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 FINE-ART INSURANCE
As the ranks of art owners increase,
competition fires up among fine-art insurers and brokers.
by Barbara Bowers
Collecting fine art,
once the preserve of the very wealthy, is becoming more of a mainstream
passion. Thanks to the Internet and the continuation of the greatest
economic expansion in U.S. history, more people are discovering that
possessing prized paintings, prints, sculpture and valuable collectibles is
now within their reach.
This dramatically
changing market, with its expanding customer base and the public's
ever-widening appreciation of new artists and objects, is fueling
competition among many fine-art insurers, with premium rates hitting new
lows. This line has long been a profitable one, because heavy losses tend
to be rare, bringing insurers a measure of safety. Jockeying for business
is fiercest for the very high-value collections, which can belong to
individual as well as commercial owners. Increasingly, as the ranks of
fine-art insurers grow, these insurers are compelled to enhance service and
experiment with new marketing techniques-such as educational or interactive
Web sites-to retain or grow market share.
"The fine-art
insurance market is highly competitive among brokers and the carriers, as capacity
is abundant," said Dietrich von Frank, president and chief executive
officer of New York-based Axa Nordstern Art Insurance Corp., a division of
the French financial-services giant, Axa Group.
 "This is a fast-growing line of business," said Fran O'Brien,
deputy underwriting manager for personal lines at Chubb Group, Warren, N.J.
"In the past year, we've been making a concentrated effort to let
agents and the public know that we want to write valuables." For
several years, Chubb has tried to build awareness of its products by
sponsoring the popular "Antiques Roadshow" program on National
Public Television.
Up to now, the bulk of Chubb's art insurance business has not been
"huge, huge schedules," O'Brien said. But that could be changing;
Chubb recently brought in a specialist to go after that section of the
market, she said.
Unlike Chubb, which is
a general property/casualty insurer, competitor Axa Nordstern Art says it
is the only insurance provider to focus exclusively on fine
art and collectibles. It has a clientele of museums, galleries,
corporations, exhibitors and private collectors. The new wealth of today
has spawned a different type of private collector, one who is more quality
driven than investment driven, as was more the case in the art-market boom
of the 1980s, von Frank said. This development "is being driven by
fresh works that have not been on the market long," he said.
"Buyers are much more selective-it's less investment and more
enjoyment these days."
Online Opportunities
In all of this,
technology is playing an increasingly important role.
For one thing, a new
breed of art dealer has emerged in the form of online companies that lease
or sell a wide range of works. One of them, Fine Art Lease, has a special
arrangement with five syndicates at Lloyd's for automatically insuring all
of the company's leases.
 "In our contract, there's
100% coverage from the moment of pickup to the moment of the return of
artwork," said Jennifer Roberts, vice president and director of sales
and marketing. "It's a fantastic plan that really made our business
possible."
When a client contacts
Fine Art Lease and expresses interest in leasing a featured item, the
company fills out a location report that is sent to the insurers. Then, a
credit review is performed and, to seal the deal, the client must sign off
on the contract, Roberts said. Fine Art Lease has arranged with a shipping
company that specializes in handling art to pick up the designated pieces,
usually from museums, and deliver them to the customer.
The idea in launching
this business, Roberts said, was "to make it easier for people to
acquire art." Also, it benefits museums by making some of their assets
liquid and taking works out of storage and putting them on corporate walls,
she said. The online company also arranges rotating exhibits, sometimes
with art drawn from private collectors, and deals with many individual
clients who take advantage of its extended payment plan with low interest
rates to acquire their leased art over a period of years, Roberts said.
Some recent examples of
rentals include British Impressionist Alfred Sisley's Saint Mammes, which
has a retail price of $240,000. This could be leased for 90 days or more at
$3,000 a month, or for $24,000 for 90 days or less. Sculptor Louise
Nevelson's imposing black aluminum "Ocean Gate," with a selling
price of $350,000, can be leased for 90 days or more for $4,375 a month; a
shorter period costs $35,000. For corporate collectors, the lease payments
are a tax-deductible expense.
The collectibles
market, which can embrace everything from autographs, fine porcelain and
baseball memorabilia to vintage lunch boxes, American folk art and Barbie
dolls, is booming, too, with the use of online sales services like eBay.
"Now you have all kinds of things that you would not traditionally
think of" as collectibles, O'Brien said.
"This also may be
affected by the ease with which people who may never go to auctions now
have the ability to do so with many things online," said Mary Ann
Avnet, marketing manager in Chubb's personal insurance division.
"There's a new ease of communications."
Established art
insurers also have been looking to online opportunities.
In July, Axa Nordstern
Art launched a Web site, www.axa-art.com, which it regards as more of an
educational site than a selling tool. "This is a way that we can
differentiate ourselves from the competition," said company
spokeswoman Christiane Fischer.
The site targets
established as well as beginning collectors who may lack the knowledge
needed to make their collections safer and more valuable. The company
points out on its Web page, for example, that protecting relatively small
collections or those with works by new or unknown artists, may only require
including them on an existing household insurance policy by means of a
schedule that specifies each object and its value. But when collectors have
any art or collectible with a value exceeding $5,000, a specialist insurer
or insurance policy may be needed.
