While the freeports offer tax advantages and top quality storage facilities, they can also bring insurance issues. It is therefore important for collectors to seek the advice of a specialist broker when deciding where to store their art. That is the view of Richard Northcott, director of the High Value Cargo division for Pembroke Managing Agency.
“The problem for insurers is that when you’ve got multiple clients all storing valuable works of art you get an accumulation of very high values in one single building,” he said.
“For the last four or five years has been causing insurers problems. Generally in the fine art market there is a finite amount of insurance capacity available for any one building. If the worst should happen and a major fire broke out or an airplane crashed into the building, it could end up being a very substantial loss for all insurers in the market because you’ve got such an aggregation of values in that one spot.”
He said that this has made purchasing cover in some of the freeports a challenge because a lot of insurers have effectively sold all their available capacity in those places.
The problem is compounded by the rate at which the value of much of the art is rising.
“Insurers try and accommodate that by getting more capacity over time, but one never quite keeps up with the other, and we’re in a market where the very best artworks can easily be going up in value at a rate higher than inflation, so to some extent insurers are facing a losing battle to keep up with the capacity demands.”
The problem has been eased slightly by the opening of a number of new fine art storage facilities, for instance in Luxembourg and Geneva, where a new building has been built that is separate from the other storage facilities. Singapore also as a new facility and new facilities are being built in New York.
However, the issue of risk being concentrated in certain locations looks set to persist, so Northcott recommends addressing the issue of insurance before deciding where to store your collection.
“Have a conversation with your broker and let them speak to their insurer and find out what spare capacity they might have,” he said. “The whole process of planning ahead is quite important because we keep a daily rolling total of how much we have in any one building, and over the course of time that does change as clients come and go, renewals come and go, people buy more, people sell things – so it’s an ever moving number.”
He said that most insurers have an absolute fixed maximum amount of capacity and as they get closer to that maximum amount they struggle to reconcile supply and demand. For this reason, a specialist broker is an important ally for any collector seeking to store their work safely.
“A specialist broker might be able to tell you that your insurer does have some head room at the moment, and you might be in a position where, if you knew you were going to use Geneva in the future, you might want to secure that capacity now because it might not be available in a few months’ time.
“That’s where having a conversation with your advisors and having a good plan becomes quite important.”