When talking about investment assets – that is, those that appreciate over time as opposed to those assets that depreciate and are replaceable – not all insurance products are created equal.
Art and Collectables are unique in that they are one-of-a-kind, irreplaceable, and appreciating in value. Not limited to paintings and sculptures, collectables include rare and classic cars, antiques, whisky, wine, rare toys, stamps, classical musical instruments and more.
Insuring this type of asset is very different to insuring everyday household items. Evaluation is specialised because items are unique and irreplaceable. Understanding the realities of collectable insurance is vital if intermediaries are to avoid potential negative consequences for their clients and themselves.
An important point of consideration is to ensure that the owner will be in the same financial position following a loss. Within this context, the management of art as an investment and ensuring that collections are correctly appraised and valued becomes paramount. The reality is that intermediaries often do not understand this field and may advise a client incorrectly.
Many assume that standard asset insurance is sufficient to properly cover the loss of art and other collections, and perhaps they may be, but it is important that collectors ensure that this assumption is supported by their policy terms and conditions.
Understanding the art world, and how differently the art world behaves, is crucial to specialised insurance. Having products that can respond to clients, specifically how they behave and respond to a loss, separates ‘niche’ insurance companies and general commercial insurance companies.
Consider the following questions to ensure that you are correctly insured:
Is it insured at Agreed Value?
The beauty of an Agreed Value product is that all parties know up front what the total loss settlement amount will be.
There is no one-size-fits-all average appreciation increment that applies to all collectables – such as the average increase applied to general assets on an annual basis. Collectable values can change unpredictably. Some may even increase or decrease dramatically.
Take young South African artist Nelson Makamo as an example. When Oprah Winfrey and Trevor Noah announced that they included his works in their collections –the demand suddenly increased, and the value of his art has skyrocketed!
Conversely, if there is an influx of fakes and forgeries in the market imitating an unfortunate artist’s work, collectors may become wary of purchasing their creations, and the value can drop.
If an artist is recognised internationally, the rate of exchange in currencies can also have a major impact on the Rand Value.
A professional valuation of art and collectibles provides several benefits:
- Documented proof of ownership
- An independent professional valuation with an agreed value
- A clear description and image of the dimensions and materials. If stolen, this image can be added to the iTOO Artinsure Art Theft Register to ensure that the item is not sold in the secondary market and increase chances of recovery.
A claim with a recent professional valuation is straightforward because all parties know what will be settled, whereas without valuations, there is often very little documented proof of the value and ownership of an artwork.
There is a risk in assuming that a standard household asset inventory is a true valuation. We often see examples on an inventory that show “3 x oil paintings with a total value R 450 000”.
If there is a loss, it is not clear what the value of each individual item should be, and the claim process can become complicated and lengthy. To avoid dissatisfaction in the settlement following a loss, we recommend that old masters be revalued every two years, and contemporary artworks on an annual basis.
Is appreciation, deprecation, and the impact on pairs and sets recognised?
At the time of loss, will the policy consider the appreciation since the valuation date? Will the depreciation of the value following a restoration claim be credited to the insured? If a part of a set is damaged or lost, will the overall impact on the value of the set be recognised?
Is there an option to include additional cover for transit, exhibition, and entrustment to third parties for cleaning or reframing?
Are there policy extensions available to cover the purchase of fakes and forgeries, or the impact of defective title?
If a collector inadvertently purchases a forged work from a reputable dealer, will their insurance cover reimburse the client?
Collectors following the news will no doubt be aware of the recent spate of international repatriation claims. Iconic pieces are being successfully reclaimed by their original country of origin following historic illegal or immoral appropriation by other countries.
What happens to the collector when it becomes evident that the piece that they have purchased was previously stolen, and their title to the work has become defective? The authorities will confiscate the item to return it to the rightful owner, whilst the buyer of this stolen work will be out of pocket, unless they have the appropriate insurance cover in place.
Make certain that you are insured with an insurer that understands appreciating assets and how they need to be treated when there is a claim.
iTOO Artinsure has such bespoke insurance solutions for collectors and commercial art dealers.