Homeowner's Insurance May Leave Art, Wine Collectors in U.S. Empty-Handed
When Ross Brudenell began decorating a second home in Abington, Connecticut, with pieces from his $2 million collection of colonial American furnishings, he realized something else needed changing: his insurance.
“Collectibles are part of your total assets,” said Brudenell, 68, a semi-retired orthopedic surgeon, who traded a homeowner’s insurance policy from State Farm Mutual Automobile Insurance Co. for one that covers collections from the private client group at Chartis, a subsidiary of American International Group Inc. “If you have lousy insurance and something happens, when it’s gone, it’s gone.”
As more investors buy artwork, wine, comic books or coins, they may not know their standard homeowners’ insurance policies don’t always provide sufficient coverage following loss, theft or damage, according to Jim Halperin, co-chairman of Dallas- based Heritage Auctions, the world’s third-largest auction house.
That’s because homeowners’ policies from mass-market providers generally have lower limits that won’t cover items over $200,000 and lack special services, such as compensation for appreciation or loss in value, said Ronald Fiamma, vice president of private collections for the private client group division of New York-based Chartis.
The return of Wall Street bonuses, attractive pricing for collectibles and volatility in the stock market mean more investors are looking to diversify their portfolios and put money in hard assets that will appreciate, said Bruce Gendelman, chairman of the Bruce Gendelman Company Inc., a Palm Beach, Florida-based insurance agency that specializes in high-net- worth clients.
Collectible values tend not to rise and fall with the Standard & Poor’s 500 Index, which lures investors, said Jeff Rubin, director of research at Westport, Connecticut-based Birinyi Associates, a money management and research firm.
Sotheby’s sold $195.7 million of Impressionist and modern art at a May 5 auction, triple the tally of the New York-based firm’s year-earlier sale. Fifty percent of the cars sold at Barrett-Jackson Auction Company’s collector auction in Scottsdale, Arizona, in January were to first-time buyers, the company said. At Christie’s International, U.S. jewelry sales were up 114 percent and wine was up 25 percent in the second quarter of 2010 compared with a year earlier.
Prices for wine will have increased about 10 percent by the end of this year compared with last year in part because of first-time buyers looking to enjoy it and also to flip it as an investment, said Charles Curtis, head of the North America wine department at Christie’s, based in London.
About 75 percent of Americans with a net worth of more than $5 million buy homeowners’ insurance policies from mass-market providers such as Allstate Corp. or State Farm, said Charles Williamson, president of consumer lines at Chartis U.S.
The insurer is attracting almost 80 percent of its new private clients from insurers such as State Farm and Geico Corp., and wealthy investors are realizing “art and other collectibles need a lot more TLC,” said Katja Zigerlig, assistant vice president of art, wine and jewelry insurance for the private client group division of Chartis.
Insurers such as Chartis, Chubb Corp. and Fireman’s Fund Insurance Co. offer specialized property insurance policies for collections ranging from artwork to autographs that can be purchased separate from homeowners’ coverage sold by these carriers.
The cost for artwork insurance is about 10 cents to 20 cents for each hundred dollars of coverage, and varies based on such factors as where the collector lives and the size of the collection, Zigerlig said. Last year, the average private client group policyholder at Chartis had about $2.2 million of private collection insurance coverage. Chartis is rated A by AM Best Co., which measures insurers’ financial health.
Chubb, with a rating of A++ from AM Best, will generally cover up to $250 million in one location, said Jim Fiske, market manager for Chubb’s personal insurance unit in Whitehouse, New Jersey. Fine art would cost about $2,250 a year for $1 million of coverage with Chubb, jewelry about $25,000 and wine about $5,000, Fiske said.
Mass-market insurers may not have expertise in certain collectibles, especially rarer ones such as archaeological artifacts, vintage handbags or Asian swords, which makes it difficult for them to assess replacement values, according to Fiske.
Chartis will recommend several appraisers for items over $250,000 that lack sale records and will usually accept the values given by collectors for pieces less than $250,000, Fiamma said.
Homeowners’ insurance policies generally don’t provide coverage for accidental breakage of fragile items, although Fireman’s Fund’s policy does, subject to a deductible, said Don Soss, vice president of personal insurance for Novato, California-based Fireman’s Fund, which is rated A by AM Best and is a subsidiary of Allianz SE.
They also may not cover pieces in transit, Zigerlig said. Since pieces are often acquired while traveling abroad or put on exhibition to increase value, investors should have policies that provide transportation coverage, said Zigerlig, who estimated that 6 percent of all private client group collections’ claims occur while pieces are in transit.
‘Go Through Hoops’
Brudenell, who has accumulated more than 600 pieces since he started collecting in college, said he “had to go through hoops” to try to get State Farm to cover furnishing that were being transported from his home in Anchorage, Alaska, to Connecticut. Although his policies through Chartis are more expensive than the homeowner’s insurance and personal article’s floater he had from State Farm, he said the expense is worth it.
State Farm generally provides coverage for personal property up to 75 percent of the amount a home is insured for under homeowners’ insurance, said Dick Luedke, a spokesman for Bloomington, Illinois-based State Farm. Separate personal articles’ policies are available that provide coverage up to $750,000 for individual collectibles and up to about $5 million for collections, Luedke said.
Items are covered when being transported in the U.S., Canada or a U.S. territory, according to Luedke, who said he couldn’t comment on a client’s specific situation without his permission.
Allstate, based in Northbrook, Illinois, is committed to providing consumers high-quality insurance at the most affordable price possible, said Kate Hollcraft, a spokeswoman. Its products are most competitive for middle-market consumers, she said.
‘Like Bungee Jumping’
Collectors may not be covered for loss in value, so if a work gets stained or torn and loses 10 percent of its value, typical insurance will only pay for restoration, not making the collector whole as with private collections’ insurance, Zigerlig said.
The Fireman’s Fund specialized private collections’ insurance offers newly acquired coverage for jewelry and fine art, which means collectors will be covered for their new purchases, up to 100 percent of the itemized limit, for 90 days before buying policies, said Soss.
Insurance for private collections won’t cover natural deterioration or purchases that are frauds, and provides limited coverage for restoration, Soss said. Unlike typical homeowners’ policies, collectibles that are damaged following a catastrophic event such as a flood or an earthquake are covered.
“It’s sort of like having health insurance -- you do things like bungee jumping because in the back of your mind you know you have your policy,” said Zigerlig of Chartis. “With the right insurance, you can collect these things you’re excited about and ship them or show them off and still have peace of mind.”