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Executive Spotlight

8 Questions for Richard Northcott

This Ironshore executive didn’t get into fine art on purpose, but has developed expertise in its beauty and its risks.
By: | May 4, 2018 • 6 min read

Ironshore Director of Fine Art & Specie Richard Northcott took an indirect path to insurance, as many in the field do. But in the process, he found his niche and built decades worth of knowledge in the world of fine art.

In this Q&A, Northcott describes the evolution of his experience in the high-stakes world of fine art and delves into emerging risks facing museums and other art professionals.

R&I: How did you get into the world of fine art?

Richard Northcott: I found myself like so many people in our industry falling into insurance. I actually graduated back in 1989 with a degree in agriculture. But three years of studying agriculture at university taught me that in the UK, unless you own your own farm, it’s hard to build a successful career. So I started looking for graduate jobs.

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There was an advert in the Times newspaper in London for a graduate trainee at a small Lloyds broker. They only employed about 30 people. I turned up for the interview. I spent 40 minutes talking to one of the company directors about cars because he’d just bought a new car and cars were my hobby. When I got home after the interview and told my mother, she said “Richard, how could you?”

But something must have gone right because they called at 9 a.m. the next morning and said, “When can you start?” I walked into a broker not even knowing that they did fine art insurance.

R&I: How steep was the learning curve?

RN: In those days they would start you off with the most basic tasks. I spent 3 days in the post room, 4 months doing processing, and then moved to the claims department for about a year. Then finally they promoted me into the placing department as a fine art broker, and that’s where I really started learning their trade.

I walked into a broker not even knowing that they did fine art insurance.

The company was sold and I ended up running a department called the Specialties Division in the larger group which was a multi-specialty unit, but fine art was always at its core. I’ve grown up in the broking community. I’d been a broker for 22 years.

R&I: How did you move from brokering to underwriting?

RN: In 2011, I was approached by an underwriter that I did a lot of business with, who shared with me that he was leaving his company and had offered to help his employer find a replacement. He asked if I was interested, and I jumped at it.

One of the first things I did when I became an underwriter was to go through the portfolio of business that I inherited and make some quite severe changes. We got rid of about $10 million of premium in a year, business that wasn’t in my appetite, in my experience or simply was not profitable. Then we set about rebuilding the portfolio of business in the shape that I wanted.

Today we have a book of business that’s 65 percent fine art, about 25 percent general specie, about 5 percent classic cars and motor sport, about 3 percent cash in transit and about 2 percent jewelry.

R&I: What’s your favorite aspect of underwriting fine art insurance?

Richard Northcott, Director, Fine Art & Specie, Ironshore

RN: The most enjoyable part of my job as a broker was going out and meeting clients, and I really wanted to maintain that client contact as an underwriter. I spend a fairly substantial part of my time out on the road meeting with customers, going to see some of these wonderful art collections and museums around the world and talking to the registrars, and the curators, and the risk managers of these institutions about what their issues and concerns are.

R&I: What are the top issues museum risk managers are facing?

RN: Art is becoming more valuable. A Picasso or Monet can sell for as much as $250 million at auction. Whole collections can be worth billions. Last year, for example, I saw a Francis Bacon show that was valued at around $2 billion.

Increasing values also increase exposure. Museums commonly organize exhibitions and art shows. Every time you are moving, storing and displaying art, the risk of damage or deterioration increases, and sometimes the financial loss potential is very significant.

Art is becoming more valuable. A Picasso or Monet can sell for as much as $250 million at auction. Whole collections can be worth billions. Last year, for example, I saw a Francis Bacon show that was valued at around $2 billion.

We’re seeing clients and their attorneys take note of that. They are getting involved in the drafting of loan agreements, which have become increasingly complex as drafters seek to shift the lion’s share of liability onto borrowers.

R&I: How exactly are loan agreements changing?

RN: A decade ago, loan agreements were pretty standard. Most included a clause requiring the borrower to carry a boiler-plate fine art insurance policy. Those policies typically exclude coverages for acts of war or terrorism, confiscation, general wear and tear and deterioration. Now lenders sometimes want borrowers to carry those coverages. Some lenders of contemporary art also ask for cyber coverage, since modern artists increasingly experiment with digital medium, which could expose them to a systems breach amongst other risks.

The biggest and most concerning change, however, is that lenders are increasingly asking for borrowers to accept ‘absolute liability’ in contracts.

R&I: What is absolute liability?

RN: By asking borrowers to accept absolute liability, they hold them responsible for anything that happens to a piece of art while it is in the borrower’s care, including while it’s in transport and on display.

That could encompass a wide range of circumstances and scenarios. Borrowers could even be on the hook for a loss of market value that occurs while they are responsible for the art. They could be liable for any natural deterioration that occurs. They might end up having to pay for things totally outside of their control if they accept absolute liability in a loan agreement.

There is no technical legal or insurance definition of absolute liability, so it could all come down to what a lawyer can argue in court.

R&I: How can museums protect themselves?

RN: Museums could have many millions of dollars at risk if they put on a high-profile show, and most won’t have the financial capacity to take that on. Before signing any loan agreement, they should contact their brokers and insurers to verify their coverage and limits and identify any gaps between the liability they are being asked to accept, what insurance coverage they have in place and what amount of financial risk they are willing to shoulder.

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Because each loan agreement is different, every one deserves a careful and detailed review. I see two to three loan agreements in a week, and I’ll pick apart each one with a fine-toothed comb and compare the contract with the museum’s insurance policies. Then I’ll see if there’s any additional coverage we can provide to close the liability gap.

At Ironshore, we’re lucky to have a flat management structure, so I can easily walk down to see our terrorism or political risk underwriter to determine if there are some terms and conditions he can offer for our clients. I can quickly find out if there’s extra coverage and capacity we can offer. Most of the time, we can help museums fulfill the obligations that the lender is asking them to accept by crafting bespoke solutions.

*Please visit www.ironshore.com for all disclaimers.

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

Your High Net Worth Client Wants to Live in the Danger Zone? Here’s What Your Resiliency Plan Should Look Like.

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]