Art insurance: demand grows as market blossoms

There is currently a great deal of insurance capacity in the marketplace for fine art coverage, which would typically be viewed as a soft market. However, when capacity is required for locations that have high concentrations of art, or where there might be catastrophic perils such as floods, hurricanes or earthquakes, that capacity becomes considerably tighter.

That is the view of John Sims, Head of AIG Private Client Group, UK. He says that there are always new players seeking to put capital to work in this area, as it is short tail business that generally is viewed as having a traditionally favorable loss ratio.

However, most brokers would prefer to deal with markets that are in the class for the long term rather than insurers who are perhaps more opportunistic and can jump in and out of the art market.

AIG Private Client Group, a division of the member companies of American International Group, Inc. (AIG), insures high net worth individuals and families.

“When it comes to fine art and other collections, some of these clients are sophisticated, lifelong connoisseurs,” he says. “Others may have simply inherited jewellery, received art as gifts or purchased valuable antiques to decorate their homes.”

He adds that demand for AIG’s is linked in part to the increasing buoyancy of the art market.

“One simply needs to open a newspaper on any given day to read about the ever increasing value of the art market. In fact, Christie’s and Sotheby’s sold over $2 billion (U.S.) worth of art in New York two weeks ago.

“Furthermore, perhaps due to the increase in values combined with a volatile financial market, more and more collectors realize that their collections constitute a meaningful asset class. The art market is more global now than it ever has been, with major museums opening in Mexico, a burgeoning gallery scene in Columbia, and growing art fairs in Dubai and Hong Kong.”

He says that as insurers, they are impacted by these factors in several ways.

First, because maintaining updated values is crucial to protecting our clients’ portfolios, ensuring that their art, jewelry and other collectibles are insured to value in a strong art market is a constant struggle.

“Because volatile financial markets may be the norm for the foreseeable future, moves to protect tangible assets should be an integral part of managing wealth,” he says.

“Second, the increase in international purchases leads into increased worldwide exposures of art, especially in transit, which is one of the most common causes of loss for insurers.”

It is commonly understood that specialized collection insurance covers rare and often irreplaceable items, such as Impressionist paintings, Bordeaux wine, or Tiffany lamps. However, even though they constitute a genre that may not be immediately thought of as a “collectible,” there are millions of collector cars worldwide, and that number is constantly growing.  2013 was a particularly strong year for collector car sales across nearly all categories, mimicking the results of the fine art market.

“Anecdotal evidence suggests that upon inheriting their parents’ art collections, many members of the “baby boom” generation are liquidating them and investing instead in objects that interest them, such as vintage autos,” says Sims. “This fact, combined with the strong sales environment, is currently raising awareness about the unique insurance protection available for this collectible category.”

When it comes to covering art, he notes that many collectors are unaware that homeowners’ insurance policies are generally inappropriate for covering art collections.

“The best way to insure fine art is with a distinct private collections insurance policy that contains specific language for covering fine arts risks, often with no deductible,” he says. “A private collections policy also is more likely to offer broader terms and conditions for protection in the event of natural disasters, and coverage for issues such as partial damage resulting in loss in value as well as loss to objects within a pair or set.”

John Sims