Unexpected events can happen in a blink of an eye, and art insurance can put your mind at rest at least when it comes to protecting your art valuables. Natural catastrophes, theft, fire, or other disasters can strike your art collection, and then what to do? If the emotional pain of losing your favorite art pieces is not enough, think of the financial repercussions it entails. Art insurance in contemporary world is a necessity for both collectors and artists. If you are an artist who plans to show your works in an art gallery, you probably signed an artist-gallery agreement that contains, or should contain, a section where it is explained who is responsible for insuring your works while they are exhibited and in the possession of the gallery. But you should also consider insuring the works you hold in your studio or home. The similar principle applies to art owners. They should also make sure that their valuables are protected, and to keep their contracts up to date, which includes scheduling regular appraisals of the artworks in their possession. Similarly to any other insurance, art insurance will offer compensation if an artwork is damaged in transportation or at home, stolen or lost.
It seems that there is a lot of talk about art insurance, but no one can tell with certainty how it works, what it means, or what it covers. Probably you can discover all of these elements by talking to an insurance agent, but in case you need information in advance, you are in the right place.
Insurances are in general designed to cover losses you suffer on your insured property. Art insurance is no different in this sense, except that its sole focus are the works of art in your possession. General tips that any of you can follow is to be sure that your home or studio where you keep your art is insured, and that any art event you are lending your art to is insured as well. Always be sure to ask about the event organizer’s insurance. The events are usually covered, but it cannot harm to check everything in advance. Types of art insurances and what they cover may vary, but in general art insurance policies offer property protection and total replacement costs to a certain amount, which is determined by the policy. Replacement costs are based on the actual cost of the material used in the making of the artwork, and not the selling price. If the claim for insurance was opened, the insurance adjuster would ask for an inventory or receipts of the bought items to determine the value of the damaged or stolen piece. As an art insurance professional explains: "art insurance serves the purpose of 'indemnifying' the owner of the art, which is compensating them for physical loss or damage. It is meant to restore the insured to (as close as possible) the state that they were in before the damage or loss occurred - no more, no less.”  In contrast to replacement costs that applies more to artists, art insurance for a collector usually covers the market price of your stolen or damaged works.
Before any art collector insures her property it is important to do a proper research when buying art. The initial step would be to inspect the full condition of the artwork before the purchase. Another important aspect to be aware of is the provenance of the work. It is necessary to carefully review the prior ownership of the artwork, and to make sure that there is not a gap in that lineage, which could suggest that the work was stolen, or looted. Insurance companies do not typically cover the cost when an artwork is seized. Being beware and aware of all the circumstances surrounding a piece a collector want to buy is the best approach in protection against possible losses. Once the art piece is bought, it is important to properly insure it. In order to do this, collector should follow a set of steps, or rules, which should spare her the possible headache later.
The Insurance Process: In order to insure an artwork, a collector usually works directly with a broker. The broker works with the insurance company in deciding the best option for the collector. The collectors usually conflate the broker with the insurance company, but their roles in the process of insuring an artwork differ. The broker works with the insuring company and the collector, but this person is first and foremost an advocate for the collector, and should always seek the best possible insurance terms for her client.
The Importance of Documentation: Before the insurance deal can be made, the brokers need to have all the documentation regarding the purchase of art at their disposal so they could determine the value of the collection. Such documentation should include purchase dates, provenance, invoices of sale prices, list of all the purchased works, descriptions, photographs, and subsequent appraisal prices. Having all the documents ready and up to date is a critical part of any insurance purchase.
Choosing the Best Insurance Policy: Although some collectors may think that their homeowners insurance covers their collection as well, these types of insurances do not go into too much detail and may not be suitable for larger collections. Such insurances may have high deductibles, might not cover art during its transport, or do not cover collection across several households. It is recommended that collections larger than a few pieces be insured by specialty art insurance or personal articles floater. The price of the insurance is decided on multiple factors which include security, size of the collection, types of works, and a place where they are hold.
How the Policy is Paid Out: In case an artwork is damaged, stolen, or lost, the insurance company will pay out the policy on the agreed sum, which is determined either in advance, or based on the artwork’s current market value. Sometimes collectors decide to agree with the insurer in advance so that they do not have to substantiate the value of their works if the damage occurs. However, the agreed value is not fixed and can change over the course of years and the life of the policy. An artwork can and should be reassessed. If the current market value exceeds the agreed value new policy could be agreed upon, but some restrictions may apply. The insuring company usually limits the policy and if the artwork price on the market has increased and if exceeds the policy limit, the company usually won’t pay over the total cap.
Although the usual stuff that reaches media concerning situations when art insurance policies need to be activated are theft and robberies, it is often small things that affect the average art collector that can create a headache, such as spilled wine or a pencil going through a canvas. Even such small incidents when compared to thefts can significantly diminish the value of an artwork, or can ruin it forever. Regardless of whether you collect art for personal enjoyment or as an investment, the value of your collection is something that needs to be insured against any type of accidents.
Throughout history art has been often under attack, either by robbers, or those who didn’t understand its value and aimed at to destroy it purposefully. There are few examples that can be mentioned here, which are case studies for the importance of the insurance in art. The first one relates to MoMA, and a fire that erupted in the Museum in 1958 due to workers’ negligence. Among the masterpieces that were lost was Monet’s 18.5-foot large painting named Water Lilies. Luckily the painting was insured, and the payout received from the insurance company was used to buy a now famous triptych from the same author and with the same title - Water Lilies. The second example is the theft of The Scream and Madonna paintings of Edvard Munch from the Munch Museum in Norway. What may shock more that the theft itself is the fact that these artworks were not insured against such events. The Museum's director at the time tried to rationalize the situation by saying that these pieces are not replaceable. However, he neglected the fact that with the insurance money they could pay investigators, invest in new security system, or even pay the ransom for the paintings. Because, what is better – “a stolen painting and a $5 million insurance settlement or a stolen painting and a $0 insurance settlement?” It is something that every art collector should have in mind before deciding on whether to insure her collection or not.
Editors’ Tip: Fine Art and High Finance: Expert Advice on the Economics of Ownership
Art and finance coalesce in the elite world of fine art collecting and investing. Investor and collector can’t protect and profit from their collections without grappling with a range of complex issues like risk, insurance, restoration, and conservation. They require intimate knowledge not only of art but also of finance. Clare McAndrew and a highly qualified team of contributors explain the most difficult financial matters facing art investors. Key topics include: appraisal and valuation, coverage, art as loan collateral, securitization and taxation, investing in art funds, specific insurance, museums, and the black-market art trade. Clare McAndrew has a PhD in economics and is the author of The Art Economy. She is considered a leading expert on the economics of art ownership.
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