Wealthy art investors are purchasing more insurance to cover their collections.
A Stonehage Group report this month showed a high performance of long-term returns on art assets relative to many other asset classes, and clients have significantly increased the level of insurance cover for their art collections over the last couple of years.
Stonehage executive director Steven Kettle said: “The long-term performance of the art market, particularly at the high end, has delivered impressive returns, so collectors increasingly need to ensure they have the right cover in place.”
Demand for high end art is being driven by overseas and non domiciled investors such as Asian, European and Russian buyers who are prepared to outbid each other for trophy works.
In addition, more speculative investment is at play.
“In the past, the vast bulk of art buyers would be highly knowledgeable about the market, but we are seeing a newer type of client who is often younger than the traditional art buyer and who may not have such an in-depth knowledge,” Kettle said. “These younger buyers often don’t have very established collections and are looking for guidance.”
The report noted buyers must manage their collections to protect and increase their value by ensuring art is hung and lit properly, taking out regular condition checks and… getting comprehensive insurance. They would say that.
Knight Frank’s Wealth Report 2013 reported a 92% increase in the value of art over the past five years.
“As prices climb, the corresponding insured values of art held in private and public collections also rises,” said Hiscox fine art underwriter Robert Korzinek.
Picasso’s Garcon a la Pipe sold for $104.2m in 2004, the first to break the $100m barrier, but in March this year Picasso’s Le Reve sold for $155m, the most expensive Picasso ever. The value of art in a blockbuster exhibition would easily exceed $1bn now.
“Most buyers are private collectors with a genuine passion for art,” he said. “But in these austere times many have also come to appreciate the value of their art. Since the financial crisis, many collectors have updated their valuations and addressed any underinsurance.”
TEFAF Maastricht, the world’s leading fine art fair, has decided to bring the event to China in 2014. As more fine art fairs are held in emerging markets, it creates big opportunities for Lloyds to provide the large amounts of insurance capacity required by organisers, galleries and dealers.
But new art markets post challenges for underwriters. For example, the guiding principle of art insurance is to know the collector so the risk profile of new individual collectors needs to built up with new relationships in an unfamiliar market.