The cost and effort involved in
comprehensively insuring artwork, from date of purchase to date of sale, can be
daunting. For starters, insurance must be in place from the moment a collector
signs his check, and that may be weeks before he even ships it to the location
where it will be displayed. Some blanket policies automatically cover new
purchases for 90 days, but collectors still must inform the insurance carrier
immediately.
Every gallery owner has an insurance nightmare to recount and
will gladly discuss the seemingly arbitrariness of insurance rates. For example,
carriers apparently view certain locales as high-risk, and charge accordingly.
"Some people’s premiums go sky-high, simply because they live on the ocean and
that’s the property where they choose to display their art," Christie’s Amy
Cappellazzo says.
Carriers also impose a growing array of demands on collectors.
Valuations in the contemporary art market are on a tear—an Andreas Gursky
photograph worth $500,000 two years ago may have been worth $1 million or more
last year and be closer to $2.5 million this year—as investors drive up prices
at auction houses. For owners, getting up-to-date appraisals and revising
insurance policies to reflect the true value of a collection is important—but
it’s also time-consuming and often costly, notes Patrick Devaney, managing
director and senior trust officer at JPMorgan Chase in New York. And even then,
if an artist’s work is the newest, hottest thing around, but has yet to make an
appearance on the auction block, insurers may be reluctant to guarantee what the
collector believes to be the full value of a new work.
Individuals who keep their collections at a vacation home
overseas should be prepared to cover the costs of flying in not only an
appraiser, but also the insurance agent. Even for established collectors in this
environment, getting insurance is increasingly tricky. A Florida collector may
find his provider demanding he build watertight storm closets to shelter art in
case of a hurricane, as well as insisting he install backup generators to ensure
that temperature and humidity controls are maintained.
"Insurers are increasingly focused on collectors having proper
security," Devaney says. That may include strictures that their purchase of
top-tier art remains confidential. Even lending to a museum may require a
collector to dig into his own pocket to boost the museum’s insurance coverage,
especially for smaller institutions with limited budgets.
Yet there is some good news on the insurance front. It is now
possible to insure collections against new kinds of risks. Title insurance is
one new option. In the wake of ownership controversies involving everything from
antiquities at Los Angeles’ Getty Museum to Impressionist and Modernist works
looted by Nazis, firms like newly launched ARIS hope that collectors will sign
up for insurance promising that if anyone is able to prove that someone else has
a stronger claim to the centerpiece of their collection, at least the collector
won’t be left out of pocket. Customers have been slow to materialize, but all it
may take is one more high-profile ownership controversy for the trend to catch
on.
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The Hidden Costs of Art Collecting
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