Fine Art and Disaster: Know Your Insurance Needs as Catastrophe Threats Mount

By: Nathan Davis | November 2, 2022

Nathan M. Davis is a partner and member of Pasich LLP's insurance recovery practice. Nathan has extensive experience in complex and high-profile litigation in state and federal courts nationwide, successfully representing clients from notable personalities in the entertainment industry to Fortune 500 companies. He can be reached directly at [email protected].

Hurricane Ian is expected to be among the 10 deadliest and most costly Atlantic storms in recorded history. At the same time, the western U.S. — especially California — is experiencing unprecedented devastation from ever larger and more powerful wildfires.

Thanks to the intensification of such disasters in both magnitude and frequency, it is becoming increasingly difficult to obtain insurance in some of the most affluent locations in the country, like New York, Miami and Los Angeles.

And just as it gets exponentially more difficult to protect property in some of the country’s wealthiest zip codes, the art market has never been stronger.

Global interest in collectible objects seems to be in step with rising global temperatures. According to Art Basel and UBS, worldwide art commerce increased by nearly 30% in 2021 alone, to more than $65 billion. More than 40% of that commerce was attributable to transactions in the United States.

Thus, collectors own objects that have never been more valuable but face a diminishing pool of insurers willing to take on their risks, especially in locations where those objects concentrate, like New York, Miami and Los Angeles.

Below are some pointers for obtaining and maximizing insurance for art collections in the current climate.

Consider Which Product Is Right for Your Valuables

Usually, first-party property insurance policies provide coverage for some personal property.

However, owners of valuable items — jewelry, artworks and other collectibles — often procure additional insurance through “personal articles floaters” and “scheduled property floaters.” These types of coverage have been available for some time, but recently, some insurers have begun to offer products developed for collecting institutions (such as museums) to individuals who own many valuable objects.

Such museum policies typically insure collectibles against all risks of physical loss or damage, much like personal articles floaters, but instead of insuring specified items, they insure the whole collection without naming each item. This allows collectors greater flexibility to acquire and sell objects, and they can provide a broader scope of protection, offering coverage for lending and transporting pieces throughout the world.

Museum policies, however, are somewhat new. Consequently, collectors must scrutinize terms to understand how growing, displaying, transporting, lending and enjoying their collections may affect the availability of coverage in the event of a calamity.

Location Matters

Just as with property insurance policies, the availability of insurance may rely on the geographic location of the insured objects.

Policies often reduce available coverage for losses sustained in areas prone to environmental catastrophes — especially in Hurricane Alley and other areas of the American South and, ever more frequently, areas prone to wildfires.

Collectors should take care to understand those limits and consider where their artworks are stored or displayed at any given time to avoid ending up with too small a payout in the event of an environmental disaster.

Plan Ahead to Maximize Coverage

The art market’s vicissitudes indicate that any single piece’s value may change considerably over time.

Therefore, collectors should create documentation of their collections’ values by obtaining appraisals regularly and photographing their valuables in situ — both close-up and entire rooms as a whole. This can help meet stringent requirements of proving loss that are commonly found in insurance policies that cover valuable objects.

The Early Bird . . .

Policies that cover valuable objects require documentation of a loss quickly, sometimes within 60 or 90 days.

After a storm or fire, these conditions often are not the focus of policyholders’ attention, but it is essential to document loss quickly and carefully to ensure that these conditions are met.

Additionally, policies often contain limitations clauses requiring that a lawsuit be filed within a short amount of time, such as a year, after the loss. It is essential to adhere to those requirements to avoid forfeiting coverage.

Finally, as natural disasters become more frequent and claims mount, insurers become more reluctant to pay out on claims. Moving quickly after a natural disaster could mean the difference between an early settlement of the claim and an extended brawl for insurance coverage with an insurer experiencing a depletion of resources or payout fatigue. &

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

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

Fine Art and Disaster: Know Your Insurance Needs as Catastrophe Threats Mount