Art Collection Insurance: Is Your Art Collection Underinsured?
01/10/2024 Written by: AP Communications
Here’s what high-net-worth clients need to know about the risks of underinsured art collections.
Ecclesiastical performed a survey of 250 high-net-worth individuals in the UK, all of whom invest in art and possess their own art collections. Answers from this survey have revealed that art collectors and private clients are conscious of the various financial risks posed when insuring and owning artwork.
62% of high-net-worth art collectors are worried that their collections are underinsured. The only way to stay on top of underinsurance is by trusting in an experienced broker.
Why is understanding risk crucial for art collectors?
In response to the survey, 52% of high net worth individuals said at least one item from their collections had been hit by the escape of water and burst pipes in the past. Damage in transit was also noted as a common issue, as well as 51% reporting accidental damage, and 51% witnessing vandalism. Theft and accidental damage were noted as the most pressing risks to art collectors.
A plethora of risks could pose a danger to art collections, as with any household asset, hence they require adequate insurance. Accurate insurance valuations are essential to avoid financial losses when the unexpected happens, such as a burst pipe or vandalism. However, valuations of an asset such as art, which fluctuates in value so rapidly, could quickly become out of date.
Causes of Art Collection Underinsurance
The major cause, and most recent trigger, for underinsurance is inflation. The annual rate of inflation reached 11.1% in October 2022, a 41-year high. The most recent reading shows a figure of 5.2%. This means that the value of items and assets could have risen dramatically and rapidly. Inflation not only affects art but most assets in possession of high-net-worth individuals; where, as the value of money decreases, their value rises.
Art is well known for its price fluctuations. The valuation of a singular piece of art can fluctuate based on a number of factors: popularity of the artist, popularity of the collection, increased scarcity, market prices increase, and health of the artist. Your art could witness a rapid spike in price, causing you to be underinsured as your valuation grows out of date.
Art Collection Insurance: Differences in valuation types for artwork
The majority of high-net-worth clients say their valuations were performed by an independent professional. These valuations are applicable for insurance purposes and will consider the replacement cost of the item. This price not only represents the sales price of the work but is defined to include sales and import taxes, as well as any commissions or premiums incurred in the purchase.
However, 37% said their valuations are probate valuations, which are administered upon death and inheritance, and are often based on the retail price of the item. 35% reported having a high auction valuation in place.
The more valuations, the better; yet different valuations will take into consideration different factors, each determined by the valuer’s expertise and knowledge. Auction values will typically be lower than retail value, with the professional insurance value typically being the highest as it takes into account more factors.
How to solve Art Collection Underinsurance
Having regular professional valuations to keep up with value fluctuations is the best way to prevent underinsurance. Art collectors should keep on top of news about their favourite artists or collections, and look up online auction sites to check the scarcity and popularity of related works. A dramatic rise in value will need to be insured to prevent loss in case of an unforeseen emergency.
There has been a trend in art prices increasing recently. The survey showed 76% of high net worth clients have seen their art increase in value over the past 12 months, with the same to be expected of the next 12 months. More than likely, those who appraise work annually have already seen their valuations become outdated.
It is recommended high net-worth collectors have their artwork collections valued annually, at a minimum. 50% of those surveyed admitted they have not had their artwork valued in the past year. 5% admitted they only have it valued every five years – this could mean their valuation is significantly out of date and they are at a great risk of underinsurance.
Be aware, that private clients with professional valuations of their art that are less than three years old at the time of loss could be inclined to more money from their insurer in the event of a claim. This is however dependent on the insurer and the policy details and will not apply in all cases – please read your documentation and contact your us to learn more.
When you invest in the finer things in life, they deserve the very best protection. Our high-net-worth insurance experts understand your lifestyle and the things that matter. That’s why we’re perfectly placed to protect clients like you, with the concierge service you would expect for Art Collection Insurance.
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