The Basics of Insuring Fine Arts

The art world is full of mystery. Much goes on behind the scenes in a market where deep pockets are chasing a limited supply of works. New art is always being created and its value is highly subjective. It is impossible to know with certainty if an acquisition will withstand the test of time and become a priceless artifact. With works valued in the hundreds of millions of dollars, there is much to gain and lose when dealing with art.

It is difficult to grasp how a work of art painted on a canvass 1’6” x 2’2” could command a value of USD 450 million but that is the price paid at auction for a work titled “Salvator Mundi” painted on the year 1490 by Leonardo da Vinci. That is the current record for any art work sold at auction and it was achieved on November 15, 2017. That figure is fascinating, for that price governments can purchase fleets of aircraft or ships, they can launch satellites or construct buildings. However; it is difficult to see any of the above retaining any significant value ten years from their creation, much less half a millennium, which is how long “Salvator Mundi” has been in existence.

Once the art work is acquired its value will always be subject to change. Economic conditions, art market trends, changes to the supply of valuable art, etc. can make art values fluctuate. However; fire and many other perils that can damage the works can make priceless art worthless.

Insurance is available to cover all types of art and valuable property against all sorts of damage. There are departments within insurance companies dedicated to said line of business. Without the availability of art insurance, any person would be hard pressed to invest USD 450 million on a painting that can lose its value from any type of damage, be it from fire to something as simple as the work falling from the wall from which it hangs.

Fine arts, depending on the type of work, can generally be considered property that is easily transported. A painting may travel between museums worldwide as it is presented at different exhibitions. The mobility of the artwork makes it difficult to insure under the standard framework of property insurance. Coverage must be written in such a way that insurance will protect the work wherever it is located, be it inside any given building such as a museum, home, storage facility, etc. or in transit between locations.

The line of insurance business under which fine arts falls is known as inland marine insurance, a class of insurance used to cover mobile and/or specialized property. Coverage for valuable items, bridges, antennas, construction equipment, etc. falls under inland marine insurance. The type of policy used to insure fine arts is called a floater, a type of inland marine policy providing coverage that follows the insured item wherever it is located.

Insurance companies will require premium commensurate with the level of risk they are assuming when writing an art insurance policy. If the work will remain stored at a highly protected facility, fitted with the necessary features to ensure its preservation, the level of premium will be lower than that quoted for the same work if it will be exhibited at different museums and galleries throughout the world. Packing the work and transporting it represents one of the riskiest endeavors when dealing with art. The proper handling and packing of the art is vital so that the items do not get damaged, or stolen, in transit from their point of origin to their destination.

A painting such as “Salvator Mundi” will require premium levels in the hundreds of thousands of dollars, or more. Much will depend on the types of risk that the art will be subjected to. The high value of the work makes the high premium level inevitable. The total loss of the work, or even a reduction in its value (after being damaged and subsequently restored) would be a catastrophic event in the art insurance market.

Art and valuable items purchased by individuals, while not having the high values of record breaking works, are still important to individuals and they need to be protected against loss. A private collection of works can be a significant asset to a person. Works of art may serve as a source of income, be it from their exhibition or sale, or they may even act as collateral to secure loans.

An individual’s homeowner’s insurance policy will offer limited coverage for fine arts. Said policy will apply sub-limits to several classes of valuable property and restrict coverage while the property is away from the insured’s “residence premises” i.e. the location where the insure resides and is listed in the policy as covered.

Fine art insurance offered through an inland marine floater policy will offer the greatest protection for the works. It will also allow the insurer and insured greater flexibility to negotiate adequate terms and conditions before writing the art insurance policy, thus limiting any surprises that may arise in the event of a loss.

At Risk Reinsurance Holdings we are developing partnerships with insurance companies to enable us to help our clients protect their valuable property against the potential for loss or damage. If you would like to be kept up to date of our future offerings on fine arts insurance and other products, please join our newsletter hereunder.