Art and Collectible Insurance

The Antiques Trade Gazette recently published a goo article on current insurance practices and changes based upon the changing and growing art and collectible market. The changing role of insurance companies is not only impacts the collector, but also effects dealers and auction houses. The article also goes into different kinds of risks associated with today's art market place.

Overall an interesting article.

The Antiques Trade Gazette reports

The international art market used to be such a simple, straightforward place. You bought and sold at auctions in salerooms, in dealers’ galleries and at the occasional fair. And the things you bought and sold were traditional pictures, works of art, furniture and books, with the odd bit of jewellery and wine thrown in.

That was then.

Now ‘art’ can mean anything from a pickled shark to a video installation or 3D printed sculpture, the internet expanding auction house and dealer catchment areas from the local to the global. The market’s role in servicing the relatively new alternative investment asset class has led to a great deal more scrutiny from politicians, campaign groups and the media on the ethical front.

Of course, all of the above doesn’t even begin to tackle the question of endangered species and antiquities or the knock-on effects of increasingly transparent pricing.

All in all, then, art market professionals live in a far more complex and challenging world than they did a generation ago, and this new age of doing business brings with it increased risk linked to compliance, cross-border trade, packing, shipping and a lot more. On the upside, key players such as Hiscox now offer instant online cover for collections valued up to £250,000, so technology can also make things simpler and more customer friendly.

De-risk Business

In this environment, insurance is no longer just a matter of third party, fire and theft; it’s essential to every aspect of business as firms look to de-risk their activities.

How do small art and antiques businesses do this without breaking the bank? And what do the professionals from the various fields linked to insurance see as the key considerations today and in the future?

The consistent message from all of those ATG spoke to for this feature was that, these days, businesses generally need professional indemnity insurance. Auctioneers have embraced PI cover for years, but with dealers and others doing business on a global scale, it is something that they, too, should consider.

Chris Bentley, director of underwriting for AXA ART Northern Europe, Middle East & Asia Pacific, says there is “an increasing appetite” for indemnity insurance. “The breadth of liabilities seems to be widening,” Bentley observes. “Client bases for dealers and auction houses are increasingly international which means they will have more exposure to potential liability on this front.”

With information available more freely online, buyers are far cannier than in the past. “Fifty years ago, if I asked a dealer to sell an item for me, it would be difficult to find out what they had sold it on for. So if the piece was sold at a much higher price a short time later, the dealer wouldn’t have much exposure on the negligence front. Nowadays sellers can access that information easily on the internet and would be able to challenge the dealer to demand compensation.”

This is of particular relevance in the US, says Bentley, because the US has more of a tradition of litigation, so those trading there need to be more prepared. For instance, a wealthy and influential collector might express an interest in a painting at a gallery, but not commit to buy it or pay a deposit. However, if they were to return a month later to find the painting had been sold, they might feel aggrieved that the dealer had not taken their interest more seriously and consider legal action for compensation on the grounds of professional negligence.

Bentley adds: “Regardless of the merits of the claim, speculative legal approaches of this type are very common in the US and in these circumstances PI is more likely to cover the cost of hiring a lawyer to deal with that. Even if the claim proves to be valid, it is possible that an insurer will cover the costs and award linked to that too.”

“Expertise is the question. There are so many things to know about now. While the internet has effectively provided a safety net for auction houses, because something advertised with a thumbnail image can raise interest, the wider internet audience means sleepers are less likely to be missed. It’s also much easier to go to an art database and find where that object originally came from.”

An Issue with Flipping

However, just as Bentley advises, people have had an issue with things they have sold reselling elsewhere not long after for a lot more money. With this in mind, Rich says he is amazed at how many auctioneers still do not have indemnity insurance. “Proper due diligence is not just a duty, but a way of de-risking the business and saving money,” he explains.

“We see a lot of consultants who are not taking a position on an item themselves. A consultant’s policy covers them for professional indemnity, whether their expertise is going to be called into question if things go wrong or not.”

Loss adjuster Iain Fairley also thinks that technology and compliance have come more into focus on the insurance front, but is equally concerned with the mass of regulations that come into play as people trade across international borders.

“Clearly there are the new laws relating to materials such as ivory. Just this week I read of a dealer or auctioneer having been jailed, although I believe that he intentionally declared materials as plastic and so on. Meanwhile, rhino horn has been the subject of major thefts from auctioneers and others.”

He also warns of other risks on the international front, such as non-payment. “Behind this are the new demands of new markets, particularly the Far East. Their different methods of doing business have forced auctioneers to establish that bidders have the means and even the intention to pay for goods.”

As with all of the experts who talked to ATG, Fairley says that one of the biggest risks is the accidental damage of items in transit, and this should be central to any policy.

“Do not cut corners on packing, particularly for international shipment, but also this can apply to short-distance shipping. The object is likely to be out of the hands of your chosen shipper and airport forklift drivers are not ballerinas.”

Plus Premium

Bentley has noticed an increasing demand for one particular area of insurance, defective title cover, to protect purchase of artworks that may have a disputed provenance. “Dealers are interested in higher and higher limits, although many insurers will impose a relatively modest cap and an additional premium. This is in spite of the fact that dealers are typically far more active in pursuing thorough due diligence.”

He also argues that insurance cover is far more transparent for clients these days, which is a bonus for all concerned.

“Insurance policies and their wording are consciously and necessarily far simpler than they used to be. They will usually be presented with very well spaced paragraphs in 10 or 12-page documents. We prioritise being as clear as possible about the cover we provide. Reading these thoroughly really isn’t a huge hardship, and policyholders should take the time to go through them.”

Bentley’s final piece of advice is about housekeeping. “Put in place robust procedures for administration and risk, and update them regularly. Have formal procedures, don’t just let it happen organically. Record keeping is hugely important for everyone. When things don’t go well, you need to know what artworks are and where they came from. This reduces costs for insurers and headaches all round in the event of a claim.”

Source: Antiques Trade Gazette