Climate change has made art insurance more expensive

Art collectors in California, Florida and other states facing weather-related disasters exacerbated by climate change are finding that insuring artwork is becoming more expensive, with policies of 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 of the epicenters of this struggle to find insurance coverage for houses and the art in them, with the annual cost of home insurance policies increasing as much as 40% and art insurance premiums increasing between 5% and 12%, according to Amee Yunn, assistant vice president of New York-based Berkley Asset Protection, an insurance company specializing in fine art, jewelry and other fine art. -value, personal and business assets. Florida, with its increasingly intense hurricanes and flooding, is also a concern for the insurance industry.

“A lot of rich people have flocked to Florida because of the pandemic,” Yunn says, “and they took their art with them.” This concentration of heritage assets in areas prone to flooding and hurricane damage creates significant risks to the financial well-being of insurance companies. “We’re seeing a lot more billion-dollar claims today than just 10 years ago,” Yunn says, forcing companies like his to write fewer new policies, raise prices and add deductibles and exclusions. “The problem is acute.”

Collectors in hazardous areas

Mary Pontillo, national fine art practice leader at Risk Strategies, a Boston-based insurance brokerage, says California collectors have faced the greatest difficulty obtaining new or renewed coverage because many insurers “will not take any more risks”, “raise prices considerably” or do not renew coverage for customers at all. She adds that “if all the national insurance companies decline a risk, I can usually find someone at Lloyd’s of London who will look into the cover, but the terms, prices and requirements may not be something a customer wishes to take into account”.

According to Claire Marmion, managing director and founder of Haven Art Group, an art management company owned by Pure Insurance, the problem facing art insurers is that “the concentration of valuable collections corresponds to the places most prone to catastrophic events”. ”, such as Florida, California (especially Los Angeles) and the tri-state area of ​​Connecticut, New Jersey and New York. “Risk management” has become the slogan of the art insurance industry.

Wildfires greatly increase risk, Marmion notes, because homeowners may not have the same notice as hurricanes, floods and even earthquakes, where there may be 72 hours’ notice. “Wildfires start instantly at the end of the street, or there may be an ember brought in by a 100-mile-per-hour wind,” she says. Also, in some of the wooded areas where forest fires have occurred, there may be only one road in and out, making it more difficult for homeowners to evacuate, let alone their art collections.

New policies for new realities

In an effort to lower premiums or buy policies, some fine art coverage excludes events such as earthquakes, fires and floods, says William Fleischer, president of New York Insurance Company Bernard Fleischer & Sounds. “You see a lot more negotiation” with customers, he says, based on what they are or aren’t willing to pay. “When you’re in insurance, you’re in the game,” he says, noting that customers living in areas with recurring losses and claims from natural disasters, who want comprehensive insurance protection for their collections art, pay up to 25% premium increases upon renewal.

The Covid-19 pandemic has added to rising costs due to global inflation, growing demand and high prices for timber and labor to rebuild damaged or destroyed homes that housed collections of art, according to Judy Robeson, senior vice president of the Pure Group of Insurance Companies.

Traditionally, insurance policies for fine art had no deductible, but many insurance companies now require them for collectors living in specific states or regions where natural disasters related to climate change have become regular events. “Companies charge deductibles based on the amount of potential loss,” with deductibles for forest fires and earthquakes amounting to “5% or 10% of the total collection value,” says Steven Pincus , Senior Managing Director of Risk Strategies. “That might not seem like a lot, but if you have a $50 million collection, the franchise could be
$5 million.

Flooded roads in North Miami Beach in October 2020. Florida is the US state most affected by climate change, where water levels are constantly rising

Photo: IBL/Shuytterstock

Pincus adds that some insurance companies are placing additional restrictions on public transit coverage, which tends to be the largest area of ​​damage claims, to reduce their overall exposure. Increasingly, however, he says “companies aren’t writing new business and renewing in states prone to catastrophic losses, California being the biggest.” 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 politics.”

Typical exclusions in fine art insurance policies relate to war, civil unrest, nuclear accidents, problems resulting from the restoration of a work of art, and “inherent defects” of an object ( aspects of the materials of a particular work that would cause it to naturally decay or become unstable). However, the challenges posed by climate change have been added to the list.

disaster preparedness

Nowadays, insurance companies follow the evolution of climate change as much as environmental scientists. “We have a corporate disaster team that tracks the company’s total exposure to disasters,” Yunn explains. The risks of tornadoes in the Great Plains, hurricanes along the East Coast and earthquakes on the West Coast are well known, but the increasing intensity of hurricanes and tornadoes, as well as their increasing number, are alarming signals. The tornado that ripped through Kentucky and several other states last year on a 200-mile path in the unlikely month of December was another sign of weather becoming less predictable, as have a series of hurricanes, d wildfires and freezing temperatures that have plagued Texas since 2017. In February 2021, a combination of snow, sleet and freezing rain crippled the Texas power grid for weeks, killing more than 200 people and nearly $200 billion in damage.

“There seems to be nowhere safe from the effects of climate change,” says Pincus, which is impacting the world of fine art insurance, leading to higher prices and a coverage less available.

The insurance industry is placing increasing emphasis on risk mitigation, forcing property owners in general and art collectors in particular who live in places where natural disasters are a recurring event to take measures that limit the likelihood of damage. These include creating contingency plans, which identify the worst problems that can arise and what needs to be done to fix them. Among the key elements of such a plan is having it written down and accessible at home, “so people can reach it to understand what they’re supposed to do now and later,” Marmion says.

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