HOW IS ART INSURED?
HOW IS ART INSURED?
Demystifying the process with top experts.
Some insurance is a part of everyday life. Whether a policy is for home, car or health, the means of protecting your most important assets against financial loss is standard practice. But most people don't have art insurance, and when they get it (which we recommend for anyone shipping art) it can be more complicated to understand and the nuances fuzzier to grasp. To demystify the process, Platform spoke with two experts: art insurer Dietl (for its insider knowledge) and Marc Hajjar, Director of Insurance for watch insurer HODINKEE (because sometimes comparison is the best teacher).
Are all pieces insurable? Are there any exceptions?
Yes, there shouldn't be exceptions. Shipping insurance is not only designed as a failsafe to provide compensation in the case of damage and loss of value, but also a crucial mechanism to help guide the process when there is indeed a problem. That's where any legal recourse begins, and without it, a bad scene can get infinitely worse, for all parties. There is the occasional limitation, however, like when FedEx Ground shipments aren't insured by some providers because the level of risk is less predictable than Priority, as one example.
That said, on any given shipment, there might sometimes be extenuating circumstances: the owner's location may be in an area of high risk, there may only be high-risk ocean freight options or the artwork itself may be deemed by underwriters to be too fragile to protect. In such situations, a shipping agent—or a customer's own underwriters—might have to insist on limitations of liability or insurance only for 'total loss.' Some shipping agents or underwriters will flat out refuse to insure certain media, like neon, which are known to break routinely regardless of protective measures taken.
Yes! All types of watches are insurable through HODINKEE Insurance. As long as you own the watch, can answer some basic security questions and verify your identity, you can insure it. People insure many different types of watches at all different price points.
How do owners know if they should go ahead with insuring something?
Owners should make sure the artwork is insured if it's of any value to them. The question will be whether they purchase insurance from a shipping agent like Dietl, already have an existing transit/cargo policy for their work, or add a transit/cargo policy to an existing home, storage, or business policy they already have. Any artwork shipment should be insured in some form, by at least one party, and it should be explicitly stated.
From our perspective, we won't ship if we know a given shipment is not insured at all; we always have to ascertain who is insuring, as a baseline requirement. Many of our customers have blanket policies to cover the movement of art they are arranging. This is often the baseline assumption that we then confirm in writing. If an owner has no insurance policy in place for the transit of their artwork, then insurance certainly should be purchased in some form. If damage or loss in value occurs without insurance in place, then the cost of repairs and the loss in value will ultimately be the burden of the owner, regardless of where or when the damage occurred. All shipping agents (Dietl, Fedex, USPS, airlines, etc.) have language in place to protect them in the event that they are not explicitly insuring the shipment because the owner did not purchase insurance from the shipping agent.
People make the decision to insure their watch or whole collection with HODINKEE Insurance for a variety of reasons. Some may have a family heirloom that they want to preserve. Others are avid collectors who want to protect their investments. The unifying theme is that everyone wants a way to safeguard their timepieces against a worst-case scenario.
How is the amount something is insured for determined? How does it relate to its overall value?
Generally, the insured value of an artwork will indeed be the assumed sales value—or market value. In some cases, the insurance value and market value may be different (sale values certainly vary), but usually not substantially so. There is also something called 'production value' that might be used for insurance purposes in certain circumstances.
It is important to note to inexperienced owners that the value they list for insurance (and which their insurance charge will be based on) is not necessarily indicative of any payout they may receive in the event that their artwork is damaged or lost. Ultimately, underwriters will do due diligence in determining the market value of an artwork based on recent and historical sales data for similar works.
If you declare a value of $1,000,000 on a print recently purchased for $10,000, and the print is a total loss, the insurance companies will pay out the $10,000 as that is the most recent evidence of its market value. Unfortunately, the opposite is not true: If an owner purposely undervalues the artwork in order to save money on insurance costs, underwriters may use this lower value as the base value for compensation. So, it's always best to declare a value as close to the actual market value as possible.
The great thing about HODINKEE Insurance is that the collector decides the value. Most of our insureds are very aware of the watch market, so they have a rough value in mind. We always recommend insuring for Retail Replacement Value, which is a term used to describe the amount of money you would need to spend if you had to go out and buy a replacement in a reasonable amount of time.
When insurance is acquired, it is usually for a predetermined period? Are policies regularly updated?
The most common form of insurance we provide is for 'nail to nail' coverage, or for transit from point A to point B—in other words, for a given shipment. We also offer insurance for specific storage periods or other circumstances such as the time artworks hang in an exhibition, but the base unit is getting an artwork from one place to the other. Storage insurance, exhibition insurance and such are treated as separate stand-alone policies to transit insurance. Once the artwork has been delivered to and signed for at its destination, the transit insurance stops. If a customer then needs insurance while the works are stored, then that is a new policy at a new additional cost.
