For historic homes, the chief insurance consideration istypically calculating replacement costs so that the building'scultural and educational qualities—the factors that make itunique—can be restored after a damaging event. “If somethinghappens that places the historic designation at risk, the propertyhas to be able to [remedy] that or it will no longer have any valueas a [destination for visitors],” says Richard Standring, Northeastregional manager for risk services at Fireman's Fund InsuranceCo.

The cultural worth of an olderbuilding often resides in the labor and craftsmanship embodied inits architectural details. But as mid-20th-century buildingsincreasingly join the ranks of the National Register of HistoricPlaces, calculating the replacement value has become morechallenging. Unlike older historic buildings made of commonplacematerials such as wood and brick, properties built in the 1950s and1960s often incorporated one-of-a-kind glass, metal and plasticcomposites that were fabricated in limited production runs.

Insurers are becoming more creative at addressing suchconsiderations. If there's a total loss, for instance, rebuildingmight not be an option; some carriers will instead pay to constructa visitors' center or similar educational facility.

“If you can continue the mission of an organization, we'll giveyou the agreed value back instead of just the standard clause thatsays you'll get actual cash value. We really try to keeporganizations alive,” says Paul A. LaVardera, program director ofMaury Donnelly & Parr Inc. and National Trust InsuranceServices, which specializes in historic properties.

The more experience insurers have with historic properties, theeasier it is to calculate replacement costs, LaVardera adds, but heand other carriers that specialize in these clients prefer to erron the side of increased valuations. Whether or not culturalinstitutions are willing to accept the resulting higher premiums isanother matter entirely—particularly in today's tough economy.

“We've seen some reluctance from insureds to increase values,”observes Jim Henry, underwriting manager of the social-servicesbusiness unit at Markel Corp. “They feel they just don't need itnow since construction costs are down.”

Although they don't recommend it, carriers are increasinglywilling to work with clients to reduce premiums by allowing higherdeductibles. “Nonprofits especially have to watch that,” observesMaureen Waterbury, cultural-institutions market-segment manager atChubb Commercial Insurance. “Nonprofits don't have a lot of cashsitting there if they have to front a loss. They have to decidewhat their pain point is.”

The reason carriers are willing to negotiate, Waterburycontinues, is the continuing soft insurance market. Even long-termclients are now asking brokers to get new bids on their accounts.“Insurance is a major outlay every year, and these organizationsare watching every nickel and dime. If they can go out to marketwith their insurance needs and save money—that maybe means anemployee they don't have to lay off.”

HISTORIC BUILDING BOOM

At 109,000 square feet, Oheka Castle, built in 1919, is thesecond-largest private residence ever constructed in the UnitedStates. After its original owner died, the property, in Huntington,N.Y., became a retirement home and then a military academy. By1984, it was abandoned and rundown, which was when developer GaryMelius restored the estate and transformed it into one of thenation's top venues for weddings.

Although business has remained strong even during the tougheconomy—the castle has hosted fairy-tale weddings forreality-television shows—Melius is now looking for ways to boostrevenue and is pouring $2 million into constructing a newrestaurant inside his landmarked building. “We're hoping to offerour guests more amenities so they stay throughout the week,” heexplains, adding that plans for an on-site health spa are next.

Enhancements like those beingdone at Oheka are becoming increasingly common among historichouses, cultural institutions and museums today. Responding to aneconomy in which families are taking fewer long-distance vacationsand instead are opting to explore local cultural sites, propertiesare making capital investments to expand or to take advantage ofexisting real estate in creative ways—creating both new attractionsas well as new and sometimes unexpected coverage needs.

“I've noticed an incredible amount of this [building] activityin the last few years” at historic homes and cultural sites, saysStandring of Fireman's Fund. “During the building boom, many of thehigh-end, artisan contractors were occupied doing additions orrenovations to private homes. That demand has droppedsignificantly, so they're willing to take a lower profit margin tokeep busy.”

In addition to restoring their properties, many historic sitesare looking to add food-related offerings, which, especially whenalcohol is involved, create obvious additional coverage needs.“There's a lot of profit to be had from running a food court,”Standring says. “I just had a really in-depth conversation with apresidential property that's considering it. They're counting onvisitors buying a book and then staying for lunch with theirfamilies. They want to become a major destination.”

This trend is most evident in large properties such as Civil Warbattlefields, which can accommodate the footprint of a food courtfeaturing a choice of national franchise restaurants, Standringcontinues. But even smaller historic houses are looking atupgrading from an existing coffee stand to a café.

FOCUS ON FAMILIES

Another trend with insuranceimplications at cultural sites is a growing focus on attractingfamilies. Institutions ranging from museums and historic houses tozoos and botanical gardens are beefing up their educationalprogramming, as well as offering physical activities, summer campsand sleep-over nights for children.

“We've definitely seen cultural institutions try to use alltheir real estate to a much higher degree,” Waterbury says. “Ifthey have fields of open space, they don't want them vacant whenthey could be making money using them for a sports camp during thesummer.”

Some organizations are even going so far as to installrock-climbing walls and zip-lines, adds Shirl Hedges, anunderwriting manager specializing in cultural organizations at thePhiladelphia Insurance Cos. This kind of amenity creates obviousrisks, she says, but as long as clients follow established safetyprocedures and seek waivers from their visitors, carriers willinclude it in their regular coverage.

When it comes to courting families by offering camps andsleepovers for children, a less obvious but no less important riskthat needs to be addressed is sexual molestation. “You're seeingmore clients asking for sexual-molestation coverage, and you'reseeing carriers get more restrictive in giving it,” LaVardera says.“You see it a lot with theaters that are doing child workshops orday camps. It's definitely something we have to discuss and be ableto react to.”

LaVardera adds that insurers are generally approaching the riskin three ways: staying silent, resulting in coverage by default;offering affirmative coverage; or excluding it. The third optionhas led to a burgeoning after-market in new products that addresssolely the concern.

Overall, the cultural sector often poses some tough insurancechallenges, LaVardera admits, but this simply means a steady supplyof new coverage opportunities—particularly in a fragile economywhen museums and historic properties experiment with their spacesand offerings. “It's a creative group of organizations,” he says,which helps keep the job fresh.