The complexities of insuring collectables

The Dangers of Co-Ownership (refer Sanlam Trust)
January 22, 2015
How to claim for pothole damage
January 22, 2015

The complexities of insuring collectables

A portrait of our former president and global icon, Nelson Rolihlahla Mandela, by acclaimed British painter Richard Stone sold at a recent auction in Cape Town for a staggering R1 million – the highest price paid for a Mandela portrait. This and many other Mandela memorabilia, which have been sold at recent auctions for record breaking prices, highlights the importance of ensuring that sufficient cover is in place for any new valuable items that have been added to personal collections.

Traditionally, collectable items were limited to the likes of antique furniture, coins and stamps, but as fascination with collecting unusual items, such as celebrities possessions or comic books grows, so too does the complexity of insuring these valuable items. It is imperative that consumers understand that standard household content cover is simply not enough to ensure that valuable collections receive appropriate amount insurance cover.

Fine art has always been a popular choice for collectors, but according to a study conducted by Barclays Wealth and Investment, high net worth individuals are increasingly collecting items such as jewellery, fine wines, antique furniture, memorabilia and classic motor vehicles. These individuals in particular often view their collections as more than just a passion but an investment as well.

We have seen clients with collections ranging from Louis Vuitton handbag collection to a comic book collection to the value of R3 million. However, no matter what the value of the collection, it is critical to obtain the correct kind of insurance cover either from a specialist art insurer or to source an insurance policy with a special extension under the contents section that caters specifically for insurance of fine arts and collectables.

In the event of a catastrophic loss, a specialist insurance policy can mean the difference between having a claim paid out or not. Standard homeowners’ policies usually have a per-item limit or inner contents limits e.g. 10% of the sum insured, which falls far short of the full replacement value for the collection. As a result, it is better to have a policy that provides coverage that is designed specifically for collectables should something happen to these distinctive or rare items.

By choosing a specialist insurer, the consumer could receive a number of special extensions to the insurance policy. A specialist insurer can provide additional coverage such as the depreciation of art, or even a premium for the death of the artist, where the sum insured is automatically increased by 150% in the year following the death.

Another advantage of specialist insurance policies is that they often include inflation protection, which takes into consideration inflation of the original valuation price, so that clients do not lose out on an increase in value of their collectable.

In the event of restorations or repairs needed to be conducted on collectable items, specialist insurers typically have contacts with artisans and experts who understand the value and delicacy of the restoration process.

It is important for consumers with valuable collections to have a professional valuation done at the inception of the policy, in order to ensure they are covered for the correct replacement value. It is imperative that the valuation is obtained from a reputable art dealer or a specialist antique valuator. A properly documented inventory of items and up-to-date valuation certificates are the most important assets when filing a claim for valuables, as they are almost always a requirement by insurers at the time of a loss.

Consumers should also take into account whether they intend to replace valuable items in the event of loss when sourcing appropriate insurance. Some consumers have no intention to replace certain valuables, especially items that have been inherited, as the true value is of sentimental nature. In these cases, it is important to determine the correct replacement value and specifically agree with the insurer to either cover the items for a lower amount on an agreed value basis or to exclude the items altogether.

For example, an insurer with an extensive book collection may not intend to replace it in the event of loss, but if they forget to include it in the overall sum insured, this omission can lead to substantial underinsurance on the contents value, which may result in a reduction on any payout.

Of particular importance, is choosing a reputable insurer with the required reinsurance capacity and financial security to insure valuable items. It is also vital that the insurance provider has the correct level of expertise to handle the more complex issues associated with claims for fine arts and collectables.

– HR FUTURE