Security Blanket
 Traditionally, the standard
fine-arts policy has been based on a schedule that lists possessions and
their replacement values. But recently, a type of blanket coverage has
emerged for those large collectors who prefer not to have their collections
appraised so frequently. The latter approach provides them more flexibility
to buy or sell art on a regular basis.
Axa Nordstern Art
maintains that the advantage in working with a specialist insurer is that
the company is likely to have vast experience in the full range of issues
that affect art ownership and insurance, including valuation, conservation,
preservation, recovery, proper shipping and handling, property transfer and
estate management.
Axa Nordstern Art, for
example, employs 50 full-time art historians around the world and has an
extensive network of art specialists, including restorers, expert movers
and packers. If a loss is due to damage, the insurer pledges "to
marshal the expertise necessary to repair the damage, including, if
possible, intervention by the artist." If a loss is due to theft, the
company promises to pursue every means available to try to recover the
property. Axa Nordstern Art, in fact, is a co-founder of the international
Art Loss Register, a permanent computerized database of stolen and missing
works of art, antiques and valuables. (See "Two Against
Theft")
Damage Control
Although the theft of
artwork always will be a concern for insurers, the bigger headache is
damage, which generates the bulk of claims for his company, von Frank said.
"Claims predominantly consist of damage in transit or on site,"
he said. "They are high in frequency but not necessarily very large"
in terms of cost, he added.
Therefore, how artwork
is handled in a move, whether it's from room to room or across thousands of
miles, is of prime interest to the insurer. And one major challenge that
art insurers face is educating new collectors to these dangers.
 Chubb employs its own property
appraisers who visit policyholders' homes and make loss-control
recommendations, such as noting the effects of sunlight, heat and humidity
on artwork. "We can't interfere with the customer's enjoyment, but
they have to be aware of the risks," O'Brien said. "For example,
it's not the best place to put an oil painting over the fireplace."
In terms of claims,
Chubb is "more likely to see different kinds of damages, such as when
things are moved, a pipe bursts in the house and there's flooding or when
there's a fire," O'Brien said.
Fine-art collectors can
be very eccentric, von Frank noted. One of his company's policyholders is a
wealthy, elderly woman who lives in Manhattan and who has homes in other
parts of the United States and abroad. "She didn't want to depart from
her two Renoirs, worth about $25 million," von Frank said.
"Whenever she left New York, she wanted to take the paintings with
her, be it Maine in June and July, Aspen in the winter, or the Riviera or
Florida. So if she wants this, that's what we do. The paintings go with
her; we cover it, including transit."
That's one example of
how his company fine-tunes the ordinary product to the individual, he said.
"Coverage is tailor-made to a vast range of circumstances," he
said. "Its term can be as short as a day or as long as several years.
It can be individual or contain several forms of blanket coverage. It can
insure an agreed-upon value or use current market valuation."
Unique Collections
Part of the overall
challenge to the art insurer these days is gaining an understanding of what
the collection contains, what the owner wishes to do with it and,
therefore, how well it must be protected, Chubb's Avnet said.
"We have to
recognize different kinds of collectors," she said. "People do
different things with collecting-they love these objects or view them as an
investment. People will even buy art and move it from one location to
another or allow museums to borrow it."
Insurers who work with
art museums understand the potential for damage during transport.
Travelers, for example, works with independent agents and museum officials
to develop appropriate coverage for museum collections. The approach is to
address any kind of loss prevention, including catastrophic loss through
fire or theft.
"Typically,
museums are very well-run institutions," said Stephen Wood, manager,
museums and fine arts, for Travelers Property & Casualty, Marine
Division, Hartford, Conn. "The registrar staff has a handle on the
values. This is the starting point from which we can develop their
coverage."
Wood understands how
museums work. He is an art historian by training and came to Travelers with
a museum and fine-arts community background. The policies he works with are
fairly straightforward, he added, and are based on standard coverage forms
developed by the American Association of Museums. In some cases, the
lending museum may opt to maintain coverage on the works it is circulating.
Often, the borrowing museum wants to take out special insurance for the run
of an exhibit.
Exhibits being
assembled these days are "stunning" in terms of the value of the
art, especially when it comes to Impressionist paintings, von Frank said.
Two major exhibits of Impressionist Vincent Van Gogh's works are scheduled
to tour the United States next year, and at least one is valued at close to
$2 billion, he noted.
In the case of artwork
that is transported, the policies could provide all-risk inland marine
coverage against loss due to such occurrences as theft, damage from water,
fire, transportation, acts of government and catastrophes.
Museums to Go
 As the art-buying market is
undergoing change, so, too, are museums. The public is flocking to museums
like never before, and these facilities are becoming even more specialized.
"We're seeing a much wider variety of museum," Wood said.
"We're seeing a lot of activity in museums offering transport"
with increasing numbers of aircraft, train and auto showcases springing up,
he added. "Specialty historical societies are focusing on one
particular thing or another," he said, noting that Travelers, itself,
is focusing on providing coverage that is very adaptable to the many
different types of these institutions.
