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The art of fine art coverage: buyers and collectors find the most comprehensive terms in this corner of inland marine insurance.

Fine art insurance has long been an insurance industry niche business. While some specialty fine art carriers build their entire offering around these coverages, it's understandable why there might be confusion about where commercial fine art "lives" in larger insurers' organizations.

Inland marine as the insurance "home" for fine art might not seem like the natural choice, but it becomes a logical match when the transit and exhibition exposures, shifting values and niche risks to owners are considered. Understanding the relationship of fine art insurance within inland marine, the risk exposures and the risk management techniques to mitigate those risks will ultimately help agents and brokers garner more fine art business.

Certain risks that immediately come to mind with fine art--like theft and damage--could fit into nearly any line of business. However, it is important to consider more of the niche exposure fine art can face. Like motor truck cargo, fine art is highly mobile. And similar to construction equipment, fine art requires special training and experience for proper handling and theft prevention. These industries fall within the expertise of inland marine underwriters.

When art is shipped, exposures can run high on many occasions. Choosing the wrong shipping company, using insufficient crating that fails to properly protect the artwork, leaving the vehicle unattended or inadequately secured and careless handling of the fine art leaves property vulnerable to severe damage, destruction or loss due to theft while in transit.

Replacement cost is a factor in determining the limits and pricing of insurance coverage, and valuing fine art is an art in and of itself. The appraised value of a piece of art can change dramatically as a result of trends within the fine art community and among collectors. Macroeconomic changes also can affect art's value.

While the art market endured a period of serious instability and poor sales following the financial crisis in 2008, contemporary art prices have risen considerably in the past few years in-step with global stock markets.

This potential and intrinsic tendency for price fluctuations means that special considerations for appropriate valuation must be present in the insurance contract. Amending contracts as necessary is one way underwriters can remedy this. Inland marine underwriters have the advantage when it comes to flexible terms because their other classes of business demand the same skill set as fine art coverage.

For example, inland marine underwriters must be able to underwrite everything from bridges and high-rise construction to auto, motor truck and cargo, to fine art. Little wonder that they are an elite group, with fewer than 50 out of approximately 500 inland marine underwriters in the United States specializing in fine art and 60 in the Lloyd's marine syndicates, according to Travelers' research.

Owners' Risks

Fine art also is subject to significant losses in value from what may appear to be minor damage. One common cause of fine art loss is damage in transit due to improper packing.

It is not, for example, uncommon for losses to occur due to the use of newspaper and other packing materials that react with the artwork instead of much safer options, such as glassine paper.

Another surprisingly common example of how losses occur is the "bubbles-in" mistake, where bubbles in plastic bubble wrap face inward toward the artwork--potentially damaging pieces--instead of outward.

Poor packing will also subject art to vibration, rubbing and changes in climates that are inherent to any transit.

All damage, however slight, has an impact on both the cultural and monetary value of art. This is particularly true of contemporary art, where even slight damage can result in limited but irreversible changes to the visual integrity and can virtually negate the work's commercial value. With these dynamics in mind, inland marine units are structured to mitigate large losses and reduce the financial risk to the company from the big limits they write.

These and other niche risks in the fine art industry add up to a significant responsibility for the organizations that require commercial fine art insurance.

Museums, art dealers, public institutions, galleries and other organizations all have to juggle complicated risks, from properly securing art to deter theft to ensuring it is moved safely from point A to point B.

The driving motivation for protecting fine art, however, is to ensure pieces maintain their value. Every exposure a piece of artwork faces is a threat to its worth.

Agents and brokers have an opportunity to help clients understand the risks facing fine art.

Of course, the role of the agent and broker also includes informing clients about what is and is not covered under a fine art contract.

For example, if a government wins a judgment for the return of an antiquity or stolen work of art, the insurance policy will not cover the loss.

Likewise, most policies will not cover an economic arrangement between a gallery and an intermediary that goes sour or does not live up to the agreement.

Due to the significant value associated with fine art collections, it is important to make sure this work is protected. There are boutique firms and managing general agents, for example, who routinely provide coverage of hundreds of millions of dollars, yet carry only a fraction of that in reserve and have limited scrutiny of their reinsurers capacity to respond to a major loss.

Another concern is that some institutions choose to cover their collection on the property portion of a commercial package policy.

While this may appear to be a convenient solution, these policies often fail to recognize the unique aspects of art as an asset or provide proper valuation or claim services.

At the end of the day, most for-profit galleries and nonprofit museums are scrupulous organizations that buy art insurance because it is their fiduciary responsibility to do so, not because they expect to have a loss.

It is the role of the agent, broker and carrier to help them understand their options for protecting their fine art in the most comprehensive and cost-effective way possible.

Key Points

* Home Office: Most fine arts coverage resides with inland marine writers, even though the arrangement can seem unusual at first.

* Getting Around: Since fine art often moves from place to place, inland marine carriers bring art and transportation experts to pack, ship and handle this cargo.

* Every Risk You Take: The driving motivation for protecting a piece of fine art is to ensure it maintains its value, since every exposure is a threat to its worth.

Tools of the Trade

In the various stages of managing, owning, selling and lending art, there are opportunities for organizations to execute best practices to limit risks. Agents and brokers are in a unique position to give clients access to best practices, so they'll have the tools they need in order to protect their property. Best practices include:

* Appraising artwork regularly to determine current market value.

* Confirming that contract language with borrowers or buyers is in the best interest of both parties.

* Working with vendors who specialize in fine art--from transportation companies and security system specialists to insurers--that have both the experience and financial depth to reliably protect against exposures.

* Meeting with a risk management professional to discuss the appropriate level of insurance and avoid over- or underinsuring a piece or collection based on its current value.

Contributor Andrew Gristina is fine art practice lead at Travelers Inland Marine. He can be reached at
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Title Annotation:Property/Casualty
Comment:The art of fine art coverage: buyers and collectors find the most comprehensive terms in this corner of inland marine insurance.(Property/Casualty)
Author:Gristina, Andrew
Publication:Best's Review
Geographic Code:1USA
Date:Dec 1, 2014
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