Art collectors in California, Florida and other states experiencing weather-related disasters aggravated by climate change are finding fine art insurance becoming more expensive, with policies increasingly difficult to obtain (or renew) and containing new restrictions.
Earthquake-prone California, which has faced a series of massive wildfires (often followed by landslides) in recent years, is one epicentre in this struggle to find insurance coverage for homes and the art within them, with the annual cost of homeowners policies rising as much as 40% and the premiums for fine art insurance coverage increasing between 5% and 12%, according to Amee Yunn, assistant vice president of the New York-based Berkley Asset Protection, an insurance company specialising in fine art, jewellery and other high-value, personal and commercial assets. Florida, with its increasingly intense hurricanes and floods, is also a concern for the insurance industry.
“Many wealthy people flocked to Florida due to the pandemic,” Yunn says, “and they took their art with them.” That concentration of wealth assets in areas prone to flooding and hurricane damage creates significant risks to the financial wellbeing of insurance carriers. “We are seeing far more billion-dollar claims now than just 10 years ago,” Yunn says, causing companies like hers to write fewer new policies, increase their prices and add deductibles and exclusions. “The problem is acute.”
Collectors in danger zones
Mary Pontillo, national fine arts practice leader at Boston-based Risk Strategies, an insurance brokerage company, says collectors in California have experienced the greatest difficulty in obtaining new or renewed coverage, as many insurance “carriers will not take on any more risk”, “are greatly increasing prices” or are not renewing clients’ coverage at all. She adds that “if all domestic insurance companies decline a risk, I can usually find someone at Lloyd’s of London who will consider the coverage, but the terms, pricing and requirements may not be something a client wants to consider”.
The problem fine art insurers face, says Claire Marmion, chief executive officer and founder of the Haven Art Group, an art management company owned by Pure Insurance, is that the “concentration of valuable collections corresponds to the places that are most prone to catastrophic events”, such as Florida, California (particularly Los Angeles) and the tri-state area of Connecticut, New Jersey and New York. “Managing risk” has become the fine art insurance industry’s catchphrase.
Wildfires increase the risks significantly, Marmion notes, as homeowners may not have the same amount of advance warning as they do with hurricanes, floods and even earthquakes, where there may be 72 hours’ notice. “Wildfires start instantaneously at the end of the street, or there may be an ember that is brought in by a 100-mile-per-hour wind,” she says. Additionally, in some of the wooded areas where wildfires have occurred, there may be only one road in and out, making it more difficult for homeowners, let alone their art collections, to be evacuated.
New policies for new realities
As a way of keeping premiums down or to get policies written at all, some fine art coverage is excluding such events as earthquakes, fires and floods, says William Fleischer, president of the New York-based Bernard Fleischer & Sons insurance company. “You’re seeing a lot more negotiating” with clients, he says, based on what they are or are not willing to pay. “When you are in insurance, you are gambling,” he says, noting that clients living in areas where there are recurring losses and claims resulting from natural disasters, who want full insurance protection for their art collections, are paying up to 25% increases in premiums at renewal.
The Covid-19 pandemic has added to the rising costs through overall inflation, surge demand and high prices for lumber and labour to rebuild damaged or destroyed homes that housed art collections, according to Judy Robeson, senior vice president at the Pure Group of Insurance Companies.
Traditionally, fine art insurance policies had no deductibles, but many insurance companies are now requiring them for collectors living in states or specific regions where natural disasters connected to climate change have become regular events. “Companies impose deductibles based on the amount of potential loss” with deductibles for wildfire and earthquake amounting to “5% or 10% of the total collection value”, says Steven Pincus, senior managing director at Risk Strategies. “That may not sound like a lot, but if you have a $50 million collection, the deductible could be
Pincus adds that some insurance companies are placing additional restrictions on transit coverage, which tends to be the single largest area of claims for damage, as a way of reducing their overall exposure. Increasingly, however, he says that “companies are not writing new business and non-renewing in catastrophic-loss prone states, California being the most prominent”. Among those companies, he notes, are AIG, Chubb, Cincinnati and Vault. “They want to eliminate exposure from their books, and the only way to stop the bleeding is to stop writing policies.”
The customary exclusions in fine art insurance policies are for war, civil disturbances, nuclear accidents, problems resulting from the restoration of an artwork and an object’s “inherent vices” (aspects of the materials of a particular work that would lead it to naturally decay or become unstable). However, the challenges presented by climate change have added to the list.
These days, insurance carriers track the advance of climate change as much as environmental scientists. “We have a corporate catastrophe team, which tracks the company’s total catastrophe exposure,” Yunn says. The risks from tornadoes in the Great Plains, hurricanes up and down the East Coast and earthquakes on the West Coast are well known, but the increasing intensity of hurricanes and tornadoes, as well as the rising numbers of them, are alarming signals. The tornado that ripped through Kentucky and several other states last year in a 200-mile path during the unlikely month of December was yet another sign of a climate that is becoming less predictable, as were a series of hurricanes, wildfires and freezing temperatures that have struck in Texas since 2017. In February 2021 a combination of snow, sleet and freezing rain paralysed Texas’s power grid for weeks, causing more than 200 deaths and nearly $200bn in damage.
“It would seem that there is nowhere safe from the effects of climate change,” Pincus says, all of which impacts the fine art insurance world, leading to higher prices and less available coverage.
The insurance industry is increasingly emphasising risk mitigation, requiring homeowners generally and art collectors in particular who live in places where natural disasters are recurring events to take steps that limit the likelihood of damage. These include the creation of disaster plans, which identify the worst problems that may occur and what to do about them. Among the key elements of such a plan is that it be in writing and kept accessible in one’s home, “in order that people there can reach for it to understand what they are supposed to do now and later on”, Marmion says.