Why it’s boom time for the art insurance sector

Art insurance is huge business, and not least now that artworks move around the world in far greater volume and frequency than ever before. These days, collectors move pieces between multiple properties; museums loan more works than ever to feed hectic temporary exhibition schedules; auction houses send key works on global tours before sales; and there is an ever more saturated international art fair market, to which galleries are compelled to travel to keep up with their competitors. Insurance and shipping are now among most commercial galleries’ and museums’ biggest financial outlays. The stakes are high, and the insurance ‘products’ offered are ever more numerous; and of course, the world divides into the have-claimed and the lucky have nots.

Attitudes and approaches in the art insurance industry changed significantly in the last decade or so, particularly in the aftermath of the fire at the east London warehouse of art shippers and handlers Momart in 2004, a landmark event in this sector. It destroyed some £50 million of art and prompted a brief spike in insurance rates. However, says Filippo Guerrini-Maraldi, executive director and head of fine art at brokers RK Harrison, ‘the overall loss figure of approximately £50 million was small in comparison to what it could have been’ and was ‘easily digested by the fine art and specie market underwriters at the time’. Nevertheless, the fire shocked insurers into closely monitoring their risk exposure in warehouses worldwide, especially at freeports.

Part of the reason for the recent rise in the number of freeports is that insurers try to avoid an abundance of risk under one roof – and when limits have been reached, finding cover can be impossible. Popular freeports such as Geneva, Zurich, Luxembourg, and Singapore are a headache for the insurance market, as are museums, with the high accumulated value of collections. ‘Major museums may well have their permanent collection insured in addition to an incoming blockbuster exhibition arriving at the same time,’ says Guerrini-Maraldi. ‘Insurers have to monitor this closely so they don’t overexpose themselves.’ The added insurance cost can be debilitating to cash-poor institutions but initiatives such as the UK’s Government Indemnity Scheme offer some financial relief by underwriting the risk on loans from private collections and from non-national UK museums. Similar schemes, offering alternatives to commercial insurance, operate in other countries to ensure institutions can still share their collections with one another.

The same applies to fairs. Galleries can struggle to find cover with their usual supplier at events such as TEFAF Maastricht or Art Basel, where billions of dollars of art come together. Due to growing demand, fair premiums have increased considerably in the past few years, notes Emma Ward, managing director of dealers and advisors Dickinson. But this is not the only aspect of the business that involves works moving between premises. At any time, Dickinson holds around £150 million of art in its London gallery, nearly all on consignment. ‘Insurance is one of our most significant annual costs’, Ward says. When a work is consigned by a client, Dickinson covers its insurance while it is with the company. ‘We provide evidence of insurance when picking up a work from a client, and when we sell a work, we insure it until it is safely delivered to the buyer.’

There’s no set rule as to who should insure an artwork when it leaves the domestic or otherwise private environment and enters the public realm, whether at an auction house, a commercial gallery, or a museum. A lender or consigner typically has three options, says Chris Bentley, AXA ART’s director of underwriting for northern Europe, the Middle East, and Asia Pacific. The first is to pay for an extension to their existing policy (if necessary) and pass the costs onto the museum, auctioneer, or gallery. The second is take out a short-term ‘nail to nail’ policy covering the period of the loan, neatly assigning premium to the borrower and protecting the owner’s no-claims bonus. The final option is to give over insurance responsibility to the other party (as in the Dickinson example), in which case, says Bentley, ‘any serious collector or museum lending to another would typically vet the policy of that organisation with their lawyer or art advisor’. The value of objects to be insured and the reputation of the other party play a role too. When lending a work worth £50,000 to a well-established institution, the lender might take the third option. However, says Bentley, ‘if lending a work worth £500,000 to, for example, an institution in a less-developed country, the client and their advisors would potentially carry out a lot of due diligence.’

How much does it cost to insure a work to travel overseas? Robert Read, head of art and private clients at Hiscox, says a rough guide for a non-fragile work would be between 0.01 and 0.15 per cent of its overall value. For a fragile work, the figure rises to between 0.03 and 0.45 per cent. Bentley recently covered a work worth £6 million travelling from London to another European city for a three-month exhibition, at a policy cost of around £6,000: ‘It’s typically 0.1 per cent of the value of the work, although there are many factors which might vary this price,’ he says. So, if a London gallery has a £10 million Renoir, insuring it to go to a fair in the US might cost £10,000 per trip, plus shipping. Only through selling that work will the cost will be recovered.

While events like the Momart fire and high-profile thefts grab headlines, the main risk to artworks is accidental damage in transit, which, as Read says, is responsible for more than 50 per cent of claims at Hiscox. Substandard packing is often to blame, or inadequate handling when a work is being processed through an airport, when it might stand waiting on tarmac or be searched aggressively by an overzealous customs official. Choosing a good, specialist fine art shipper is essential and can in fact reduce premiums, says Read: ‘Shipping has advanced hugely. The best specialist firms provide 3D-printed packing material, climate-controlled trucks with air-ride suspension and have airside access at airports.’ But transit risk can never be eradicated, as Bentley says: ‘It’s naive to presume the shipper will be able to remain with the work at all times, unless it’s an important museum loan when a curator will remain with it all the way.’

As indicated by the introduction of airport-style security at some fairs and museums, the threat of terrorism has also had an impact on insurance costs. Indeed, a separate terrorism insurance market was created after 9/11, distinct from ‘all risk’ cover (where anything not specifically excluded is covered). Along with hurricanes and earthquakes, terrorism comes under catastrophe insurance, covering man-made or natural disasters that are unlikely but high cost. ‘An artwork travelling to the Getty in LA may well necessitate an additional premium for earthquakes; to Florida, one for hurricanes; and to Israel or indeed now even Brussels and Paris, one for terrorism’, says Bentley. ‘Terrorism tends to be excluded as standard on public or commercial policies (although cover is available as a “write back”), but included as standard on private policies.’

Today, high-value works are moved around the world by some collectors and art dealers like pawns on a chessboard. But might that be changing? Air miles are stressful to fragile pieces; even with the best care and packing, every trip is a risk, constantly exposing works to environmental changes. Read thinks his clients are becoming more selective about when and why they move their artworks and advises others to minimise trips: ‘Private collectors with multiple properties should plan where they want to locate their collections rather than move pieces between them frequently.’ So, for the private collector, what advice to take from all this? To invest in a tailored fine art policy covering ‘all risk of physical loss or damage including terrorism’, says Guerrini-Maraldi, with a built-in transit limit allowing a collector the freedom to move works internationally without informing their broker or insurer. Collections shouldn’t be moved more than necessary and, when they are, owners should choose the shippers with care. And above all, don’t scrimp, read the small print, and if in doubt, keep it at home.

From the October issue of Apollo: preview and subscribe here.