From the February 20, 2012 issue of National Underwriter Property & Casualty • Subscribe!

Wild Weather Blows Open the Realm of Potential Liabilities at Museums

From responding to extreme weather conditions and preventing theft to exploring new ways of growing attendance and revenue numbers, museums face a daunting list of challenges in this stagnant economy.

Accordingly, and often at the suggestion of their insurance brokers and carriers, cultural institutions of all sizes are adopting comprehensive risk-management and loss-prevention programs to address liabilities ahead of time.

Natural disasters and extreme weather made 2011 second only to 2005 as the most costly year ever as measured by insured losses, according to the Aon Benfield division of the brokerage Aon Corp. And cultural institutions were certainly not spared the damage from last year’s wild weather—both to their buildings as well as to their grounds, which are often an equally important visitor attraction.

An early snowstorm on the East Coast, for instance, damaged or felled hundreds of thousands of trees last October, hitting the New York Botanical Garden in the Bronx particularly hard. For the Garden and similar organizations, observes Maureen Waterbury, cultural-institutions market-segment manager at Chubb Commercial Insurance, “weather is their key exposure—and it can significantly impact them.” These entities, she adds, should consider adding special coverage for trees, shrubs and landscaping.

Extreme weather can also increase the probability of routine claims, adds Shirl Hedges, an underwriting manager at Philadelphia Insurance Cos., who counts cultural organizations among her specialties. Snowplows often shift stanchions and other objects in automobile parking lots, she explains, exposing rebar and other such trip-and-fall hazards, while rainstorms create slippery conditions on marble staircases and in lobbies.

Philadelphia Insurance and other carriers are handling the rise in extreme weather events by conducting more frequent site inspections and testing insureds’ emergency-response procedures. For the moment, as long as carriers remain satisfied that museums are properly addressing risks, pricing is stable and coverage remains available.

Hedges, for instance, felt comfortable underwriting a waterfront museum in Florida because it had installed windows rated to withstand 150-mile-per-hour winds. But if the rash of so-called “100-year storms” persists in certain regions, she says, it’s only a matter of time before carriers are forced to re-evaluate their offerings.

Extreme weather opens the door for other potential losses aside from property damage. Thieves, for instance, can take advantage of the distraction these events create. Pilferage and “mysterious disappearances” remain a top loss area for museums, says Anthony Roman, CEO of the security- and risk-management consultancy Roman and Associates, but it can be difficult to prove theft when cultural institutions lack adequate inventory-control systems.

And those institutions that do have inventory systems are increasingly at risk of cyber-hacking. While the theft of credit card numbers and other personal data dominates the cyber-insurance discussion, Roman says, both insurers and museums routinely overlook the risks posed by criminals who hack into databases to adjust inventory records and artifact valuations—making pilferage and undetectable theft more easy—or to learn details about a museum’s plans for transporting works of art in order to intercept and steal them.

While most carriers’ General Liability policies provide for some coverage against data breaches, Waterbury recommends buying a stand-alone Cyber policy with separate limits to address these additional, unique exposures.

Roman, for his part, recommends that museums adopt an enterprise risk-management program that comprehensively addresses everything from catastrophe pre-planning and management to theft, and even potential new-business opportunities that can generate new risks. This approach brings risk-management experts from all facets of an institution together to craft a unified strategy for advancing revenue goals, while also mitigating the potential for financial losses.

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