Some say the potential
of the current art market is $17 billion or more. Others, like von Frank,
won't speculate on a figure, noting only that its scope seems endless. He
cited the "unbelievable popularity" of American art of the 17th,
18th and 19th centuries as well as treasured collectibles like American
quilts and Shaker baskets.
But he does tie its
future-and, therefore, the prospects for art insurers-to the overall health
of the U.S. economy. The United States, reports the Insurance Services
Office Inc., has the largest fine-art market in the world.
Premiums Down;
Prospects Up
At present, von Frank
is concerned about premium rates, which have been declining dramatically
for the past four years. "There's so much capacity in the London
market and the domestic market that rates are diminishing-it's the worst
ever," he said. "The lunacy of driving down rates to an extent
where you can cover a $20 million collection at 4 cents per $100 is a very
difficult issue. Brokers and insurance companies alike have lamented this,
but nobody wants to take action, because the claims situation is still
somewhat favorable."
Also, he noted, the
competitive frenzy in the art insurance market has been stoked by abundant
reinsurance capacity.
 Overall, however, von Frank has
confidence in this market because buyers these days have substantially more
means than those who fueled the art boom in the 1980s. He is especially
intrigued by the prospects that the Internet holds as a distribution tool
for insurers in general and for fine-art insurers in particular. "I
believe the Internet is in a unique position to sell insurance products,
because we sell a promise-something intangible. We sell coverage for a
dreadful event; we sell help when chaos prevails," he said.
In fact, this approach
already exists on a limited basis out of the United Kingdom, where in April
1999, 11 Lloyd's syndicates-including SVB Syndicates Ltd., Millennium,
Janson Green and Wellington-launched an interactive Web site, called
Artinsure.com, for art insurance. It provides four classes of cover:
private collections, dealers, museums and exhibitions.
The site affords the
ability to quote, bind coverage and advise of any changes online. It also
offers a full claims service with Lloyd's Claims Office, with claims
payments being made directly to the original broker and/or customer. The
trading area is open, however, only to approved brokers or U.K. residents
who can buy insurance for their artworks off the screen.
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Two Against Theft
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Art insurers have a new arsenal to draw upon in their battle against art
theft—a strategic alliance between the Insurance Services Office Inc. and
the Art Loss Register. The partnership has raised the possibility that
hundreds of millions of dollars worth of stolen paintings and other art
objects may someday be recovered.
For its role in the alliance, New York-based
ISO is contributing the capabilities of its ClaimSearch industrywide
anti-fraud database. With this vast database, ISO has melded the
industry’s three separate major claims databases of property, casualty
and auto. The database holds 147 million claims and is growing at the
rate of 3 million reports a month, said Christopher L. Guidette, ISO
spokesman.
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Stolen
Apples: ALR helped recover Cézanne's Bouilloire et Fruits, which
disappeared in 1978
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Originally, a consultant estimated that developing
such a system would take five years and cost between $40 million and $50
million. But ISO went full tilt on the project, completing the task
within two years and at less than one-fourth of the projected cost,
Guidette said. Now, ISO is busy encouraging insurers to make full use of
this important tool. The more claims data that ISO receives from
insurers, the better it can detect patterns of fraud across lines of
insurance and types of claims.
For its part, the Art Loss Register operates
the world’s largest private, computerized database of stolen artworks,
antiques and collectibles. The register records claims for works that the
owners report destroyed by fire and other perils. Sometimes, those works
can resurface on the market, even decades later, indicating possible
fraud in the original claims.
Under the agreement announced in February, ISO
will forward the information it receives from insurers on claims for lost
or stolen works of art, antiques and other valuables to the register. ISO
obtains prior approval from insurers before sending the data on. This
remedies a problem that the register encountered with larger insurers
whose busy claims staff had priorities other than reporting all art losses
to the register, said David Shillingford, the register’s marketing
director for North America.
"The theft of high-profile art was always
reported to us in the past," he said, "but we needed to educate
insurers’ staff and get the message to them. We had to find a way of
collecting every art loss."
That problem is solved now. Once insurers
report a claim to ISO’s database, the information is automatically
forwarded to the register.
"It was only with the investment that ISO
made in redesigning the database that this was made feasible,"
Shillingford said.
The partnership is still young, but the
register already is seeing "a significant increase" in the
number of items being reported by insurance companies, Shillingford said.
"Our goal is to make more recoveries, but that, of course, is going
to take time," he added, noting that the average time for relocating
missing artworks is two to three years.
Since its inception in 1991, the London- and
New York-based Art Loss Register has helped recover more than 1,000 stolen
objects worth an estimated $100 million. One of the most publicized
recoveries involved Paul Cezanne’s still-life, Bouilloire et Fruits,
which was stolen from its owners in 1978. It was recovered by the
register in 1999, following a query from an insurance underwriter. In
November 1999, the painting brought its owners nearly $30 million at a
Sotheby auction in London.
Currently, the register is attempting to
recover stolen or looted artworks seized from Holocaust victims.
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Source:
Best's Review, December 2000
Copyright 2000, A.M. Best Company
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