Some things to consider when thinking about insuring your collection

We often get inquiries from collectors about obtaining an insurance appraisal for their collection of fine art. Before hiring an appraiser, collectors need to evaluate their homeowners insurance policy and consider which works meet the threshold of value that necessitates a separate fine arts policy. Property Casualty 360 has recently posted some useful information to help collectors evaluate if a separate rider for the collection is needed. In particular, the author notes that typical homeowners policies require appraisals for collections worth over $5,000. Read on:

Large private collections generally have proper risk management in place including fine-art insurance that covers the full value of the items. But many smaller collections (those valued below $1 million) tend to be insured under a traditional homeowners policy or have no insurance at all. If these collectors face a devastating event resulting in damage, they may discover too late that their coverage is not sufficient to address their financial losses.

In simple terms, the process of insuring collections of fine art and collectibles under a traditional homeowners policy tends to be time-consuming and difficult while possibly yielding lower limits and less expansive coverage when compared to obtaining coverage with a fine art and collectible insurance policy. The comparisons below address specific differences between the two types of policies.

Appraisals – Homeowners policies generally require appraisals for collections over $5000 as part of the underwriting process. Many collectibles insurance policies do not require appraisals at the time of application.

Deductibles – Zero-dollar deductibles are the standard for collectibles insurance polices with some offering additional deductible options. Homeowners policies may offer zero-deductible policies, but it is not as common.

Limits – The limit on fine art and collectibles coverage generally ranges from $500 to $2000 for a homeowners policy without the addition of a floater or rider. Even with an added floater or rider, homeowners policies tend to limit the level of exposure. A collectibles policy may offer coverage up to $1 million or more.

Coverage – One of the most important coverage differences between a homeowners policy and collectibles policy is the valuation of covered items. Homeowners policies tend to insure for actual cash value while collectibles policies insure the full collectible value of items in the collection. This distinction alone can reflect a startling difference in potential claims payments in the event of a loss. Homeowners policies generally cover named perils only, exclude coverage for items during transit, limit coverage on items stored away from the home to as little as 10 to 15 percent, and extend coverage to newly acquired items for only 30 days. By contrast, collectibles policies typically include all risk coverage and provide coverage for items in transit, items stored away from the home (such as in an office or storage facility), and newly acquired items for up to 90 days. Some collectibles policies may offer additional coverage benefits such as discounts for monitored fire and burglar alarms or items kept in a UL-rated safe.

Claims – In today’s insurance market, filing a claim against a homeowners policy may leave an insured vulnerable to premium increases at renewal or the possibility of non-renewal. With a separate collectibles policy, claims do not affect homeowner premiums or loss history. In addition, companies that offer collectibles insurance may have claims adjusters with a high level of expertise in this area. Adjusters with this specialized knowledge are better able to determine the value of unique or rare items, which should expedite the claims process and lead to a better outcome for the insured.

A detailed comparison of the benefits and limitations of standard homeowners insurance versus collectibles insurance demonstrates that specialty coverage can be very advantageous for serious collectors.


Resources for San Diego Art Collectors

In addition to appraisal services, Thompson & Martinez consults with collectors regarding the acquisition, management and sale of fine art works. Last month, Natasha Bonilla Eckholm spoke to the East County Chapter of the San Diego Museum of Art on art collecting in “A Primer for Aspiring Art Collectors in San Diego: Strategies, Value, Collection Care and More,” presented at the Grossmont Hospital Healthcare Auditorium. The lecture covered collecting strategies and resources, as well as collections care, insurance and legacy planning. Resources for San Diego Collectors


What’s My Art Worth?

In a sign of the times, one of the most frequent queries that we get these days goes something like this: “I was given (inherited, won) a print or painting, sculpture by “John Smith” (or, I don’t know who the artist is but it looks really old) and am curious about what it is worth because I’d like to sell it. Can you help me?”

Before we can answer that question, there is some key information that we need in order to determine if we can help you or, if you have something that is worth an appraiser’s standard fee of upwards of $150 an hour.

Is it original?
By original we mean, is it a unique oil/acrylic/watercolor/drawing or sculpture that is signed by an artist? If you are not sure and if it is in a frame, examine it out of the frame.

Who is the artist?

Look for a signature on the front or the back of the painting, or, if it is a sculpture, on the base. Another reason to take a print or painting out of the frame is that there may be a gallery label on the back identifying the artist, title, date and even price.

What are the dimensions?
Height and width of a two-dimensional work, height, width and depth if a three-dimensional work.

What is the history of ownership?
Where did you or the person from whom you received the artwork acquire the piece? If you don’t know, look for any old appraisals, invoices or certificates.

What is the condition?
The condition of the artwork usually has a significant impact on value. Look for rips, holes, insect infestation, fading, toning, water damage etc… Again, this is another reason to remove an artwork from the frame. Oftentimes artwork that has been in the family for decades has never been reframed, consequently the piece has become degraded due to over-exposure to light, or from non-archival acidic backings.

Do a quick google search with the artist’s name to see if he or she pops up. Or go to one of the fine art databases to see if your artist has enough of a market to be included.

Finally, it is important to understand that the value of an artwork varies according to the purpose of the appraisal. The value assigned to a work for insurance purposes is Replacement Value, typically what you would pay at a gallery. The value assigned to an artwork for donation, estate tax or sales purposes, is known as Fair Market Value, defined by professional appraisal organizations as what a willing buyer and a willing seller would agree is a reasonable price in the open marketplace, usually the auction market.


Hong Kong auctions completed and Poly Auctions underway…

With the Hong Kong sales just ending and the Beijing Poly sales now underway, it looks like another banner season for the Chinese art auction market. Christie’s Hong Kong finished up with a record almost US$500 million in sales at their May auctions. And, of course, China Guardian sales made big news with a painting by modern master Qi Baishi selling for $65 million. Who is driving the market? The newly minted Chinese millionaires (who now number more than a million)including financiers and private company owners who are putting their money in Chinese art…everything from porcelains to contemporary art. One group in particular, Shaanxi coal mine owners, are, to quote one Shanghai-based dealer, “are very comfortable” putting their cash into art. And from the looks of some of the more aggressive bidders last night at the modern ink painting sale last night, this appears to be true. Missing at the auction were foreign buyers. This is in part due to the restrictions on what can be taken out of China; it is also due to the different tastes of domestic and overseas collectors of Chinese art. However, this may change soon as Beijing Poly and Guardian get up to speed on attracting foreign buyers to sales which include “overlap” artists, like Liu Ye, Yue Minjun, Zhang Xiaogang etc…and start marketing artists popular in China to overseas collectors. According to Forbes magazine, Beijing Poly is considering establishing a branch in New York.


IRS requirements for Charitable Donation appraisals – additional Guidance

The IRS has strict requirements for appraisals for Charitable Donation and has issued additional guidance for donations of art $20,000 and above – donations which generally are subject to review by the IRS’s Art Advisory Board. This includes the requirement that a written appraisal be attached to the tax return and that 8″x10″ color photographs of individual items appraised at $20,000 and above be included. Also required is the acquisition cost of the donated item as well as the source and date of acquisition. Click on the link below to find out more.