Wednesday - 23 April 2014

Insurance firm offer auction guarantees

29 May 2012Written by Ivan Macquisten

A new insurance company are trying to plug what they see as a gap in the market for auction guarantees between $10,000 and $1.5m.

Based in Palm Springs, California, Art Auction Guarantee (AAG) launched in 2011 and are offering the service to both buyers and sellers in major auction locations around the world.

The auction world is used to guarantees for sellers, but this scheme also allows buyers to pay a premium guaranteeing at least the hammer price they paid for it when reselling.

Although policies don't cover all the costs of buying and selling at auction, they will cover at least the reserve for sellers, explained AAG's president, Arnaud Aquizerate.

Potential clients will have to drill down further into the details (see How it Works) to see whether it makes sense for them to opt for such cover - buyers can negotiate policies that refund the premium as well as the hammer price, but not other charges - but it is the removal of uncertainty in a world increasingly conscious of cashflow that Mr Aquizerate's "boutique insurance" operation hopes to tap into.

He came up with the idea for the company after running art galleries in Milan, St Moritz and Beverly Hills for the past decade. "The company is funded through various financial instruments (bank credit lines) and committed capital from investors/collectors and myself," he told ATG.

As well as relying on valuations from approved auction houses, including those selling the objects in question, AAG aim to build an in-house database of analysis, auction results and other statistics to make their risk assessment more accurate.

The offer of guarantees is currently limited to Old Master paintings and drawings, 19th century art and decorative arts, Impressionist and Modern art, modern sculpture, Chinese art and ceramics, Contemporary art, Design and 20th century decorative arts pieces.

"We work with auction houses worldwide (USA, Canada, China, Hong Kong, UK, France, The Netherlands, Germany, etc) and we also intend to open offices to cater better to the specific financial and legal environment of clients in London and in Hong Kong," said Mr Aquizerate.

Close co-operation with auction houses is likely to prove crucial in the matter of after-sales and reoffers. Depending on auction houses' terms and conditions, currently items can be offered immediately after the sale below the reserve, or retained for resale sometimes for an indefinite period.

AAG only pay out where they acquire the item, so policyholders agreeing to after-sales below the reserve to a third party would not be able to recover the difference, while the fulfilment of the policy payment would appear to deprive the auction house of a vendor's commission.

On the other hand, those consigning works for auction can negotiate after-sale conditions and returns in advance, allowing policyholders to regain unsold items in order to submit claims to AAG.

"Clients interested in obtaining auction guarantees from us are from all over the place, from the USA and Canada to Europe, South America, Asia, Russia, and so on.

"My objective is to 'revolutionise' the way art is bought and sold in auction," said Mr Aquizerate. "On the buyers' side, I hope in a few years clients will require a 'buyer's guarantee' from us and that will become a norm, a bit like a warranty for a new car. Nobody would buy a new car without having a warranty on it."

It's early days and there may be significant challenges in making a business model like this work, but AAG's idea of insuring the middle to higher end of the auction process for both buyers and sellers is certainly one that a lot of people will be watching very closely.

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