The soaring cost of reinsuring commercial losses since the attacks on September 11 has forced underwriters to withdraw entirely from specialist markets like art insurance, or else drastically reduce the value of cover they can offer dealers and collectors.
Hiscox underwriter Annabel Fell-Clark says she could have insured a $200m art collection before September 11, “but since then I have only been able to cover $25-50m”. This reduced capacity means higher rates for antique dealers at all levels of the market. David Scully, underwriter for Axa Art, says rises are inevitable. “Our reinsurance costs have increased by 50-100 per cent since the attacks. I would expect a 20 per cent rise in the cost of a clean claims renewal for dealers.”
Miss Fell-Clark predicts a similar rise at Hiscox, but she has also observed a greater fall in the cost of rates for the art trade over the past five years. “Since the attacks renewal rates have increased by 20-25 per cent for dealers with clean policies, but since 1997 our indices show an average 40 per cent fall in renewal costs.” The irony, she says, is that the art insurance was “not very profitable” before the attacks, because the falling cost of reinsurance had led to competitive rate offers.
One of the great worries facing the upper end of the trade will be the difficulty in getting adequate cover for losses in the event of a terrorist attack. “One of the great problems for art insurers is the concentration of high value art in small areas of cities around the world – 57th Street in New York, Avenue Matignon in Paris,” said Mr Scully. So if a plane crashed in Bond Street or anthrax contaminated the Tate, who would cover the enormous losses? The majority of insurance companies contribute money to a government-backed reinsurance pool in the event of a domestic terrorist attack. But the likely rise in the cost of contributing to ‘Pool Re’ as it is known, will certainly hit dealers in high risk areas like London, and could evict from the pool some small art insurance firms who would then have to offer reduced cover or none at all.
“Our backers are refusing to reinsure for a terrorist attack,” says Miss Fell-Clark, who is not part of Pool Re. Consequently, she can only offer to insure up to $3m of art lost through terrorism. She is now considering the costs to her business, and her clients, of joining the pool.
Dealers who stand at fairs in the US are faced with further complications, as Pool Re does not extend to foreign countries. US insurance companies are currently lobbying Congress to indemnify them against future terrorist attack.
The art insurance community was badly hit by the attacks on America – over $100m of insured art was lost in the World Trade Center, including works by Rodin, Miro and Lichtenstein, with AXA Art liable for $20m.
Post September 11 insurance premiums may rise by 20%
Two of the biggest art insurance companies have warned the trade to expect a 20 per cent rise in the cost of renewing policies following the terrorist attacks in America, and the Afghanistan war.
