As art is a material asset that is tangible, risks involve the actual physicality of the asset such as breakage and accidental damage. There are risks that build up over time such as wear and tear that may be avoided with proper care and protection. There are additional risks that are beyond the control of a collector such as damage when the art pieces are handled by another party and changes in market values. What makes art a different asset class is that when a piece is lost, damaged or stolen, this can never be replaced because of its unique nature. Nevertheless, the financial value of this investment can be protected to some degree with adequate insurance.
Through the years, as collections have grown and with an increased interest in art, insurance has become a critical part of any art investment. Advice can now be given to address the needs of collectors, investors and the art trade. The role of insurance is vital to resolve risks that can happen and to provide recommendations, as well as to increase awareness about proper maintenance, repairs and restoration.
There have been some claim stories in the past that illustrate the physical risks to which art can be subjected. One of which is the case involving a painting by Pablo Picasso titled Le Rêve. The collector was reported to have made a private deal to sell the artwork to his friend. While showing the work to his friends, his elbow punctured the painting and created a two-inch tear on the artwork. The private deal was then cancelled. As the painting was insured, it was repaired and eventually exhibited at the Acquavella Gallery in New York in 2008 and at the Philadelphia Museum of Art in 2009. Years later, the painting was finally bought for several millions of dollars more. Incidents like this cannot be prevented, thus the role of insurance is to provide the financial means to restore damaged artwork.
Here is a link to an infographic showing the steps you can undertake to protect your art collection.
Most insurance policies are very basic in that they are designed purely to safeguard against simple risks such as fire, theft and water damage. A fine art insurance policy can also cover appreciation of market values, newly acquired items, international transit, defective titles.
It is also important to find out about the common exclusions in insurance policies. Generally, damage caused by gradual deterioration of artwork is not covered. These can be caused by exposure to elements such as light, heat and humidity which result in fading, chipping or deterioration of the materials used in the artwork. There are techniques to minimise these, including using Plexiglas and window blinds to protect art pieces against sunlight. The gradual deterioration of art pieces is not covered in a policy because the exact time of the commencement of damage cannot be determined. On the other hand, the sudden or accidental peril caused by fire, theft and water damage can be assessed as an event in fixed time and is therefore insurable.
Policies designed for collectors, dealers and museums are written on an annual basis with payable premiums, terms and exclusions indicated. Exhibition covers differ in that they are generally designed to cover just the length of time of a show and transit involved.
For personal collections, it is vital to be aware that there is a difference between the insurance for homes and the actual artwork. Home insurance is designed to remunerate for rebuilding or repairing a damaged residence with the same quality materials that were used to build it. Art insurance is intended to pay for the repair of a damaged artwork or for the financial loss when the artwork is totally destroyed or lost.
Fine art insurance is a relatively sophisticated sector of the insurance market. This specialty insurance demands an understanding of the marketplace, access to specialists in the fields of appraisal, conservation, art storage facilities and shipping companies.
Choose an insurer that is experienced and specialises in insuring art, collectibles, antiques and the like. They have specialists who can provide expertise, knowledge and loss control advice. Additionally, they are also better at managing claims because they can advise on how to value artwork, recommend specialists in different forms of art and restorers who can repair damaged artwork. Given that art collectors have spent considerable time, money and effort in growing their collections, it is important for them to rely on experts to help develop an insurance package that would be suitable for their needs and to have a specialist advise on how to reach reasonable settlements in the unfortunate incident of a claim.
Written by Regina Baxter.
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