The insurance market for museums and historic homes remainscompetitive yet stable, with favorable loss experience, intelligentand loyal buyers, as well as a certain degree of prestige attachedto it, marketers of this specialty coverage say.

The niche, while somewhat insulated from the volatility of thebroader insurance market, has not been immune to the impact of thetroubled economy and soft pricing trends afflicting the propertyand casualty industry in general, National Underwriterlearned.

James M. Henry, underwriting manager for Markel Insurance, forexample, said pricing for properties such as historic homes andmuseums has been soft–for museums in particular. “We see somefluctuation in price, with a downward trend over the past severalyears,” he said. “But coverage has been readily available at acompetitive price for some time now for the better risks, andunderwriting results have been good.”

David Price, executive vice president and chief underwritingofficer of wholesale brokerage Burns & Wilcox, said there hasalso been an economic impact, to some extent. For museums insuringtheir contents, he noted, cost-cutting measures could includeincreased retention of risk during this economic downturn.

“To me, that's one way you could save some money, if you havegood protection on the risk itself,” he said.

But he also said carriers are aware of the financial conditionof museums, and work with their insureds to improve costs.

As for the risks themselves, Joseph C. Dunn, president and chiefexecutive officer of Huntington T. Block (HTB) Insurance, aspecialty fine art brokerage and an affiliate of Aon, noted thedifference between insuring a historic structure and additionalcoverages for the contents contained therein–such as historicpieces contained in a museum.

For the actual structures, such as historic homes, thechallenge, professionals said, is finding ways to replicate formsof construction no longer in use today.

Scott R. Spencer, senior vice president, worldwide appraisal andloss prevention manager for Chubb Personal Insurance, saidmaterials, for example, may no longer be readily available. Modernhomes, he noted, do not have hard pine floors, wrought iron hinges,plaster walls or slate roofs, so restoring the structure becomesmore expensive than simply the sum of its parts.

As Mr. Henry observed, “a client with a historic building doesnot want the building repaired with 'colonial-style vinyl siding'from the local building material dealer's discount lot, so makesure historic property valuation coverage is available.”

He said Markel relies on the insured to establish the correcthistoric replacement cost by means of an appraisal.

These appraisals and valuations are the key to insuringstructures, Mr. Price said. He added that all parties–the insurer,insured, and “to some extent, those doing the work”–need to reachan agreed valuation so it is understood what will be paid for andwhat will not.

“It's a fascinating subject to bring an object back after a lossas best as it can be recreated,” he said, adding that it ofteninvolves “very large sums of money.”

He said it is difficult–and sometimes not possible–to replace a250-year-old building with the same quality. Those parts that canbe replaced, Mr. Price added, may require some serioussearching.

Historic structures, he said, “present all kinds of challengesfor underwriters who want to write this class of business.”

For Chubb, Mr. Spencer said the company appraises every home itinsures–historic or otherwise. But because of the uniqueconstruction, he said it could cost, for example, $2 million torebuild a home purchased for $1 million.

To properly appraise an historic home, Chubb has specialistsaround the country visit the house, said Mr. Spencer. He noted thatthese specialists study historic homes and are familiar with thecosts and materials.

Chubb also works with the insured to learn about the home andteach the insured as well, Mr. Spencer said. He explained that inmost cases, the insured is moving into an historic home for areason–because they like the uniqueness, or are interested inhistory.

“Infrequently do you find a customer who accidentally ends up inan historic home,” he added.

But once in a while, Mr. Spencer said a customer will say theydo not want to rebuild the home to its historic specifications. Hesaid this occurs more frequently at policy inception, when aninsured will voice intent to replace walls after a loss withdrywall rather than plaster.

An actual loss, though, can change the customer's opinion, Mr.Spencer noted. If there is only partial damage, for example, wouldan insured choose to replace just the damaged part with drywallwhile leaving the plaster on the undamaged parts?

“What one thinks at the time of appraisal can be different thanat the time of loss,” according to Mr. Spencer. “We try to workwith the customer to identify…the price.”

Mr. Spencer said an insured who has been in a classic home forawhile will usually try to maintain the historic specificationsafter a loss.

When a loss does occur, Mr. Spencer said the key is to findcontractors that focus on the restoration and reconstruction ofhistoric homes. “We engage them at the outset of a claim,” henoted.

