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