By Noelle E. Desantis

Should You Consider Insurance?

Surprisingly, many collectors of “passion assets” don’t think to protect these valuables with insurance. Often the misconception is that only blue-chip collections worth millions of dollars require this kind of specialized protection.

However, in truth there is no “minimum value” to mandate insuring one’s treasured valuables and virtually ALL collections can benefit substantially from being insured. This is especially true when one considers how remarkably specialized these policies can be.

Today, major insurers are well-versed in protecting collections, some offering policies specific to the type of items collected. For example, one can purchase a policy to cover their fine art collection, or purchase a valuable items policy designed specifically for jewelry, or for wines, antiques, automobiles, luxury goods such as handbags and a litany of other categories.

What is most notable, however, is not how diverse and specialized collection policies are, but rather how these policies offer unique protection.

The Value of Specialized Protection

It’s easy to think of insurance as a way to protect oneself against loss. But when one considers all of the pitfalls of collecting various types of tangible assets, “loss” can take on a whole slew of different meanings.

What happens when a piece is damaged while being moved? While the piece may not be a total loss, a percentage of its value likely has been. Some policies specifically cover transportation risks and will not only compensate for the loss in value, but often the substantial cost of restoring the piece is also covered.

Since Homeowners and Renters policies typically have dollar limits, specialized policies for coverage of art, antiques, or luxury goods (like that new Birkin bag!) are far better at addressing the kinds of loss common to certain collection categories.

For instance, a wine collection may have a specialized policy that covers breakage, damage caused by climate control failure, or damage to the label alone (label condition often has a substantial effect on value). Most standard policies will not provide this degree of specific coverage.

Many fine art policies will even cover market fluctuations, protecting collectors up to 150% of the scheduled value. This is not only important, but it also brings up the most essential value of obtaining insurance for one’s collection: memorializing value.

Do you need to reevaluate your type of coverage to determine if it’s sufficient? Do you need something more specialized and an appraisal to support it?

A few questions to ask and find out…

1. Does my current policy cover fine art and other valuable items? What does it exclude?
2. What type of events qualify? I.e. Theft, natural disaster, fire, accidental damage
3. What are my coverage limits?
4. Do I need to consider separately itemizing (a.k.a. scheduling) these valuable items?
5. How long after the date of purchase do I have to inform you of new acquisitions to ensure they are protected?

Establishing the Value

Collectors who are just getting started often rely on their homeowner’s insurance policy to cover the value of their valuable items. While this provides some protection, “Is this enough?” is the big question collectors need to ask. Unscheduled items that don’t have to be individually listed typically have limits. Suppose your policy covers $5000 worth of unscheduled property, your jewelry could be limited to $1,000 per piece, which may not provide sufficient protection against the true replacement cost if a piece is stolen or damaged.

Arguably, the most significant value of purchasing insurance for one’s collection comes from having the insurer agree to the appraised value of the piece in question. While this may seem academic, the fact remains that your tangible assets carry value beyond any price tag.

Imagine, an antique vase acquired at a yard sale for less than $20, receives an appraised value in the thousands. Similarly, inherited artworks acquired generations earlier may have substantially increased in value since. However, if they are not properly inventoried, it can be difficult to determine their actual value if lost, damaged or stolen.

This is an extremely important point. Even if a collection is covered by insurance, collecting on a claim may be extremely difficult if the insurer cannot verify the value in the event of a loss. Thus, having the items in your collection appraised first will help guarantee that you are protected for the actual value of these assets.

Insurers typically base their premiums and payouts upon several factors:

• Purchase price: As mentioned above, this is often the most provable value, even if it is not an accurate reflection of value
• Current Market Value: The most probable price which an object should bring in a competitive and open market (e.g. auction). However, this could be problematic to establish for more esoteric objects or those that rarely come to market.
• Retail Replacement Value: A value given to an object necessary to replace it with one that is similar and may even include additional fees like framing, shipping, installation, or those from an art advisor or interior designer. Another one that is potentially problematic for unique, one-of-a-kind or irreplaceable items of sentimental value.
• Declared value: When the insured declares the value of an object and pays a premium to cover it at that declared value.This is commonly substantiated by a past appraisal which ensures that the most reliable valuation will be established.

Many policies offer blanket protection, and major insurers such as Chubb do not require appraisals for items worth less than $250K. However, the best way for a collector to protect themselves is to work with an established and qualified appraiser to have their valuable items professionally cataloged and appraised. Be sure to choose one who is compliant with the Universal Standards of Professional Appraisal Practices (USPAP) and has a trusted solid history of working with major insurers, like Art Peritus.

The Cost of Insuring (and Not)

As with home and automobile insurance, the cost of a specialized valuable items or collections policy can vary widely and depend on not only the value of the objects, but the type of object (sculpture, painting, antiques). Other factors include: the type of coverage, the object’s location (if it is high-risk for hurricane or fire), where and how it is stored or displayed, and whether the insured intends to loan it out. 

This is all part of the necessary risk assessment for an insurer to calculate potential exposure. After all, storing insured items in a secure vault in a stable environment provides far lower risks than storing them in one’s beach house on a hurricane-prone coastline. That Picasso painting looks lovely over your fireplace, doesn’t it? Well, with its exposure to smoke or embers you likely need to reconsider its placement. How about that 18^th Century mahogany desk in front of the large sundrenched picture window in the library? While it looks and fits there perfectly, the exposure to sunlight will inevitably cause fading over time and is NOT a covered loss!

To mitigate risk, protect valuables and avoid a loss that may or may not be covered, consider the following:

• Air Quality: pollutants can cause chemical reactions and damage; monitoring dust, smoke, harmful organic compounds is a must
• Humidity: a stable humidity prevents cracking, warping or mold growth
• Lighting: using UV filtered lighting minimizes discoloration, deterioration and fading
• Pest Control: routine pest management avoids damage caused by all animals, namely insects and rodents.
• Room Temp: a stable temperature is key to avoiding damage and degradation

Although costs vary greatly, collectors should expect to pay annual premiums of at least 0.1% of the value of their collection, or around $1,000 for every $1 million of appraised value.

Is leaving a few valuable items or the entire collection uninsured worth the risk? Are you willing to write off all the time, effort, and expense that went into building a collection you are so passionate about or the irreplaceable sentimental value an object holds in the event of an unforeseen and sudden loss? Those who find the cost of insurance too high should seriously ask themselves these questions.

One does not need to reside in a hurricane, earthquake, or flood zone to contend with risk, either. Theft, fire, and other catastrophic events can occur almost anywhere, but they are not the foremost threat to your collection. Rather, as noted by Huntington T. Block, the US’s largest and oldest fine art underwriting firm, about 85% of claims stem from loss or damage in transporting a piece. This includes any effort to move a piece, whether it is on loan out to a museum or gallery, moving house, or placing items in storage, bringing pieces home from auction, or simply moving pieces while cleaning.

Accidents can occur even when the best of care is taken, and it will always be too late to insure a piece once it has been lost or damaged.

For these reasons, Art Peritus recommends that every collector regularly have their collections reviewed, inventoried, and appraised by qualified appraisers every 2-3 years, and that specialty insurance brokers or insurers make certain that they have the appropriate coverage to keep their prized passion assets and collections secure.

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