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The insurance of works of art
By Aron Shapiro, Swire Blanch
Paintings can suffer physical loss or damage whether on the premises or in transit. Collectors can choose to bear these risks themselves, or to pass them on to an insurer.
Unlike general contents insurance where items can be repaired or replaced with relative ease, paintings are unique and therefore irreplaceable. Even where cosmetic repair is possible, damage to any work of art destroys its value. By taking commercial insurance, a collector, on payment of a premium to underwriters, enters into a contract ensuring that they receive financial compensation in the event of the insured painting being lost or damaged, returning the owner as far as possible to a 'pre-loss' position albeit strictly in financial terms. In an age where the value of paintings, whether inherited or purchased has soared, often disproportionately to the value of other assets (except property), the need to obtain suitable insurance is frequently overlooked.
Asset protection
The essential motivation for insuring paintings is 'asset protection'. Insurance allows an owner to protect any financial loss resulting from loss or damage to insured items. Whilst many people will spread their investments it is now more usual for a substantial percentage to be in paintings, and whilst collectors often purchase these items for personal reasons, the issue of value and long term appreciation has gradually become a most important consideration.
Seeking advice
The collector when buying insurance has the option to approach an insurer directly, or to use an intermediary who can obtain terms on their behalf. Whichever method is chosen it is important that professional advice is obtained, and that each client received appropriate advice. The use of a specialist intermediary allows a collector to be informed of the many options available world-wide, and to receive advice on the claims performance of the chosen insurer. Amongst the benefits of using an intermediary are:
- Personal contact.
- The accurate establishment of the collectors precise needs.
- Finding - or creating - a policy tailored to the collectors needs, and individual circumstances.
- Obtaining the widest cover at the most competitive price.
- Ability to influence negotiations with underwriters through the intermediary, and with their support.
- Impartial advice.
A specialist Fine Art intermediary will also give unbiased advice on valuations, security and the type of product best suited to an individual collector's requirements. 'Agreed values', for example become critical to owners in the event of a claim, and all too often these are, with hindsight, seem to be inadequate. It is essential when establishing the sums insured that specialist valuers are chosen. Values are 'Agreed' by creating an accurate list of the insured items and obtaining underwriters' agreement to the stated values. This removes any cause for dispute in the event of total loss, and gives a figure from which depreciation can be calculated in the event of partial damage, although this area is less precise and can often be a matter of professional opinion. The listing of individual items does not in itself agree values; the underwriters' specific agreement has to be obtained.
Depreciation is the loss of value caused to an item when it suffers damage, and is quite separate to the costs of repair and restoration which are also covered under the policy. Depreciation is a payment made by underwrites to meet financial loss of owning a newly damaged item. If, for instance, the canvas of a painting is torn and expert opinion suggests that is resale value is thirty per cent lower as a result, underwriters will pay the assured thirty per cent of the agreed valued plus the costs of repair. The issue of depreciation will always demand the professional advice and negotiating skills which can only be provided by an experienced agent.
Product type
There are a number of products available which provide international coverage. They either stand alone as art insurance cover, or are included as part of a package insuring buildings and its general contents. Usually the type of product chosen depends on the stated values and the individual circumstances of the owner. Whatever cover chosen must include both accidental, damage and depreciation, as the two are interrelated.
Cost
The cost of fine art insurance is extremely competitive and is usually below that charged for general contents insurance. Paintings are not often attractive to the casual thief who is seeking items which provide quick and easy resale such as jewellery and electronic equipment. Most collectors take care of their property and usually employ higher than average levels of security.
Restricting Perils - A professional intermediary will explain that it is both usual and prudent to insure paintings against 'All Risks', providing comprehensive cover with few exclusions. If, due too unusual circumstances, owners are prepared to be uninsured for key perils, such as fire, water damage or theft they can be excluded. Unfortunately such restricting perils will not necessarily produce a saving, in proportion to the level of uninsured risk.
Excess / Deductible - An extremely effective way to reduce premiums is the introduction of a policy excess or deductible. This is an agreed sum for which the assured agrees to remain self-insured in the event of a claim. For instance with a US $10,000 policy excess, an insured loss of US $25,000 would result in a payment to the assured of US $15,000. Depending upon the level and the number of items affected by the introduction of an excess/deductible the premium can reduce significantly.
Peace of mind
This is provided by suitable insurance in the event of a catastrophe. Whilst many collectors would risk being uninsured for minor damage, should there be a house fire or a serious flood, the loss to an owner will be substantial. Even in the most well-maintained surroundings the possibility of such events can never be discounted.
Swire Blanch
A specialist fine art insurance intermediary managed by Graham Young, Aron Shapiro and Dominic Hepworth all with many years experience in this field, providing independent advice and personal service to collectors.
Swire Blanch,
An independent Lloyd's broker since 1995.
32-38 Leman Street
London, E1 8EW
Telephone: 0171 481 0111
Facsimile: 0171 204 1485