Risk Management: An Ounce of Prevention

Risk management an ounce of prevention

Valuable advice to help clients protect their personal collections

Rand Silver doesn’t just know art collections, he knows how to protect them from loss. From art to wine to jewelry, here Silver, national director, art collection management, for the Private Client Group at American International Group (AIG) in New York City provides his suggestions for protecting a high-value collection from the accidents, mishaps, mishandling and missteps that can befall even careful collectors.

Loss prevention isn’t something you’ll necessarily see on a policy, which is why it’s important to discuss the subject with clients. As many of us in the industry know, countless claims across all product lines stem from to accidents or human error. For example, using the wrong hooks to hang a painting eventually may cause it to fall unexpectedly. Some of these kinds of losses easily could be avoided with a little extra thought.

Other losses are caused by events out of our control — hurricanes, wildfires, earthquakes, etc. While we can’t stop natural disasters from happening, the extent of damage they inflict can be reduced through education and year-round planning. For example, if a client has a seasonal residence in Florida, ensure that the shutters are in good condition before hurricane season starts.

Plan Ahead With Proactive Risk Management

Whether someone has spent a lifetime acquiring a world-class collection, inherited a handful of family heirlooms or simply purchased objects to decorate a home, a collection has both financial value and sentimental or emotional worth. For this reason, when thinking about risk management for art and other collections (wine, jewelry, collectibles, etc), it is helpful to consider both physical and financial loss.

Financial

  • Values. The values of tangible assets increase over time, regardless of seasonal or annual trends. Since appraisals are often used as the basis for insurance coverage, if a piece is lost, stolen or damaged, an outdated appraisal could limit your client’s ability to be fully compensated through an insurance policy. No hard-and-fast rule exists for when to obtain an updated valuation, since different segments of the art and valuables markets appreciate at varying rates, but a good rule of thumb is a minimum of every three or four years.
  • Insurance. Maintaining adequate insurance coverage is crucial to recovering from a loss. Many homeowners policies are inappropriate for art collections, so the best way to insure fine art is with a distinct private collections insurance policy. A fine art insurance policy contains specific language for covering fine arts risks, often with no deductible and broader terms and conditions for protection in the event of natural disasters, and for issues such as partial damage and loss to objects within a pair or set. Record-keeping. Maintaining up-to-date inventory records reduces the likelihood of mysterious disappearance and helps expedite the claims process in the unfortunate event of a loss. The format can be as simple as a comprehensive list, but we recommend entering descriptions and images into a secure computerized collections management database. Whichever format is used, a copy of the inventory should be kept off-site.
  • Record-keeping. Maintaining up-to-date inventory records reduces the likelihood of mysterious disappearance and helps expedite the claims process in the unfortunate event of a loss. The format can be as simple as a comprehensive list, but we recommend entering descriptions and images into a secure computerized collections management database. Whichever format is used, a copy of the inventory should be kept off-site.

Physical

It is impossible to predict every eventuality, but AIG’s claims experience tells us that adhering to the following advice will go a long way in helping clients protect their valuables:

  • Transit. A work of art is never more at risk of being damaged than when it is handled. Whenever art is purchased or moved between homes, ensure that a specialty fine art shipping company is engaged.
  • Installation. It is good practice to use two hooks and two wires for hanging pictures and mirrors, as the redundancy adds stability and decreases likelihood of loss should one hook fail. Whenever possible, valuable works should be installed under the guidance of a professional art handler.
  • Placement. When deciding where to install art, look beyond aesthetics by considering the location of doors and pathways, and place objects in areas that are not highly trafficked. Also avoid hanging above fireplaces, beneath air vents or in direct sunlight.
  • Theft. It’s no secret that works of art are attractive targets for thieves, although surprisingly, most art thefts are crimes of opportunity that easily could have been prevented. Secure your home with a central station burglar alarm with motion sensors and contacts on all doors and windows. For jewelry and other portable valuables, install a safe that is bolted in to the fabric of your home.
  • Fire. Every minute a fire burns it doubles in size, which means that early detection is critical to saving lives and property. To best protect your home, family and valuables, install a centrally-monitored smoke detector for every 1,200 square feet, and keep annually inspected fire extinguishers handy.
  • Storage. All items that are not installed in your home should be stored off-site in a professional climate-controlled facility. If that isn’t possible, dedicate one room in your home to art storage, and never store items on the floor, even temporarily, to protect them from spills and leaks.
  • Emergency plan. Preparing a collection-specific plan will ensure that staff and service providers act efficiently and effectively to protect the collection before and after a major catastrophe. A basic plan includes a priority list of items to be removed from the home, a communication list with contact information, a list of equipment needed for removal of the artwork, handling instructions, locations of gas, water, and electricity shut-off valves, and a conservation plan for the post event period.