly terms of coverage.
"With wine, for instance, our carriers offer coverage for 'sets' where one wine bottle in a set is destroyed and the value of the remaining bottles is lowered," Kelly told Business Insider. "And when a storm is on the way, many times our carriers will help facilitate the packing, evacuation, and storage of high value collections (art, wine and spirits, collector cars, etc.) if needed to prevent losses."
Private client insurance can also cover the costs of temporary housing for the displaced.
According to Los Angeles Magazine's report, homeowners in the Hamptons fled to "luxe hotels" when Hurricane Sandy hit in 2012 — and billed their insurance carriers for the "lengthy stays."
Similarly, Kelly told Business Insider that, should local authorities order an evacuation, the private client carriers his company works with typically "provide coverage for 'reasonable expenses' required for homeowners to maintain their normal standard of living for 30 days if there is no damage to the home" — and even longer if there is damage.
"If there is damage to the home, they generally don't put a time limit on this coverage while a damaged home is being repaired, and instead, offer coverage for the reasonable amount of time required to repair the loss and/or make the home properly inhabitable," Kelly added.
With private client insurance, it comes down to one basic, oft-repeated tenet: You really do get what you pay for. And if you're paying millions for a luxury home (and the luxury goods inside it), you're not likely to scoff at the lofty premiums to protect that investment.
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