People have been insuring art since the late nineteenth century, and in general, fine art insurance was relatively easy to get. That’s changing, however. Existing art collectors now face roadblocks when renewing their coverage, while newer collectors face challenges finding insurance carriers that will write them policies. Both face rising premiums and higher deductibles.
What is happening is that weather-related disasters associated with climate change, including droughts, floods, hurricanes, wildfires and windstorms, have increased in number, intensity and geographical spread in recent years. While those affected consider not only how to rebuild but also how to recover from the loss of precious artworks, insurance companies simply do the math.
Dorit Straus, a long-time worldwide fine art specialty manager at Chubb and an advisory consultant to Wondeur AI, told Observer that “because of catastrophic climate occurrences, the cost of reinsurance has gone up, which created higher costs for capacity,” and those increases are passed on to homeowners and to the collectors for fine art, since valuable artworks “require a lot of capacity.” There is only so much risk that insurance companies can take on, even when they are backstopped by reinsurance policies (insurance coverage for insurance companies).
“Capacity will tighten when claims experience creates a disadvantage to an insurer,” said Anne Rappa, senior vice president at Huntington T. Block Insurance Agency.
It’s not a problem restricted to art collectors. A number of major insurance companies—Allstate, Farmers and State Farm, among them—have announced they will stop writing homeowners insurance in California and Florida, the result of significant losses due to hurricanes and wildfires. But these problems are most acute in the locations where art collectors tend to live: California and Florida, parts of Colorado (Aspen, particularly) and Texas, as well as Long Island, New York.
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Jason Ott, president of Aon Private Risk Management, which specializes in fine art insurance policies, told Observer that “a handful of states are of real concern to insurers, and we are seeing the market contract.” California and Florida lead that list, but several other states—Arizona, Hawai’i, Louisiana, New Mexico, Texas, Vermont, the coastal Carolinas and even Montana—have become areas of concern. “It’s happening all over the U.S.,” he said.
Art collectors may not be as severely impacted as many others who live in these climate change-affected areas, Ott said, because they often have more resources to mitigate risk. Wealthy people can pay higher premiums, and those with more than one residence can move their art from homes in high-risk locations to homes in areas where the risk is lower. Collectors with substantial holdings of artwork and other cultural objects frequently place pieces in fine art storage facilities, which tend to be sited away from flood and earthquake zones, for protection, and some hire curators and registrars who coordinate their protection during extreme weather events.
Even so, what collectors are seeing these days are changes to their fine art insurance policies—not just to the annual premiums—driven by extreme weather. Traditionally, fine art coverage did not have deductibles, the way most homeowners policies do, but that increasingly is a thing of the past. “Wind deductibles have been added to some policies,” Ott said, limiting the insurer’s responsibility if the roof of a collector’s home is blown off or an object such as a tree branch flies through a collector’s window during a windstorm, damaging art.
According to Rappa, “the common deductible” for wind is $25,000 and $50,000 for those living in earthquake zones.
William G. Fleischer, principal at the New York City-based insurance brokerage firm Bernard Fleischer and Sons, Inc., said “you can expect those companies that are offering these coverages with high deductibles are charging more for less. Some of the exclusions become stricter, like absolute water damage exclusion, where in the past if the art was damaged you were covered, or a softer version other than flooding or hurricane.”
Additionally, the ability of collectors to obtain insurance coverage for their artworks may hinge on their accepting new requirements from brokers. Renewing coverage can involve creating a written disaster plan, which could include agreeing to have objects crated and moved to an art storage facility in advance of a storm warning or even the removal of shrubbery near the home and installation of stones around the property perimeter to break the path of moving fires. This adds to the cost of art insurance, but presumably, wealthier collectors can afford it. Newer collectors with fewer resources to spare may be out of luck.
