FINE ART - The fine art of insuring ... fine art

Kris Coombes looks at the essentials of insuring antiques, art and collectibles in a high net worth (HNW) package, the consequences of not getting it right and the level of expertise insurers can provide to brokers in this complex area

Art and antiques cover provided by HNW insurers has traditionally been viewed as second-best to the raft of available 'stand-alone' fine-art and antiques policies because the insurers providing them weren't art and antiques specialists. This view evolved because HNW insurers lacked the in house expertise to handle the client's needs or engage with collector son their own level. There are a number of high-quality HNW insurers with the expertise to protect their clients' assets - even those with substantial collections. But what makes a good-quality product, and what kind of service levels should brokers be looking for?

Important differences

The fundamentals of insuring art and antiques are similar to those of insuring other assets, but there are certain key issues that set this type of specialist cover apart. The volatility of the art and antiques market means that the value of insured items can change dramatically within short periods of time, making them more prone to disagreements on reimbursement in cases of damage or theft than other assets.

Also, the frequency with which many collectors obtain independent valuations for their possessions varies and is sporadic at best. A recent Zurich Private Clients survey found that 50% of HNW individuals had professional valuations that were five or more years old, and that a further 15% had valuations over 10 years old!

This can open up a huge underinsurance issue during a claim, with devastating consequences for the insurer-broker-customer relationship. It is ultimately up to the client to ensure the values assigned to their collectibles are up-to-date, but this is an area where the expertise of the HNW insurer can be crucial.

A labour-intensive market

Insurance assessors with experience in the arts field, or professional qualifications, or both, play a pivotal role in assessing the value of the customer's possessions; and with art and antiques this can only be done on a face-to-face basis. Individual home assessments are the only certain way to ensure that valuables are correctly valued and protected.

Even the most knowledgeable collectors can benefit from an objective review of their insurance needs. One recent survey discovered an original Toulouse-Lautrec oil painting obtained by the owner from the artist in lieu of rent for a room. Uncovering 'hidden treasures' is somewhat unusual, but occurrences like this underline the need for detailed home assessments.

A good-quality HNW insurer will unearth these issues at the outset, preventing disputes at a later stage. Several HNW insurers have strong working relationships with a range of art specialists whose expertise can be used by the customer to reduce the risk of underinsurance. Many categories of art and antiques have steadily increased in value since the early 1990s and now represent very valuable investments. The popularity of contemporary art, in particular, has had a demonstrable effect, with recent figures in the Zurich-AMR Art & Antiques Index showing that auction prices for modern art have increased by as much as 126% since 1995 and by26% in the last year alone.

Insurers must also be able to demonstrate an understanding of the specific requirements of the art collector. Many collectors will opt for restoration over a cash settlement if their fine art can be saved, so HNW insurers should be partnered with skilled restorers. Home assessments will also ensure that a customer's individual risk management needs are taken into consideration. HNW assessors can review the insured's home security and offer advice on conservation, from the correct positioning for works of art to the optimum temperature and humidity levels for storage.

Alongside expertise and service, the three main elements brokers need to consider when evaluating art and antiques cover for HNW customers are the level of specialist cover offered; the availability of 'seamless cover'; and whether they will work on an agreed-value basis.

Specialist cover may include fundamentals such as fine art in transit, 'death of artist' cover, and insurance against depreciation. Seamless cover is particularly relevant, because the higher cover limits provided by a seamless home contents product extend to protect items held in other places, such as a yacht. Boat cover is often placed with specialist companies because it isn't available from traditional HNW insurers, which can mean lower contents limits for high value on board. An insurer that can provide cover for a broader range of risks is worth their weight in gold to the HNW customer.

For clients with larger art or antiques portfolios brokers should be looking for agreed-value cover. Without it, depreciation through market softening or damage can be a contentious claims issue. Regular valuation certificate updates should keep loss through appreciation in value from becoming an issue.

Partner the right provider

Art and antiques cover is often underestimated in HNW business. Brokers need to weigh up every element of service and cover against the client's needs. It is hard for brokers to resource the kind of service demanded by the typical HNW art and antiques collector, so they need to know they can rely on an insurer to provide it on their behalf.

Kris Coombes is an art and antiques specialist at Zurich Private Clients.

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