These contractors can obtain the proper materials from a varietyof sources, Mr. Spencer said, including salvaging them frompartially destroyed homes and using reproduction materials that canmatch those in historic homes.

The restoration could even involve such details as layers ofpaint, he said, noting that in 1840, there may have been 25 layersof paint on the molding, so the look is different with just onelayer.

As far as how frequently losses occur with these structures, Mr.Spencer said historic homes stand up quite well compared to modernhouses. He said hundreds of thousands have perished over time, sothe ones that remain almost fall into a “survival of the fittest”category.

Loss experience, he said, is actually better than on homes builtin the 1970s.

Regarding coverage for valuable collections, such as those ondisplay in museums, Mr. Henry said that “along with the basiccoverage for building, business personal property and generalliability coverage, museums and historic homes have unique needs incovering their collections of artifacts, fine arts, furniture,prints and paintings.”

He said such exposures are “best covered by an inland marinefloater, which can broaden the covered perils and will also addressexposures such as property on loan to the museum, in transit and ondisplay at another center.”

Once again, there is an important emphasis put on valuations andappraisals.

“The value assigned to collections is always a concern,” pointedout Mr. Henry. “Ideally, higher valued items will be scheduled inthe policy. We rely on the insured to set the value and requirerecent appraisals for high valued items.”

The benefit of extra work on the front end helps to ensuresmoother work on the back end, according to Mr. Henry “The extraeffort that goes into establishing values before a loss occurs ismore than made up for with an easier settlement should a lossoccur,” he said.

Mr. Dunn said HTB clients looking to value collections arereferred to professional appraisers. As a broker, he said, HTB doesnot recommend one specific appraiser to avoid conflicts of interestand errors and omissions issues. But he said the broker wouldrecommend the collector to the array of national appraisers'societies for references and advice.

The insurance broker's role, he said, is not to get involved inthe appraising process but rather to help point the collector inthe right direction.

For smaller museums, they can usually transfer their entire riskaway by purchasing full coverage on their permanent collections,Mr. Dunn said. For larger museums, however, the values of thecollection can run into billions of dollars.

“In these instances, we'll work with the buyers and quote anarray of options for them,” he said, noting that the institutionscan select an option that fits their risk appetite and budget.

Most fine art policies for museums, Mr. Dunn said, also addressincoming and outgoing loans via “any other location and transit”sublimits. This coverage helps provide protection when a museum,for example, borrows a piece from a collector.

In many cases, according to Mr. Dunn, the lender will requirethe museum to agree to extend its fine art policy and providecoverage for the piece from the time it leaves the collector's walluntil it is back.

The coverage is important, Mr. Dunn said, as 80 percent ofclaims are caused by transit losses or from mistakes made duringthe packing process. He said museums need to use professionalshippers and handlers to mitigate risks.

On insuring museums in general, Mr. Price said the risk isrelatively low cost for insurers because most of the properties are“highly protected in many ways.” He said security is usually verygood, and the buildings are equipped with sprinklers, alarms and“all things you'd expect good risks to have.”

Both Mr. Dunn and Mr. Henry noted the quality of thepurchasers.

Mr. Dunn said coverage will generally be obtained by museumregistrars, who are essentially logistic officers for museums.“It's a profession unto its own,” he said, adding that theseregistrars are “sophisticated buyers.”

Mr. Henry observed that “museum professionals are nice to dealwith, are very loyal customers, and depend heavily on their agentfor guidance in selecting a carrier and coverage.”

Insurers and agents are also lured to this market because of itsprestige. Mr. Price suggested there is “a sort of cachet to say, 'Iinsure the Guggenheim Museum.'”

He added that insurers are inclined to be supporters of museumsand recognize their cultural importance.

Agents, too, appreciate the broader significance of localmuseums in their areas.

“Based on a combination of prestige and service to thecommunity, many agents will target the local museum as a desirableaccount to write, which adds to the competition [in themarketplace],” said Mr. Henry.

For buyers and sellers of coverage, though, the prestige comeswith the responsibility of being truly knowledgeable in thefield.

“It's not a thing to be taken lightly,” according to Mr. Price.“It's not a commercial risk. It's art; it's history; it'sheritage.”