All policies are for one year from the date that the premium is paid and automatically renew.
What instances/events do insurance policies usually cover?
This can get a little complicated, as there are different forms of insurance. For the purpose of this conversation, we assume we're talking about 'Shipper's Interest Insurance', which essentially covers the value of the item in transit, against loss or damage. So we'd be talking about accidental damage like a forklift punching a hole in a crate at the airport, a crate dropping off the back of a truck, or a vessel or plane going down. Basically, any significant damage to, or loss of, the insured artwork that amounts to a quantifiable financial loss would be covered.
HODINKEE Insurance covers a wide range of losses. Most notable are theft, damage, and mysterious disappearance. Our policies require a US-based address but offer worldwide protection so you never need to worry if you’re traveling abroad.
Are there any notable incidents that insurance policies don't typically cover?
This will depend on the policy or contract, but typically 'acts of god' like an earthquake, terrorist acts, or government intervention, like in the event of sanctions applied (oligarchs take note), might be exempt from coverage. Most policies or terms will have clear language in this regard, but basically what can't be controlled at all is seen as difficult to be responsible for. We insure controllable circumstances as do others.
Another thing insurance policies will often not cover are pre-existing damages, or new damages that run along the lines of pre-existing damage. For example, if you insure a fragile vintage table in transit and that table has previously sustained damage to one of its legs which was glued back on, then if that leg falls off along the same old glue line, then that damage may not be covered.
There are some extreme incidents that many insurance policies will not cover. These include, but aren’t limited to, losses a result of intentional acts, misappropriation, gradual loss, confiscation, acts of war, or nuclear/radiation hazards.
Does something already have to be in any specific condition to be considered insurable?
There does have to be a reasonable assumption of reasonably good and stable condition. Ideally, the condition at pick up is very well documented to ascertain that it arrives in the same condition. In some scenarios, there may be obviously risky aspects, or something called 'inherent vice' which is the tendency of an artwork to self-destruct or fall apart due to weak construction or poor and unstable materials. If there are indeed overt material risks which can't be controlled, the available insurance policy may be on a 'total loss only' basis, which obviates any incremental change in condition and provides coverage only in the event the artwork is totally destroyed or physically lost. An example (esoteric yet real!) of this may be sculptures made of compressed blocks of ash—the artist's intent is for the blocks to break down and the material nature of the blocks is that they are temporary. In such a case, it is impossible to maintain the condition of the artwork during transit and the insurance would be only for total loss.
Condition can be subjective. Some may think a vintage watch is too old to insure but consider factors like its originality, rarity and potential market value. While we insure watches in a variety of conditions, they should be in good, working order with a scheduled value proportionate to the condition. Think of it another way, would you be upset if you lost your watch? If the answer is yes, you should consider insuring it.
What if a reappraisal determines a different value than when something was originally insured? Does that automatically nullify or change its insurance policy?
Not necessarily, but possibly. Usually, if a value is known to change, the customer purchasing the insurance will want to notify us and we amend the insurance appropriately. Value is, of course, very malleable and can indeed change. If an item is insured in transit—and it, or one like it, sells for much more than the originally declared value while en route, and an unfortunate claim is necessitated—the financial liability would still be limited to what was originally stated. Insurance companies will typically find the most economically beneficial solution for themselves; ie, going with the lowest value they can prove.
It's important to note that if there is damage to a work in transit—that is to say the work is not totally destroyed or lost—insurance companies will cover the devaluation of the artwork. They do not simply hand over the total declared value of the work. Of course, there are a ton of potential variables, legal & otherwise that might impact the question.
With HODINKEE Insurance, you can change the value of a watch at any point during the policy period and, in most cases, get an updated premium in real time. Many of our insureds track the markets diligently and update values up or down accordingly. The original policy remains intact, the only adjustments would be the scheduled value of the watch and the premium amount. Appraisals are not required for new policies unless a watch is declared at $100,000 or greater.
Does something have to be very, very expensive in order to be insured?
No, any value artwork can (and probably should) be insured! Most available policies will have some sort of minimum, usually not much and well worth the peace of mind. As you go up into the stratosphere of artwork values, insurance does indeed become quite a serious issue—and one that is negotiated based on a myriad of variables—but, of course, the potential liability for all parties goes right up into that same stratosphere as well. It's an inherently critical part of the business of shipping art.
Not at all! HODINKEE Insurance serves all different types of collectors, from those just starting to explore watches to others who are very seasoned. The average value of a watch insured with HODINKEE Insurance is about $15,000 but we frequently see watches well below that on many policies or as part of larger collections. A great thing about being a collector of any object is that you buy what catches your eye, regardless of the price, so we built HODINKEE Insurance to accommodate all types of collecting habits.