From the November 26, 2012 issue of National Underwriter Property & Casualty • Subscribe!

Collectibles Coverage: Insuring Prized Possessions

When Homeowners’ insurance isn’t enough, specialty carriers satisfy the need for extra coverage

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

Believe it or not, there’s a growing market for these unusual collectibles as well as pretty much everything else under the sun. These trends present plenty of business opportunities for the insurance industry as collectors become more sophisticated in seeking protection for their valuables.

Aside from fine art, which remains a strong—even record-setting—market for collectors, wealthy individuals are sinking their money into jewelry, fine wines, antique furniture and classic cars, according to a study commissioned by Barclays Wealth and Investment Management earlier this year. 

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

Coverage options vary depending on the size and value of a collection, which often reflects the net worth of a collector. 

Some carriers, including Ace Group, Chubb and Chartis, operate special divisions that cater to wealthy individuals who pay annual premiums upward of $50,000. American Collectors Insurance, MiniCo Insurance Agency and Collectibles Insurance Services cater to the other end of the spectrum. Additional carriers cover only specific asset 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 a financial-investment tool. But even this segment provides opportunity for growth among specialty carriers and producers: Among households with investible assets upward of $5 million, 34 percent still insure both their homes and valuables with a standard “Main Street” carrier, according to a 2011 study commissioned by Ace Private Risk Services.

THAT’S SPECIAL

Having specialty coverage “can mean the difference between having a claim paid or not—and that’s very important when you’re talking about high-value items,” says Ginny Hunter, senior vice president of private client services for Marsh. “Insurance at the end of the day is a legal contract, and the contracts vary broadly from a specialized insurer to an insurer that’s meant for the masses.” 

The value of having a dedicated policy is most obvious in the event of a catastrophic loss. Typical Homeowners’ policies contain a per-item limit that often falls far short of what would be necessary to replace a valuable collector’s item; more important, if an insured has lost his home in a fire, he probably needs all of the settlement to go toward rebuilding and replacing clothes and other vital needs, rather than collectibles.

Moreover, some specialty carriers will pay up to 150 percent of the insured value on an item or offer automatic inflation adjustment to valuations—some even offer the option of a zero deductible—and these options would rarely if ever be offered via a standard Homeowners’ policy.

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

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

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

“Agents and brokers are always looking for ways to distinguish themselves and add value,” Packard continues. “They can play a critical role by being the client’s advocate: If you express interest in something that’s near to a client’s heart, you’re going to gain some customer loyalty. It elevates the conversation above ‘price, price, price.’”

COVERAGE STRUCTURE & PRICING

Carriers generally structure their coverage in two ways, usually determined by a collection’s size and value.

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

Blanket coverage is often the best choice for collections with many items: One example is baseball card collections, in which individual pieces may not be terribly valuable but the whole is.

Other kinds of policies, usually purchased for more expensive collections, require that each item be scheduled and documented ahead of time. Carriers also offer the ability to mix and match a blanket policy with higher-value items scheduled separately.

Rates for blanket policies tend to be a little higher because the carrier has no way of knowing how many items will come close to the per-item limit. That said, rates for specialty coverage on the whole are very affordable, even for high-value collections, especially in comparison to the cost of Homeowners’ insurance—which is rising due to the recent increase in bad storms and weather events around the nation.

Rates also depend on the discounts that carriers will offer clients who demonstrate that they’re taking precautions to mitigate risk. Often these steps are quite extreme.

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

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

THE (INSURABLE) PERILS OF COLLECTING

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

“Wine is very, very fragile,” says Julie Sherlock, assistant vice president and premiere underwriting manager for Ace Private Wealth Services. 

Insuring for the possibility of transportation is particularly important now in light of a growing trend among wealthy collectors to either store parts of their collection in a warehouse offsite or to take a bottle with them to enjoy at their favorite restaurants.

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

But the main culprits when it comes to loss across all item types are, as always, the elements: fire, water and even sunlight. 

“I can’t tell you how many collections I’ve seen where people have framed their historic documents, and the sun has shone on them for 20 years, and now you can’t see the signature anymore,” observes Simeon Lipman, an appraiser who specializes in pop-culture memorabilia, “but there are special kinds of glass available that block damaging rays.”

Water is a threat to documents, obviously, but it also can affect things like collector cars—often in unexpected and costly ways. 

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

A Homeowners’ policy would never cover that kind of damage. 

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