Intermediate Fine Art Underwriting

Intermediate Fine Art Underwriting
Case Studies

Prepared in conjunction with
Arts & Records Committee

Copyright ©2011 Inland Marine Underwriters Association


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IMUA offers thanks and appreciation to

Paul Fritsch, AU - ACE Group

Mr. Fritsch is a frequent course lecturer for IMUA on the topic of fine art insurance. The following case studies were a part of a larger body of work he completed to instruct the Intermediate Fine Art Underwriting Course.

Intermediate Fine Art Underwriting Course: Case Studies

As a part of the Intermediate Fine Art Course, the class reviewed 3 different case studies based on a typical submission for fine art coverage.

The following is a review of each of the case studies and summarizes the important underwriting issues.

Museum Case Study

ABC Museum of Art
123 Front Street
Yourtown, PA

Underwriting information provided:

  • TIV = $15mm
  • Facility: 3 story MNC; alarms; guards (open hours only)
  • Consultant indicates only need $10mm premises limit
  • Elvis Collection on long term loan to Graceland
  • Loss history:
    • 2 yrs ago, 2 paintings received minor dents, payments of $10,000 to owners
    • 2 months ago, another painting scratched; still open claim
  • Exhibition upcoming for $3mm for 4 months
  • After exhibition leaves, policy limit to be reduced to $2mm
  • Will be a renovation of the Elvis Wing, including the removal of some railroad tracks
  • Insured is currently going through American Association of Museums (AAM) Accreditation Review
Underwriting issues reviewed:
  • Why $10mm limit when the TIV is $15mm? Some possible reasons are:
    • Main museum facility has only $10mm in art. There may be another location that has the other $5mm, such as an offsite storage facility. If so, the underwriter needs to develop information on this other location.
    • The entire $15mm is at the insured location, but they only wanted to (could afford to?) purchase $10mm in insurance. Since museums for the most part are non-profit organizations, they may have limited funds. In this example, the museum’s board or governing body may have authorized only a limit of $10mm.
    • The other $5mm is out on exhibition or long term loan. In this case study, the intent was the Elvis Collection was the other $5mm in value which is out on loan.
  • The Elvis Collection out on loan:
    • Who is responsible for the insurance coverage: our insured or Graceland? Typically the borrowing institution (especially for long term loans) is responsible for the insurance. But this can’t be assumed; it must be checked out.
  • Loss history:
    • Where did losses occur? at location or in transit?
    • What has insured done to prevent similar future claims?
    • The "payment to owners" fact: is this the insured or someone else? If someone else, then why did insured have these items? This leads to the question: "Does insured typically borrow art from others?" If so, how much, how often and for what reason?
  • Incoming exhibition for $3mm:
    • Develop information on the exhibition:
      • list of artwork
      • shipping/packing details: who’s doing the packing & shipping? Do they have the proper experience?
      • Are there other venues with this exhibition?
      • What insurance is our insured responsible for: at location? Incoming and/or outgoing transits?
    • Does the policy limit need to be increased?
      • Some insureds will opt for increasing their current premises limit by the amount of the exhibition. This allows full coverage for both their Permanent Collection and the exhibition.
      • Due to financial issues, the museum may not increase the limit. May just use the current premises limit to cover the exhibition. This means the insured’s own collection could be uninsured in the event of a catastrophic loss that affects all artwork at the museum.
      • Additional transit limit may be needed if insured responsible for insuring the incoming/outgoing shipments of the artwork.
    • Reinsurance issues:
      • This will be unique to each underwriter. What is their in-house capacity? Does it allow for the increase in the policy limit?
      • Is there an aggregation of values that the underwriter must review?
      • Or does underwriter have to consider purchasing Facultative Reinsurance.
    • Larger exhibitions have other issues to review:
      • Is exhibition TIV too large for one carrier to write? If so, then placement of coverage will involve setting up coverage between 2 or more carriers. This would be accomplished with a quota-share or layering of coverage approach.
      • What coverage form to be used?
      • Large exhibitions usually apply for Federal Indemnity coverage. So the commercial insurance markets may be approached to provide limits excess of what Federal Indemnity provides. Refer to the IMUA paper on this topic for more information.
  • Why policy limit decreased to $2mm after the exhibition leaves?
    • What we find out is that the Elvis Wing of the museum will be undergoing renovation work. That is why the Elvis Collection is out on long term loan.
    • Must develop information about the renovation work:
      • How is remaining art to be protected?
      • How will access be controlled while work being performed?
      • Hot Work being performed? Just like under a Builders Risk exposure, this needs to be reviewed for proper fire controls and monitoring.
      • Art that is being moved: is it going to storage onsite or offsite? This exposure needs proper underwriting: what are the details of the transit of the art? And develop information on the storage facility.
      • Are alarms being disabled during the renovation? Are they reset at night after the work ends for the day? If not, what precautions are being taken for protection of the art?
  • Should we be concerned about the removal of the railroad tracks?
    • May not have a direct impact on the art collection.
    • But this seemingly innocuous bit of information could shed light on what the original occupancy was of the building. This could have been a warehouse or manufacturing facility that was converted over to a museum. Knowing this can assist the underwriter during the review of the building exposure.
  • Museum is going through AAM Accreditation Review. This may be mentioned in the submission. Is this important to underwriters?
    • Accredited museums will have, among other things, procedures and policies in place for proper collections management; financial resources to operate museum properly; knowledgeable staff. This all lends itself to objects that are adequately cared for, whether on premises or on loan to other facilities. So it is a "plus" to be accredited.
    • It is important to note that museums that do not have the AAM Accreditation may still have the financial means and follow acceptable collection management practices. These unaccredited museums may be perfectly acceptable from an underwriting standpoint.
    • For more information on the Accreditation Review Process, refer to AAM’s website:

