Insurance coverage is often very comparable between carriers so investors looking to insure their collections should look at the quality of the insurance carrier and their understanding of the risk. This is the opinion of Graham Hawkins, global chief underwriting officer of Fine Art and Specie and Mark Bosshard, vice president – underwriter, both of XL Group.
“Effectively the true test of the product is the claims service and how a client’s claim is managed rather than the extent of the policy coverage,” said Hawkins.
Bosshard believes that the art market has become much more buoyant over the last couple of years, largely because of the tangibility of art which has been traded for centuries and is of more comfort to clients. However, as one bad loss can wipe out insurers, they recommend that a collector does some serious research before buying.
“We find that new players come in and go out all of the time in the fine art insurance industry. It’s traditionally been seen quite a profitable line to underwrite. But there are quite a lot of naïve underwriters who will perhaps take on risks that they shouldn’t or write at a level which may not be sustainable,” said Bosshard.
They believe that the market has been flat for an extended period with an over-abundance of capacity and limited losses from catastrophes. With this capacity in the market, it is important to examine a carrier’s experience in that class. As collections can be incredibly diverse, ranging from fine wine to oil paintings, and demonstrate different risks, it is important that insurers remain ahead.
Each collection of art presents different risks because each object is unique. There are a lot of potential pitfalls, especially with contemporary art. Contemporary art is far more complex to insure, because of the wide variety of media and fluctuating trends, says Bosshard. A collector who has invested in an artist who is widely popular one year, may find the work to be worth nothing the following year.
A major concern to insurers is location aggregation; insurers are effectively trying to maximise capacity in different locations while understanding and minimising the risks that come with it. This can be done by working with the warehouses that hold art to manage risk and maximise capacity, says Hawkins.