Insurance as a risk-management tool is under-utilized by family offices, and offices can leverage the buying power of ultra-wealthy families, extend coverage to the next generation, and outsource insurance to an expert to improve on this, says a new study by Family Office Exchange and Frank Crystal & Company. 

Part of the reason for the markedly sub-optimal level of insurance services provided by family offices is that the perceived risks - by families and advisors - differ from the actual severity of risks to the family, says the study.

To improve this, according to FOX, family offices can develop new ways of assessing risks to families, continually monitor changing family circumstances, and use external experts on assessing and mitigating non-financial risk.

In terms of buying protection, “ultra-wealthy families have a tremendous opportunity to improve their overall protection and receive more favorable pricing by leveraging group purchasing strategies,” says the study. Currently, fewer than half of family offices use this approach.

For many families, issues concerning the younger generation are paramount, and the behavior of this generation can “put an entire family’s assets at risk,” says the survey. Added to this is the fact that extending formal insurance services to the next generation may not be part of an office’s mandate, or even, that younger generations may opt out of engaging the office’s services altogether.

“Effective risk management requires office executives and insurance advisors to have a deep, multi-generational understanding of the family financial and personal situations,” says FOX.

While family offices can take measures to strengthen their risk management using insurance, the complexity of the insurance market coupled with the breadth of services a family office should provide means they should not attempt to develop internal expertise. Rather, they should act as “insurance service coordinators”, and use an insurance advisor for in-depth expertise and support.

“While data suggest that many offices relegate their broker to a limited support role, a good broker is able to identify the best structures for complex and diverse family groups, and recognizes the insurance implications of changing family situations,” says the study.