Dealer Case Study

PF Gallery
1 Main Street
Thorntonville, GA

Underwriting information provided:

  • $10mm limit ($8mm owned inventory; $2mm consigned)
  • Facility: gallery on 2nd floor of 5 story bldg; central station alarms
  • Loss History: 2 transit claims
  • Exhibition: PF Gallery has been asked to loan 2 of their paintings for a traveling exhibition. They have agreed to loan only while show is in Thorntonville.
  • May attend Art Basel show
Underwriting issues reviewed:
  • Dealers or commercial galleries are for-profit operations in business of buying & selling art. This is the complete opposite of a museum’s mission.
  • This "for-profit" characteristic is what creates the higher exposure of dealers:
    • Turnover of inventory means the art is moving (incoming & outgoing) which leads to the transit exposure and higher frequency of losses.
    • What territory limit is needed: just domestic or international too? This is important especially if insured attends various art fairs.
  • Development of basic Construction, Occupancy, Protection, Exposure (COPE) information:
    • Construction and age of building: in larger metropolitan areas, such as NYC or Boston, the building may be 50+ years old. Has the infrastructure been updated? (HVAC, electrical, roof, etc)
    • What are the other occupants in building: other art dealers, residential, light commercial such as restaurants
    • Is insured tenant or owner of building? If tenant, they may be restricted in types of alarms systems that can be installed.
  • Loss history:
    • Develop details on the 2 losses indicated. What happened and is there a pattern?
    • What has insured done to prevent similar losses from occurring?
  • Exhibition:
    • Develop information on the exhibition
      • list of artwork
      • shipping/packing details: who’s doing the packing & shipping? Do they have the proper experience?
      • Who’s responsible for the insurance: lender or borrower?
  • Art Basel show
    • Which one: Miami or Switzerland?
    • Need to make sure policy limits & territory are adequate depending on location of show
    • Also, does insured attend other art fairs during the year?
  • Storage
    • Onsite and/or offsite? If another location is used, then would need to develop underwriting information on that facility.
    • Basement storage? Is there a water exposure?
    • Is there a warranty on the policy for the storage of art at a minimum distance above the floor?
      • Typically we think of this warranty for water entering the basement and rising up to where the art is.
      • But what if the water comes in through the ceiling above and lands directly on the artwork. Depending on the wording of the warranty, coverage may apply. Keep this in mind when deciding on the addition of a warranty and how to word it based on what your intent is to be.
  • Private dealers: the aspects of this type of an exposure and how would it affect your underwriting?
    • No showroom
    • By appointment only; limited or no walk-in business
    • Transit exposure may be considerably less than the "storefront" art dealer
  • Exclusions of Mysterious Disappearance, Inventory Shortage and Misappropriation
    • Does your policy include these? If so, you may be asked to remove them for the entire policy or for a specific situation during the policy term.
    • Keep these questions in mind when determining if you will remove them or not
      • What inventory controls does the insured have in place? Need to have good documentation and access controls in order to reduce the possibility of missing or misplace art.
      • Does the insured do background checks on their clients and/or other dealers they do business with?
  • VIP Art Fair: "Viewing In Private"
    • This was an online auction of buying and selling of art in January 2011
    • The issue here is what additional exposures are created, if any, through online art transactions. May be too soon to tell. But this is something to keep in mind as more and more companies transact business on the internet.

