NEW YORK - Financial advisers increasingly are incorporating property-casualty insurance into their planning practices, partly to compete with banks that already provide this service, according to industry observers.
"A financial plan that doesn't include P&C insurance potentially leaves a client's asset base at risk," said Eric Pruss, strategic-marketing officer for Chubb Personal Insurance in Warren, N.J. "Asking P&C-related questions is part of the certification to become a certified financial planner."
About 57% of 102 advisers surveyed last month by Chubb said that they evaluated clients' property-casualty insurance - including policies for homes, vehicles, boats and investment properties - as a regular part of their financial planning practices. That is up from less than 40% in a similar 1998 Chubb survey.
Advise, don't sell
Failing to take property-casualty loss exposures into account may subject the adviser to possible negligence liability, Mr. Pruss noted, though liability also depends on the terms of the engagement contract and how courts in the various states would rule.
Some financial advisers will identify property-casualty exposures as part of an asset protection strategy, a service that is especially critical in states that don't mandate coverage or where lenders don't require it. But these advisers refuse to sell the policies.
"I used to sell P&C insurance while also working as a planner, but I don't anymore, because it's riddled with so many conflicts of interest," said Donald Calcagni, a financial adviser in West Conshohocken, Pa., with Mercer Advisors Inc. of Santa Barbara, Calif. "An agent represents the insurance company, and as a planner, I have a fiduciary responsibility to represent the client."
The main conflict would come when the client asks the adviser whether a claim should be filed, noted Mr. Calcagni, whose firm has $3 billion in assets under management. "Receiving a claim payment might help the client, but it adversely affects the agent's loss ratio and commissions," he said.
"I don't think that there would be any conflict if the adviser performs a risk assessment but doesn't sell any products," Mr. Pruss said. A property-casualty sales license isn't required to do the assessment, which includes identifying loss exposures and possible insurance coverage gaps, he said.
Despite advisers' increased attention to property-casualty insurance, few are deriving any direct income from it, the Chubb survey found. Commissions from the policies accounted for just 3% of the survey respondents' revenue, while life insurance accounted for almost 12%.
Just 9% of the advisers said they were licensed to sell property-casualty insurance, while 34% said they had life insurance licenses.
About half the advisers referred property-casualty business to outside agents and brokers, possibly missing out on a lucrative income source. The referral relationships often were one-way streets, as just 8% of the advisers said that those agents and brokers were a significant source of new financial planning clients.
But the referral strategy works well for some advisers.
"I recently sublet a new office from a P&C agency, and we have been cross-referring," said Keith Singer, president of a Fort Lauderdale, Fla., advisory firm with $35 million under management that bears his name. He doesn't get any commissions from the arrangement, but he said that that isn't important to him.
"I wanted to be the person that the client calls for everything, instead of just telling them to look for an insurance agent in the yellow pages," Mr. Singer said.
"Referral relationships can work, but I would caution the adviser to use an independent agent who can access a variety of companies' products, rather than a captive agent tied to one company," Mr. Pruss said.
Banks forge ahead
Meanwhile, bank advisers - who are ahead of their non-bank counterparts in offering property-casualty policies - contributed to record insurance brokerage fee income last year. Income was up 8% for the year to a record $3.9 billion, according to data released last month by Michael White Associates LLC in Radnor, Pa.
"At about half of banks, clients can walk in and have all of their insurance needs met," said principal Michael White. Anything that the platform representative - who usually specializes in life insurance and fixed annuities - can't handle can be referred to property-casualty and employee benefit brokers employed by the bank or to outside firms owned by the bank, he noted.
Financial advisers are struggling to compete with, and differentiate themselves from, other advisers - including those who work in banks - and offering property-casualty insurance is a way to do that, Mr. Pruss said.