Choosing Art Insurance

In considering how much coverage to purchase, you have the option to choose between two very different options:

  1. Agree to a predetermined reimbursement amount that is determined by a qualified, professional appraiser. This amount does not change even if the market for the piece rises or falls.

  2. Agree to be reimbursed for the current market value of the artwork at the time of loss.

Many collectors choose the first option, known as the “agreed value,” which is a set amount paid in the event of a total loss. For example, if a fire destroys the Matisse you insured for $10 million, then $10 million is what you will receive as a claim payment. This can be advantageous if the market value of that Matisse has declined to say $8 million. The policy and the prior appraised value protects you.  However, it could be disheartening, if the painting’s value has appreciated to $20 million during the same period.

Choosing option two, insuring for "current market value", is one way to protect against financial loss due to market volatility. However, these policies can have their drawbacks. In the event of a claim, determining the market value can require hiring not just an appraiser and other experts, but a lawyer may also be necessary to compel the insurer to pay. The process may be drawn out over many months if the insurer contests a valuation. And, while you may benefit if work’s value has increased, the collector can be hurt if the market has weakened for his or her piece, the artist, or a specific style.

As a compromise, one can select an agreed-value policy, then seek to capture increases in market value by periodically updating the appraisal. This is known as scheduling. A qualified art appraiser can work with you to periodically review your collection and advise on valuation adjustments when warranted.

For example, collectors of 17th Century paintings where prices are relatively stable, might update an existing appraisal document every five years. However, with Contemporary Art, where there is significant volatility in the market, you might be well advised to request the appraiser to update the report every one or two years.