Individual/Corporate Collection Case Study

Wile E. Coyote
123 Acme Street,
Desertville, AZ

Underwriting information provided:

  • TIV = $20mm consisting of paintings, prints, artifacts
  • 3 locations:
    • Main residence in AZ
    • Vermont vacation home
    • New York office
  • Loss history:
    • 2009: bow & arrow set from 1800’s lost in transit
    • 2010: painting by R. Roadrunner vandalized at exhibition
  • Will be adding to collection after merger with F.J. Leghorn Company
  • Sotheby’s to do a reappraisal within a year
  • Attending Chicago art fair
Underwriting issues reviewed:
  • Develop COPE underwriting information similar to what was done under the prior two case studies including:
    • Addresses and facility information on all 3 locations
    • Values at each location
    • Protection/security information
  • Vermont vacation home
    • How long is this place left unoccupied?
    • Does artwork stay here during unoccupied periods or does insured move art to a more secure storage location?
    • Is location remote?
      • Fire hydrants present?
      • Fire department: how far away and is it volunteer or paid?
      • What happens during winter with major snowstorms?
    • Sometimes there are no hydrants but insured says there is a lake/pond on property.
      • Does the fire department have the correct equipment to pump the water?
      • Is there enough water to fight a fire?
      • What about in the dead of winter: does water freeze up?
  • Loss history:
    • Painting that was vandalized during an exhibition. Be aware of artwork that may be controversial (e.g. religious, political, etc) as there may be be a higher exposure to vandalism or theft due to this controversial nature.
  • Merger with F.J. Leghorn Company: any problems with this?
    • Develop who will be the insured after the merger. Is the new entity still eligible/acceptable based on current underwriting guidelines of your company?
    • May be nothing more than adding another location(s) to policy with additional artwork
    • Does policy limit need to be increased?
  • Individuals and corporations may acquire and lose art in different ways than a museum.
    • Museums may purchase art or acquire it from donations. And they may remove art from their collections by deaccession for financial reasons.
    • Corporations could gain or lose art through M&A activity of the firm.
    • Individuals: through inheritance, the insured may acquire artwork.
      • If our insured passes away, then what happens to the art while estate is being settled?
      • Disbursed to heirs right away?
      • Or kept at insured’s house? Vacant property? Protection and security issues?
  • Sotheby’s appraisal: any issues?
    • Is artwork being sent out or is Sotheby’s coming to insured’s location to do appraisal?
    • May have an increase in transit exposure if artwork going to another location
    • Movement of art within the insured’s premises?
    • Are the policy limits adequate for transit and any other location?
  • Art fair
    • Attending as a customer or dealer?
    • Policy limit adequate?
    • Any other art fairs to be attending?

Other Topics
  • Reinsurance: each underwriter’s situation will be different depending on company’s strategy and guidelines, but here are a few things to keep in mind
    • Retentions kept by the carrier
    • Aggregation: is there a concentration of values, for example within a building or city block
    • If policy limit increases (e.g. new acquisitions, incoming exhibitions), need to determine if the increase is within company guidelines. May need support of facultative reinsurance.
  • Claims: short-tail vs. long-tail
    • Loss to art has short tail similar to other property losses. This is true in the sense of discovery of the damage; usually known within a relatively short period of time.
    • However, there is a possibility of a long-tail exposure when it comes to the restoration process. This could depend on many factors, such as the material used in the art, extent of damage, availability of conservators to perform the work.

References & Resources

Here are some of the resources available to you for more information on Fine Arts Underwriting:

Contact Information

Paul D. Fritsch, AU
Inland Marine Specialist
ACE Commercial Risk Services - Programs
P.O. Box 1000
436 Walnut Street, WA07C
Philadelphia, PA 19106
Phone: 215-640-5826
Fax: 215-640-5472



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