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 or those in the art business 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.”
1998 • Oil on Linen • 80 x 100 by Bo Bartlett
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.”