Everyone's familiar with the concept of collecting stamps,coins, comic books and even “Star Wars” action figures—but howabout collecting surgeons' tools from the Civil War era or locks ofcelebrities' hair? 

Believe it or not, there's a growing market for these unusualcollectibles as well as pretty much everything else under the sun.These trends present plenty of business opportunities for theinsurance industry as collectors become more sophisticated inseeking protection for their valuables.

Aside from fine art, which remains a strong—evenrecord-setting—market for collectors, wealthy individuals aresinking their money into jewelry, fine wines, antique furniture andclassic cars, according to a study commissioned by Barclays Wealthand Investment Management earlier this year. 

But whether a collection is worth $10,000 or $10 million,consumers are best served by purchasing a specialty-insuranceproduct rather than relying on a standard Homeowners' policy,according to experts. 

Coverage options vary depending on the size and value of acollection, which often reflects the net worth of acollector. 

Some carriers, including Ace Group, Chubb and Chartis, operatespecial divisions that cater to wealthy individuals who pay annualpremiums upward of $50,000. American Collectors Insurance, MiniCoInsurance Agency and Collectibles Insurance Services cater to theother end of the spectrum. Additional carriers cover only specificasset classes such as classic cars.

Wealthy collectors are more likely to seek specialty coverage,often because they view collecting as a passion but also as afinancial-investment tool. But even this segment providesopportunity for growth among specialty carriers and producers:Among households with investible assets upward of $5 million, 34percent still insure both their homes and valuables with a standard“Main Street” carrier, according to a 2011 study commissioned byAce Private Risk Services.

THAT'S SPECIAL

Having specialty coverage “can mean the difference betweenhaving a claim paid or not—and that's very important when you'retalking about high-value items,” says Ginny Hunter, senior vicepresident of private client services for Marsh. “Insurance at theend of the day is a legal contract, and the contracts vary broadlyfrom a specialized insurer to an insurer that's meant for themasses.” 

The value of having a dedicated policy is mostobvious in the event of a catastrophic loss. Typical Homeowners'policies contain a per-item limit that often falls far short ofwhat would be necessary to replace a valuable collector's item;more important, if an insured has lost his home in a fire, heprobably needs all of the settlement to go toward rebuilding andreplacing clothes and other vital needs, rather thancollectibles.

Moreover, some specialty carriers will pay up to 150 percent ofthe insured value on an item or offer automatic inflationadjustment to valuations—some even offer the option of a zerodeductible—and these options would rarely if ever be offered via astandard Homeowners' policy.

Agents and brokers stand much to gain—both in terms of businessand increased client loyalty—by making this case to their insureds,says Laura Packard, vice president of sales and marketing for themanaging general agent American Collectors Insurance.

For instance, one of her agents sold a special policy to a manin Oklahoma to cover his collection of guns and stamps, valued atmore than $23,000. The man subsequently lost his home during awildfire this summer, and his collection was also destroyed, eventhough he had stored much of it in a fireproof safe. 

“The guns would have only been covered up to $2,500 on theHomeowners' policy,” Packard says, “but fortunately the agentguided him to the right kind of specialty coverage.”

“Agents and brokers are always looking for ways to distinguishthemselves and add value,” Packard continues. “They can play acritical role by being the client's advocate: If you expressinterest in something that's near to a client's heart, you're goingto gain some customer loyalty. It elevates the conversation above'price, price, price.'”

COVERAGE STRUCTURE &PRICING

Carriers generally structure their coverage in two ways, usuallydetermined by a collection's size and value.

Blanket coverage is available for limits usually up to $1million, with a per-item limit typically ranging from $10,000 to$50,000. In this kind of policy, carriers don't require aninventory or schedule of items until after a loss, at which pointthey'll ask for documentation to demonstrate value. 

Blanket coverage is often the best choice for collections withmany items: One example is baseball card collections, in whichindividual pieces may not be terribly valuable but the wholeis.

Other kinds of policies, usually purchased for more expensivecollections, require that each item be scheduled and documentedahead of time. Carriers also offer the ability to mix and match ablanket policy with higher-value items scheduled separately.

Rates for blanket policies tend to be a littlehigher because the carrier has no way of knowing how many itemswill come close to the per-item limit. That said, rates forspecialty coverage on the whole are very affordable, even forhigh-value collections, especially in comparison to the cost ofHomeowners' insurance—which is rising due to the recent increase inbad storms and weather events around the nation.

Rates also depend on the discounts that carriers will offerclients who demonstrate that they're taking precautions to mitigaterisk. Often these steps are quite extreme.

“We had a client on the eastern shore of Maryland whoseinsurance company said he needed to take down trees and widen hisdriveway pillars to make sure fire trucks could get in,” says BrianKathenes, managing partner of National Appraisal Consultants and acertified member of the International Society of Appraisers. “Whatthe client did instead was buy his town a smaller fire truck.”

In the case of jewelry, many carriers will offer discounts—asmuch as 50 percent—if a client stores his or her items in a bankvault, although these policies do allow clients a certain number ofinstances that they can wear jewelry outside a vault during theyear.

THE (INSURABLE) PERILS OF COLLECTING

Typical loss scenarios depend on the kind of collectible. Wine,for instance, is very sensitive to temperature changes andmovement—which can lead to breakage. 

“Wine is very, very fragile,” says Julie Sherlock, assistantvice president and premiere underwriting manager for Ace PrivateWealth Services. 

Insuring for the possibility of transportation is particularlyimportant now in light of a growing trend among wealthy collectorsto either store parts of their collection in a warehouse offsite orto take a bottle with them to enjoy at their favoriterestaurants.

Breakage is also an issue with figurines and dolls. “Cats andfigurines just don't mix—breakage is truly our number-one loss,”Packard observes, adding that “museum wax, which helps thingsadhere to a curio cabinet, is a godsend.”

But the main culprits when it comes to loss across all itemtypes are, as always, the elements: fire, water and evensunlight. 

“I can't tell you how many collections I've seen where peoplehave framed their historic documents, and the sun has shone on themfor 20 years, and now you can't see the signature anymore,”observes Simeon Lipman, an appraiser who specializes in pop-culturememorabilia, “but there are special kinds of glass available thatblock damaging rays.”

Water is a threat to documents, obviously, but it also canaffect things like collector cars—often in unexpected and costlyways. 

“I had a client who was storing 96 vehicles in a commercialwarehouse,” says Laura Clark, assistant vice president andsignature underwriting manager for Chubb. “Sprinklers are requiredin most warehouses, and this sprinkler was leaky, so 16 cars gotwet. We had to determine whether to replace the leather or let itdry out. While that was happening, 14 more cars got wet because thesprinkler valve was defective. So now we're trying to relocate allthe cars by putting them on flatbed trucks, and that's costing $1million.”

A Homeowners' policy would never cover that kind ofdamage.