It seems that as more and more money pours into the fine-art-purchasing
market from all over the world, more money is being invested in
fine-art insurance.
by Daniel Grant
It seems that as more and more money pours into the
fine-art-purchasing market from all over the world, more money is being
invested in fine-art insurance. Says Christiane Fischer, the president
and CEO of AXA Art Insurance Corporation (AXA Art), “Business is good.
Our growth rate over the past three years was 10 percent annually, and
it was even higher for the first half of this year.” Business is even
better at the Chubb Group of Insurance Companies, where there has been
a 15 percent to 20 percent increase in the number of policies written
and the amount of premiums over the past year, according to the
company’s worldwide specialty fine-art manager, Dorit Straus. With
increasing wealth around the world and the sense that “collecting is
fashionable these days,” says Fischer, both short- and long-term art
buyers are looking to protect their assets with fine-art insurance.
Certainly not all art collectors take out a policy for works they
buy, but those people appear to be in the minority. Perhaps they don’t
invest because they assume the pieces will be covered by homeowner’s
insurance; and some only obtain coverage for a portion of a
collection’s value (assuming any loss won’t be total). Additionally,
some collectors do not keep up with the market, increasing their
insurance coverage to keep pace with the value of their artwork. “We
have some clients who haven’t had work reappraised in years,” Straus
says. “They don’t think of it as an asset but as something they’ve
always owned, and some people worry that if they have a work
reappraised and the value has gone up a lot, it will affect their
estate planning. The problem is, if there is a loss—damage or something
worse, such as total loss—they will lose much of the value of that
asset.”
The past few years have brought a variety of changes to fine-art
underwriting besides the fact that more policies are being written and
more money is being collected as insured artwork increases in value.
“Heightened awareness of manmade and natural disasters has led to some
changes in our underwriting as well as appetite,” Fischer says. The
threat of terrorism has increased the cost of some insurance and made
it less available to collectors living in cities where the risks are
higher, such as Chicago, Las Vegas, and New York City. “Some business
we don’t want,” Fischer says, describing buildings with lax security,
and “some exposure may be too great. For example, if we have several
clients in the same building, we may choose to not add another
collector due to the overall accumulation.”
On the natural-disaster side, the experience of Atlantic-coast
hurricane damage in the past few years has led AXA Art to require more
fine-art policy holders. “Someone may have a house overlooking the
ocean, with shutters on the windows, but we know that this will not
help if a severe storm engulfs the house,” Fischer says. “We advise our
clients to move art away from the walls, and strongly recommend
installing watertight storm closets for the art, and to have backup
generators so that temperature and humidity controls aren’t knocked out
with the electricity.”
AXA Art also wants collectors to have a local conservator’s
telephone number handy so that, in the case of a disaster,
art-rescue-and-repair operations can begin as soon as possible. In
addition, since the majority of coastal homes that contain artwork
insured by AXA Art are not the collector’s primary residence, the
company also requires the policyholder to appoint someone to enter the
house quickly after a disaster strikes to begin the process of rescuing
the artwork. Putting artwork in storage is also strongly advised for
absentee homeowners, although that is not always foolproof. “The
majority of our Katrina losses were storage losses,” Fischer states,
adding that the company still hasn’t totaled its entire losses for that
2005 hurricane.
Spreading an art collection over various properties—the primary
residence, a second (or third) home, the office, or a storage
facility—has increased the attractiveness of partial-loss clauses in
fine-art policies, Fischer says. Collectors whose artwork has increased
substantially in value have limited their insurance costs by only
insuring the collection at half or three-quarters of its total market
value, assuming that damage, theft, or destruction won’t take place at
the same time in different locations.
Much of the collecting and the source of rising prices in the art
market has been for contemporary art, which has proven to be a tricky
area to insure, Fischer admits. This is due, in part, to the tendency
to assign insurance values to artwork that has not been on the
secondary market and has no obvious comparables, or when the galleries
that originally sold the pieces may no longer be in existence. “Hot
artists today may not be around in a couple of years,” Fischer says,
noting that current market-value policies in which insurance coverage
may increase or decrease have gained in popularity. AXA Art—which
operates on five continents and currently has 50 fine-art experts on
staff worldwide—added two more experts in the United States since 2001
(bringing the total to six) who are responsible for tracking sales in
galleries and auction houses, primarily in the modern- and
contemporary-art areas.
The unsettled nature of the current art market, in which work may
rise quickly and dramatically in value, has led the Fireman’s Fund
Insurance Companies (FFIC) to offer extended-replacement value policies
in which collectors may be entitled to 150 percent of the stated policy
value of a particular work in a claim, according to its product manager
for fine art, Theresa Lawless. FFIC, which has offered fine-art
coverage for decades and experienced a 10 percent growth in written
policies and premiums over the past year, also offers newly acquired
coverage for artwork that buyers obtain while traveling. “People buy
art when they travel, and they travel to buy art,” Lawless says. “We
will provide coverage for up to 100 percent of the itemized amount, and
that includes transit.”
Certain pieces of contemporary art are difficult to transport, or
they are very fragile and therefore very difficult to insure, which has
also proven challenging to the insurance industry. “Old Master
paintings are less troublesome to insure,” Fischer states, “because
they are more straightforward to restore, if there is any damage.
Conservators are more experienced in restoring traditional paintings,”
whereas new media—digital art, for instance—and conceptual-art
installations are more susceptible to damage, and there is less
professional knowledge on how to conserve them.
A painting may go out of style or become obsolete, but that can be
the fate of an artwork based on new technology as well. “If something
becomes obsolete or self-destructs,” Straus says, “there is no coverage
for that.” She adds that, from an underwriting standpoint, the question
is whether or not a work is repairable. “We might suggest getting extra
replacement parts from the artist, and we would have to make an
educated decision about accepting this risk.”
Fischer notes that fine-art insurance claims are low compared to
other property insurance areas, adding that the majority of claims
result from artworks damaged in transit. Dealers, who represent between
15 percent and 20 percent of the company’s insurance clients, “are
always the most claim-prone,” she says.
With more money lavished on the purchase and coverage of artwork,
some related concern has been raised in the insurance industry. One
issue with the burgeoning art market has been a spate of
“overappraisals—it’s the temptation of ever-increasing prices,” Fischer
says. She notes a number of overly high valuations for artwork that is
part of loan agreements between museums. “These overappraisals make us
very vulnerable,” in the event of claims and therefore it is critical
that art experts carefully review the values on an ongoing basis for
damage in transit or on location. Skyrocketing prices for artwork at a
time of heightened terrorism concerns and two record years of Atlantic
hurricanes has also led to more business for the insurance and
reinsurance industries, as well as more risk. “Our exposure has
doubled,” Straus says, adding that, “our role is to remain rational in
this world of irrationality.”