Collecting art and art insurance

As art is a tangible material asset; risks involve accidental damage such as breakage as well as those that build up over time (e.g., wear and tear), which can be avoided with proper care and protection. Other risks beyond the control of a collector include 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, it 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, with growing collections and an increased interest in art, insurance has become a critical part of any art investment – from resolving risks that may arise and providing recommendations, to increasing awareness about proper maintenance, repairs and restoration.

There have been 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 and casino mogul Steve Wynn was reported to have made a private deal to sell the artwork to a private collector. While showing the work to his friends, Wynn’s elbow punctured the painting and created a two-inch tear on the artwork. The initial 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 the Philadelphia Museum of Art in 2009. Years later, the painting was finally bought by a private collector 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, etc.

It is also important to find out the common exclusions in insurance policies. Generally, damage caused by the gradual deterioration of artwork is not covered. This can be caused by exposure to elements such as light, heat and humidity that can result in fading, chipping or deterioration of the materials used in the artwork. There are techniques to minimize 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 fixed in time and 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 duration of the 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 pays for the cost of 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 the financial loss when the artwork is destroyed or lost.

Fine art and valuable goods insurance demands an understanding of the marketplace, and access to specialists in appraisal, conservation, art storage facilities and shipping companies.

Choose an experienced insurer specializing  in not only insuring art, collectibles, antiques and the like, but also providing loss control advice. An insurer’s expertise in managing claims also enables them to provide consultation 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, they should invest in a specialty insurance package that not only meets their needs but also gives them access to expert advice on how to reach reasonable settlements in the unfortunate incident of a claim.