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 own their own art collection. 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 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 collecitons, 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. But valuations of an asset such as art, which fluctuates in value so rapidly, could quickly become out of date.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 show a figure of 4.6%. 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 Your art could witness a rapid spike in price, causing you to be underinsured as your valuation grows out of date.
Difference in valuations 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 valuers 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.
At Romero Insurance Brokers, we are able to arrange your art collection to be valued.
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 around their favourite artists or collections, look up online auctions 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 out-dated.
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, private clients with professional valuations of their art that is 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 broker representative at Romero Insurance Brokers to learn more.
How to get your art collection valued?
At Romero Insurance Brokers, we are able to arrange your art collection to be valued. This will either be performed by us or by an independent professional we organise.
Furthermore, we are then able to provide a quote on your insurance, and demonstrate the wide range of benefits of working with the Romero Private Clients team.
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