Despite the availability of affordable art insurance, there are many collectors, gallery owners and even artists who are not aware of how easy it is to sign up for a policy.“Typically, if you can put a value on it, you can insure it,” explains Ian Lim, 42, group managing director and chief underwriter of Archipelago Insurance Ltd, a Labuan FSA (Financial Services Authority) registered and licensed generalinsurance company.
Established in 2012, Archipelago Insurance acts as a complete insurance and risk advisory partner to businesses and individuals, and is licensed to underwrite all lines of general insurance. In terms of art insurance specifically, they have signed up five clients to date with a total value of works insured at RM26.4mil (US$7mil). With its head office in Labuan and another office in Kuala Lumpur, Lim feels that art insurance is a necessity, especially for private collectors holding artworks of considerable investment value.
With 20 years of experience in the insurance market under his belt, Lim specialises in broking and underwriting. While a broker’s role is to arrange the insurance plan on behalf of the client, the underwriter, as the risk carrier, insure the re-insurance aspect to accept liability and guaranteeing payment for any loss or damage that occurs. As a commercial underwriter, Lim works with insurance agents and brokers who are specialists in this area. “Art insurance, unlike traditional property or motor insurance, has its own set of tariffs,” says Lim. “The value of an artwork is not represented by the paper or paint used, but focuses more on its age, the artist behind it, and the market price of the artist. While insurers of commercial properties look at the cost of reinstatement if anything happens, artinsurers are more concerned with the value of the artwork after damage, and compensate you for that difference.”
Such specific policies under the art insurance package is precisely why underwriters like Lim discourage owners from parking their artworks under the general home insurance policy. The terms and conditions tend to be limited when artworks are concerned and the coverage may not match the true value of the works.“This is especially true if your artwork has an appreciated value that goes up over time,” Lim warns. “In that case, home contents insurance is not market to do art insurance.”
Indeed, choosing the wrong insurance policy to protect your art collection isn’t the only mistake collectors are subject to making. Other common oversights include under-insuring your works, as some may not have a solid grasp of what their collections are actually worth. Failure to read the fine print and a lack of understanding about the insurance policies is another mistake often made. “You want your art to be tradeable, so that your insurance policy is attached to your artwhen you sell it,” Lim advises.
While art insurance has been labelled as expensive and unnecessary, Lim begs to differ. “Art can be insured at an agreed value,” says Lim. “This may not be the real value of your collection, which could be lower. However it won’t be subject to depreciation. The crucial part is to be aware of what your art insurance policy covers.”
As commercial underwriters, Archipelago Insurance relies on the selling prices of art galleries to help evaluate the works. However, auction prices of works sold at main houses such as Christie’s and Sotheby’s are also taken into consideration for in-house estimates. Generally speaking, they offer rates of 1.5% – 3.5% for collections up to RM10,000, and 1% for RM100,000 worth of artworks. For a RM 1 million collection, the rates are around 0.5% – 0.75%. In terms of art insurance in Malaysia, Lim feels that the supply is there, but the demand has yet to catch up. He estimates that the local art insurance market has potential premium value of US$20 mil (RM75.4 mil).