Filed Under:Risk, Enterprise Risk Management

Who Will Cover My Shrunken Heads?

In collecting, there is a passion, a sense of pride, and oftentimes a story that transcends the material structure of a particular item or group of possessions.

Yet beyond the emotional attachment between owner and collector are the undeniable investment and financial importance of protecting possibly millions of dollars worth of art, classic cars, baseball cards, perfume bottles or, yes, even the world's largest collection of shrunken heads.

"If we can value it, we can cover it," according to Ron Fiamma, vice president of private collections for the Private Client Group at Chartis, which insures that shrunken head collection.

Collectors sometimes are not aware that a standard homeowners policy does not cover them for losses of, or damage to their valuable collections.

Insurers can write coverage for items such as cars, art, furniture, guns, rugs, taxidermy and wine--which can target, as Chartis and Chubb do, high-net-worth clients.

Chartis and Chubb agree upon the value of an item with the client. For the most part, this is how collectibles insurance is sold.

Blanket policies--such as for an entire set of fine china rather than each individual item--are also available, noted Mary Sheridan, assistant fine art manager at Chubb.

It isn't always easy to set a price. Ms. Sheridan recalled that a client on the West Coast bought a piece from a living artist for $30,000, but a work by the same artist sold for $650,000 in London, so the client wanted $500,000 in coverage.

"Well, is that the real value of the piece, or was there a bidding war in London that drove up the price?" questioned Ms. Sheridan. "These are the things we must agree on." Works by living artists are more difficult to value than those by dead artists, she said.

Or what happens when someone says they have a rifle once owned by Daniel Boone? "When you prove it is Daniel Boone's gun--after all the work to validate it--how do you give something like that value? It's a one-of-a-kind and has historic significance," explained Jack Richardson, vice president of broker Eastern Insurance, which caters to owners of historic firearms, uniforms, flags and other items of American heritage.

"You simply go back and forth between client and carrier with, 'This is what we're thinking...' until you can settle on something," he added. (Chubb and One Beacon Insurance underwrite Eastern's business.)

The value of an item can also rise and fall. It appears the industry standard is a re-appraisal every several years to ensure accuracy. But if a client buys a piece for $10 million, and it isn't worth that at the moment, it is still good to insure it for what you paid, Ms. Sheridan advised.

Like Eastern, Collectibles Insurance Services policyholders are mainly "your Average Joe," with collections of comics, antique tools, coins, books, model trains, stamps and toys. But, also like Eastern, some policyholders are wealthy. Eastern's clients can range from hobbyists and sportsmen to writers and academics, according to Mr. Richardson.

The industry typically insures collectibles for about 50 cents per $100 in value, but Eastern averages 45 cents per $100 and below depending on the situation, Mr. Richardson noted.

The average policy at Collectibles costs $450 per year, with an average policy limit of $150,000, said Annemarie Fitzpatrick, the carrier's sales director. Here, the customer estimates replacement value of the collection, she pointed out.

Unlike homeowners policies, a collectible insurance policy covers theft, fire, flood, natural disasters, mail loss and breakage. "Most people are not aware your items may not be entirely covered by homeowners insurance," Ms. Fitzpatrick noted. She recommends clients keep an inventory of items to make the process easier when there is a loss.

Policies can also be made to cover problems that can arise during transit as, for example, owners transfer a work of art to a summer home, or a collector takes their items to an antique show. Transit is a big cause of loss, as well as water damage and theft, players in this niche market agree.

"The point is to try and make sure the client is made whole when there is a loss," said Mr. Fiamma of Chartis, which offers other services, such as third-party consulting for matters of transit--arranging for a private courier to transport an expensive ring, for example.

"Many times you are dealing with items that cannot be replaced, and even when it is possible, it still won't be the same," Ms. Fitzpatrick said. Though an item cannot always be replaced, at least the policyholder can get the investment back and begin rebuilding the collection, she added.

Insurers are counted on to give advice for collectible care. Just because you own an expensive item doesn't necessarily mean you know it isn't smart to hang a Renoir painting over the Jacuzzi. In addition, a bank vault may not necessarily be the best place to store items because banks can't waive subrogation, Mr. Richardson noted as another example.

"When you go for the top of the upper class, they are used to the best of the best, and we try to deliver on that," according to Mr. Fiamma.

Chubb also provides a whole network of resources of fine art packers and shippers, Ms. Sheridan noted.

Collector car specialist Hagerty Insurance employs an entire team dedicated to locating car parts and accessories for vintage vehicles--items that can be very hard for owners to find.

Interestingly, those queried for this article said the economy has affected the collectibles niche in different ways. Ms. Sheridan said the money has always been out there, but it wasn't in the public auction genre--although dealers were having banner years, she noted. Now, the money is resurfacing in more public venues.

"More and more money is going into the collectible genre," according to Mr. Richardson.

In the first years of the recession, clients were looking to decrease limits or sell items, Ms. Fitzpatrick noted, while Mr. Fiamma added that he observed clients looking to the collectibles market in lieu of stocks in order to diversify.

The collectible car niche did not see much effect from the poor economy, as owners value their cars as an outward expression of themselves, or even as part of the family, according to McKeel Hagerty, chief executive officer of Hagerty Insurance.

"Owners will tend to hang on to them no matter what," Mr. Hagerty observed, adding he's talked to clients who said they'd sell their real estate before their cars.

The collector car niche experienced huge growth just as the real estate market did several years ago, followed by a "settling down," Mr. Hagerty related. "Values have leveled off."

Wealthy and middle-class collectors of items traditional and quirky "know insurance is out there, but they don't always know it can be as available to them," according to Mr. Richardson. "We're always going to the shows, trying to spread the word," he continued.

Collectors "struggle with getting their arms around what they own and what it is worth," Ms. Fitzpatrick added.

Mr. Richardson said that as a broker, he has worked to bring the market to the attention of other carriers, pointing out the single-digit loss ratios. It is a low-frequency but high-severity business, he noted.

"In many cases, we may not get rich doing this, but it is an opportunity to cross-sell," he pointed out.

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