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Insuring against the cracks – Brexit may add complexity to the insurance industry. Image: Shutterstock.

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The art market may be more complex and globalised than ever, but some things never change. With insurance, experts will tell you that the most common problem remains accidental damage in transit – around 50% of all fine art claims, according to Andrew Mitchell, line underwriter at Hiscox UK and Ireland Art & Private Clients.

While the ordinary punter needs cover when buying and selling art and antiques, it is the galleries and auction houses for whom insurance and shipping costs have a real impact.

Art is also at risk when stored in freeports and warehouses. Safety standards have improved immensely, but fire, water damage and theft will always be waiting in the shadows. And then there is the emerging threat of cyber crime.

So what are the chief areas of risk in today’s market? And what are the challenges for insurers looking to reduce their own exposure, not just for business and private collectors, but also for institutional clients?

Daniel Smith, of insurer Jardine Lloyd Thompson (JLT), specialises in policies for fine art and jewellery. He advises those operating internationally to pay close attention to policy terms and conditions to ensure adequate cover for currency fluctuations (should transactions be in a foreign currency) and that there are no transport restrictions within policy.

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Daniel Smith, a specialist in insurance policies for fine art and jewellery at Jardine Lloyd Thompson.

Insurance professionals should put themselves in their clients’ shoes more, says Mitchell. Buyers and sellers alike need to seek clarity in “some of the jargon and antiquated contracts that still pervade the insurance market. At Hiscox we endeavour to produce clear, concise wordings that all customers can understand.”

Above all, it is vital that staff are trained in the best practice of looking after art, according to Adam Prideaux, managing director of specialist fine art insurance broker Hallett Independent.

“As a minimum, one member of staff takes time to understand every aspect of the policy in place and what insurers expect of them,” he says.

Prideaux also argues that the growing importance of art fairs – an integral part of many galleries’ business plans – makes them a priority on the insurance front.

“ Insurers would be in a troubling situation after a major fire or explosion at a fair Daniel Smith, Jardine Lloyd Thompson

“A successful fair can be very profitable, but they are expensive to attend. It’s not just the cost of the stand, but the flights, accommodation, shipping and insurance. We always recommend that galleries buy art fair cancellation cover, which will reimburse them their costs if they are unable to attend.”

Mode of transport

Prideaux advises clients to notify their insurer of each fair, the total value of stock being taken and how works are shipped. “Many art dealer policies have exclusions for sea transits, for instance, so the broker should arrange for this to be deleted if certain works need to be sent this way.”

Experts agree that using specialist art packers and shippers is essential. “Experienced art logistics companies, while more expensive than general couriers, will result in far fewer losses over time, which in turn enables the clients to achieve best-in-class policies and the most competitive premium available,” says Smith.

If a courier company is used, then it is vital insurers are informed.

“Specific cover for defective title or IP infringements could help mitigate risks with online transactions Tony Baumgartner, Clyde & Co

The globalisation of the market and online activity are often the focus for Tony Baumgartner, partner and head of fine art at specialist law firm Clyde & Co.

He advises clients to keep a close eye on currency fluctuations where the currency of the insured value differs from that of the original purchase price of a work of art, and the risk of loss where the market for a work falls away.

Online transactions present challenging cross-border risks, such as the risks of purchasing pieces with unsound provenance, and infringing intellectual property rights. “It can be a very difficult market to police because of the scale and speed of transactions and the remoteness of the parties,” Baumgartner adds. “Specific cover for defective title or IP infringements could help mitigate those sorts of risks.”

Galleries which decide to open spaces in other countries face even more complex risks. “They need to ensure that they comply with local laws relating to health and safety, and put the necessary liability cover in place, which will be with a local insurer,” says Prideaux. “They should, where possible, keep the insurance for art under one policy, which will ensure continuity of cover between the different locations.”

Insurers need to protect themselves too, says Smith. He and his colleagues now place greater emphasis on managing exposure at events such as TEFAF and Masterpiece, with insurers needing to know exactly where artwork they cover is at any given time.

“That being said, given the large limits afforded by insurers in a seemingly vain attempt to stem the outward flow of premium, it would no doubt leave them in a troubling situation following an apocalyptic event such as a fire or explosion at one of the major art fairs.”

These are apposite comments in the light of the £3m theft from the Masterpiece stand of Swiss jeweller Boghossianat on July 6. The investigation is ongoing but in general terms, loss adjusters will want to know how closely clients have stuck to the terms of their policy before advising on a payout.

Mitchell agrees there are no shortcuts when it comes to covering large events, but insurers can take measures to protect themselves.

“Insurers can buy insurance themselves, known as reinsurance. Realistically the only other way to reduce insurer exposure is to decline business or reduce the scope or limits of insurance cover they provide. That would be wholly uncommercial.”

Hallett Independent looks after corporate collections and while more public than private ones, Prideaux does not believe their needs are fundamentally different.

“It is important to know the strategic goals of the collection ownership and display,” he says. “Is the collection for the wellbeing and interest of staff, or part of a corporate branding exercise, or a financial investment, or a combination?”

Whatever the answer, such collections are typically rehung more often than private collections, and by staff with less experience in handling the works, which increases risk.

“It is essential that a collection management guideline is compiled, and that staff are informed accordingly,” advises Prideaux.

Non-core business

What about auctioneers? “The technicality of exporting is going to get more difficult, which is why auctioneers shouldn’t be handling it,” says Colin Young, managing director of Golding Young and Mawer and president of NAVA Propertymark. “Instead they should use specialists and not waste time on things that aren’t core business.”

While that might add costs here and there, it means that the auctioneer is handing over any risk to the shipper from an insurance and fulfilment perspective.

“In the case of thefts from fairs, loss adjusters would want to know how closely clients have stuck to the terms of their policy

Professional standards have tightened at the insistence of industry associations. As this is already reflected in insurance cover for members, auctioneers should not face too many changes in the near future.

“Standard policies have always had to include stock-holding commercial policies covering a certain amount of stock in buildings, as well as stock in transit. Such risks aren’t going to change,” Young says.

“Issues might arise under litigation surrounding mis-description and the voiding of sales because of mistakes. Then there are new considerations, such as ivory. Where you have a buyer in the US who buys some ivory and then finds they can’t import it, your terms and conditions should cover such eventualities.”

We may face more complexities but they are not insurmountable if approached in the right way. Developing better all-round service and smoothing the way for clients will be key to reducing risk and retaining their loyalty in the long term.