COA 4131 1st Edition Lecture 16 Outline of Last Lecture I. Introduction to Insurance and Personal Risk ManagementII. Planning a Personal Insurance Program III. The Insurance Management Process Outline of Current Lecture I. For Sale: A Mistress & a SheepII. Why Insure Art?III. Insurance IV. Types of Coverage V. Terms VI. Coverage Considerations VII. How Much Coverage Do You NeedVIII. CostIX. Insurance for artistsX. When Art is StolenXI. Art PricesXII. Preventative Conservation and Risk ManagementXIII. CompaniesXIV. Property and Liability InsuranceXV. Liability and Auto Insurance Current LectureA. For Sale: A Mistress & a Sheepa. Picasso 1932i. “Woman Sitting by the Window”ii. Sotheby’s priciest art offering in a long timeiii. Sotheby’s is one of the worlds biggest art auctioneersiv. Expected to sell for $40-$55 million1. Sold for a lot more!v. European collectors are more calm about their economy this year when the economy is down or shaky1. Dealers are more confident in their art values for this work b. Damien Hirst 1995i. “Away from the Flock (Divided)”ii. Hirst’s best known formaldehyde works of a dissected sheepiii. Asking price $2.6-4 millioniv. Sellers signed a contract to set out the reserve price and the seller’s commission v. Collectors will sometimes pay a premium for art B. Why Insure Art?a. People have attachments to their art work pieces and are likely to replace it with another oneb. People often do not know he value of their art until they become damaged or lostc. Art has investment valuei. If an artist dies, the value may increase and many other factors ii. It is helpful to also collect information about the artist to increase value1. Not all art is created equal; pricier when the artist was more popular or diesC. Insurance a. For combined holdings valued in the low four figures, a regular homeowners or renters policy usually provides adequate protection i. Some policies may not cover theft, so it is a good idea to pay extra for it ii. Art is especially susceptible to theft; most insurance companies want to limit their exposure to such items b. Can buy from many types of insurance brokers, but it is better to have someone with knowledge to get someone with knowledge of art to handle the cost accurately c. Advantages i. No deductibles in many casesii. Coverage of recent purchasesiii. Typically, only losses due to war, nuclear disaster, wear and tear or rats are excludediv. Accurate values based on expertise; less hassle D. Types of Coverage a. Property/Casaultyi. Covers theft and many types of damage b. Title i. Protects against someone having a claim to a piece you bought1. Offered exclusively by ARISc. Specialized Productsi. Personal Fine Art and Collectibles Coverage1. For individuals ii. Exhibition Coverage1. When lending art for exhibition iii. Museum Coverage1. Specialized coverage for museumsiv. Corporate Fine Art Coverage1. Coverage for art owned by corporations 2. Usually placed high up so no one can touch it or ruin itv. Fine Art Dealer Coverage1. Coverage for art dealers E. Termsa. Replacement Costi. The amount required to replace an item with one of like kind and quality ii. No allowance is made for the intrinsic value of the piece iii. No set amount is statediv. Usually updated once a year b. Agreed/Scheduled Valuei. A specific amount usually determined by a current appraisal or receipt ii. Values can be updatedc. Current Market Valuesi. Current value of an item within a defined marketplaceii. This value fluctuated during the policy term and they put that into considerationiii. The value is not fully known until there is a lossF. Coverage Considerationsa. Two ways of covering itemsi. Contents coverage (part of regular household contents) 1. Things to consider:a. Deductiblei. More difficult to get flood insurance in New Orleans right now b. Per item limiti. There is a maximum paid for any one item that is claimedc. Restricted geographical coveragei. Not covered during transitd. Restricted coverage i. Certain things are not covered1. Such as breaking of fragile article or objectse. Not automatic coverage for newly acquired itemsf. Basis of valuation is Replacement Cost ii. Scheduling, either itemized or blanket coverage1. Itemized coverage requires a separate description and value for each piece2. Blanket coverage includes a total dollar amount without listing each item3. Scheduling advantages include:a. No deductibleb. No per item limiti. Except when blanketing but the per item limit should still be higher than under contentsc. Additional covered perilsd. Broader geographical rangei. Usually worldwidee. Coverage for newly acquired items that includes automaticcoverage for new pieces with a grace period for reporting usually ranging from 25 to 60 days f. Basis of valuation is either agreed value or current market value 4. All of these things should be covered if you’re smart G. How Much Coverage Do You Needa. Typically, you buy insurance on agreed value b. Some prices cover only the agreed value, and others will pay the higher or either agreed or market value, usually capped around 150%c. Most insurers expect their customers to have their art appraised every 3-5 years, sometimes more prices are volatilei. Important to have a knowledgeable broker that knows what they are talking aboutd. Companies recommend 100% coverage, but if the art is not moved around often,it might not be such a great ideai. It is better to get a little than nothing at all H. Costa. Title insurance runs from 1.5 to 4 percent of the appraised value of a purchase, a onetime expense that protects you and your heirsi. It usually covers legal defense costsb. Theft/damage insurance for art, added onto your home insurance, generally costs $1-2 annually per $1,000 of coveragei. Less if you have a good security system in placec. The typical year property/casualty premium is $700 to $1,000 per $1 million of appraised value, if there are no special considerations, and up to twice that if there are i. Can lower by offering to pay a deductible d. Insurers’ main criterion is locationi. In the U.S., the riskier spots are California, Florida, and New York Cityii. The more risky the spot, the less for the costiii. Earthquakes, hurricanes, concentration of collectorsiv. Midwest and landlocked places are more safe e. Examplei. State of Florida Fine Arts Insurance Program1. Purchased and administered by the Department of Management Service, Division of State Purchasing a. For
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