Are your fine art customers underinsured?

Fine art collectors require specialized coverage that goes beyond a homeowner's policy.

It’s official. Auction and sale results continue to herald the staying power of the international art market, despite the global economy. Worldwide, art and collectibles continue to be a source of enjoyment and cultural enrichment while, for the most part, retaining or increasing their value over good and bad times.

In an annual global art market report released this year at the European Fine Art Fair, economist Dr. Claire McAndrew stated, “The art market showed its true resilience in 2010, advancing in value by 51% to 43 billion (euros).”

Whether collecting art as assets or for their aesthetic and cultural appeal, collectors expend a great deal of resources to search out and amass important pieces of artefacts for their collection. To protect these valuable investments, adequate insurance protection must be factored into any collection management activity.

When collectors cover their valuables under a homeowner’s insurance policy, there can be limitations in coverage that might not be realized until a claim occurs. In order to help safeguard against potential unknown gaps or underinsurance, the policy coverages must meet the needs of the insured and their collection.

Brokers who provide strategies to clients where art and collectibles make up a significant portion of their asset portfolios should seriously consider an insurance carrier that provides comprehensive insurance solutions augmented with expert fine art advisory services. Specialist fine art services should include thorough knowledge of the specific risks associated with growing and managing a collection, a clear understanding of the intrinsic value of cultural artefacts, the capacity to offer advice on the preservation of fine art and collectibles and has a reputation for the high standards in fine art claims resolution.

Some fine art claims experiences reveal a broad range of loss scenarios. For example, a Giorgio de Chirico painting Piazza d’Italia was destroyed by an out-of-control wrecking ball demolishing a neighbouring building. The wrecking ball pierced through the wall of the insured’s sitting room and right through the centre of the painting. A more recent incident involved an iconic photograph shipped from an international art fair which arrived at its local destination tattered and in irreparable condition. The framed artwork was improperly crated and packed, causing the glass to shatter during the journey severely damaging the frame and photograph – rendering this important image a total loss.

From kids with crayons to rampant wrecking balls, art and collectibles are exposed to an array of perils. Many collectors remain unaware of specialty art insurance, the perils it covers, the valuation methods and the affordability of it. For these reasons many are underinsured or avoid insuring their collection altogether.

Important exposures to address in providing art insurance coverage include basement storage, adequate packing, specialized transit, security and fire prevention systems and persons who have access to the collection. An “all-risk policy for physical loss and damage” will provide coverage for such perils including, but not limited to: fire, water damage, theft and accidental damage. A developing concern for collectors is the risk of art title disputes. The additional complexity of this risk requires specific expertise.

Further advice must be given to collectors in regards to the type of valuation their insurance provides. The valuation method may reflect a collector’s wish to only cover the initial cost of works at agreed value or to take into consideration the market appreciation of each piece.

In short, all collectors should be educated by their brokers on the advantages of insuring their art under specialized coverage.

Ann-Louise Seago is vice president and senior fine art underwriter at AXA Art in Canada. With more than 50 years experience in insuring art and collectibles, AXA Art is proud to provide insurance protection for both private and corporate collectors, dealers and other members of the art community.

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