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Protecting Museums in the High-Value World of Fine Art

The art world is growing more valuable, more complex, and ultimately riskier.
By: | March 1, 2018 • 5 min read

Over the last few years, fine art has shifted from primarily an expression of creativity to a new global asset class. And as a growing number of non-traditional collectors now look to fine art — both classic and contemporary — as a way to diversify investment portfolios, valuations have skyrocketed.

At the top end, a Picasso or Monet can fetch as much as $250 million from a willing buyer. Even new artists can now demand seven-figures. A whole collection can be worth billions.

“The total value of a Francis Bacon show last year was around $2 billion,” said Richard Northcott, Director of Fine Art & Specie, Ironshore. “The value of art has shot further and further skyward.”

But more money also introduces more risk.

At a time when traveling exhibitions and the lending of artwork between museums and collectors have grown more common, higher dollar values generate greater liability exposure through every step of a transaction — including the transportation, storage and display of fine art.

“Almost all museums have exhibition programs and museums are continually lending works of art from their collections to each other,” Northcott said.

With values at elevated levels, it’s potentially ripe ground for litigation. Lawyers and legal counsels for institutions have noticed.

“The input of non-art professionals like attorneys in constructing loan agreements has resulted in increasingly complex contracts,” Northcott said.

To protect themselves from taking on more liability than they’re covered for, museums need the insights and skill of an insurer with expertise in fine art, and similarly qualified brokers.

Bespoke Contracts Seek Absolute Liability

Richard Northcott
Director of Fine Art & Specie

“Ten years ago, there were one or two standard loan agreements used by almost every institution. Now it’s not unusual for every museum and most private collectors who lend art to have their own specially-designed contract,” Northcott said. “As the values keep going up, people ask for more and more complex stipulations.”

Standard loan agreements of the past typically included a clause requiring a boiler-plate fine art insurance policy. Coverage for acts of terrorism, war, wear and tear and gradual deterioration, for example, were typically excluded from standard museum policies. Now some lenders want those perils covered under their loan agreement.

Upping the ante even further, some lenders now ask borrowers to accept “absolute liability” in their contracts.

“There is no technical insurance definition of ‘absolute liability.’ Lenders want borrowers to take blanket responsibility for a work of art and accept liability for whatever happens while it’s in their care,” Northcott said.

“Whatever happens” can encompass a wide and unpredictable scope of scenarios; potentially everything from physical damage from any cause to a change in market value during the loan period. Today, those risks can even include cyber breach as contemporary artists experiment with digital mediums.

“Because ‘absolute liability’ has no legal definition, it would all be down to what an aggressive lawyer would argue in court on the lender’s behalf,” Northcott said. “A museum putting on a show for a high-profile artist could have hundreds of millions of dollars of value at risk. The biggest fine art exhibitions now can be worth well over a billion dollars. Very few museums have the financial capacity to take on that liability.”

As a result, some museums are forced to turn down lending agreements and refrain from borrowing works of art because the liability is too great a burden.

“To avoid rejecting an agreement, and missing out on an opportunity to feature a fine work of art, the museum registrar needs a thorough review of both the proposed agreement and their insurance policies,” Northcott said.

Closing the Coverage Gap

Northcott and his team carefully analyze each loan agreement to determine how much liability the borrower is being asked to take on. No two contracts are alike, and each one needs to be picked through with a fine-toothed comb.

“We’ll compare the agreement against the borrower’s insurance coverages to see where they fall short,” Northcott said. “Then we’ll examine whether we can extend the policy to include some or all of the additional liabilities.”

Ironshore’s flat management structure and a culture of cooperation makes it easy for different underwriting units to work together to build the bespoke solutions necessitated by complex lending agreements.

“I spend an increasing amount of my time talking to my colleagues in the War and Terrorism departments, the Political risk department, and other parts of the company to access their capacity,” Northcott said. “I’ll communicate the risk to them, and usually we can work together to craft terms and conditions that address the client’s exposure.”

Ironshore also has the ability to write on admitted or locally licensed paper in territories across the world that work best for the client, based on the locations of borrower and lender — a critical factor when so much art lending takes place across borders. Barriers like differences in language, law or contract vernacular, as well as the various insurance statuses available today, may pose challenges to international loan agreements. Ironshore’s global resources ensure a good fit can almost always be found.

“We have paper in Singapore, Hong Kong, Australia, and we can tap into our Lloyd’s syndicate. In most circumstances, we can find a way to tailor a solution to a museum’s unique circumstances,” Northcott said.

Face-Time Fosters Industry Expertise

It takes in-depth knowledge of the art world to understand the unique risks and the circumstances of each individual loan agreement. Ironshore’s underwriters put in the time on the road to meet with their museum clients and their brokers and get to know their unique needs.

“The more clients I meet with, the more I really understand what’s going on in their institutions and what issues they’re concerned about. That allows me to tailor solutions to their specific needs and goals,” Northcott said.

Where underwriters provide the safety net up front, the claims team props institutions back up when some damage does befall a piece of fine art. Ironshore’s in-house claims teams work together with each business unit, so they have a complete understanding of how policies are written and can align their response appropriately.

“Our claims team will come to us and ask what our intent was when we wrote a particular policy. We are available to assist in claims exceeding $25,000 and on all complex or difficult cases. That close relationship and open communication provides a high-quality claims response to what are often quite complex and emotionally charged fine art losses,” Northcott said.

As the art world grows more valuable, more complex, and ultimately riskier, insurers with industry expertise and a high-touch approach to underwriting help museums minimize their exposure, and enable more fine works of art to be shared around the globe.

For all disclaimers and to learn more, visit http://www.ironshore.com/international/fine-art-and-specie/c53.


This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Ironshore. The editorial staff of Risk & Insurance had no role in its preparation.


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Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”


“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.


“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?


“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.