Insuring fine art and specie in the era of global warming

A recent example of the impact climate change has had on the insurance market was seen in the US where the insurance industry lost more than $300 billion due to a series of hurricanes that affected Puerto Rico, Florida, and the Gulf states. The changing weather patterns all factor into how art must be handled, transported, displayed, or stored. As a result, analysts are researching quantities of climate change data to assess the potential dangers, mitigate risk, and communicate the likely outcomes for collectors. 

Whilst most insurers offer “all-risks” policies for artwork, as climate change intensifies, it will become commonplace for higher-risk locations, such as earthquake or flooding zones, to incorporate a higher premium (perhaps even a specific exclusion) for any artwork stored at that location. In an era where heatwaves, wildfires, and hurricanes are increasingly common, it is reasonable to ask what the future will look like for fine art insurance. For example, can art galleries located in today’s expanding flooding zones such as Miami or Venice be justified? It may now be the time to discuss building upgrades, alternative storage facilities, or a move in location for these iconic art districts with the art market forced to adapt to the challenges it will face because of climate change.  

Although it is the case that weather warnings will usually provide art owners sufficient notice to safely remove their artwork from the affected area, some emergencies (specifically, wildfires) progress quickly and make retrieval impossible. A big concern for art insurers is the restoration of expensive artwork caused by wildfires, and the reality that wildfires can leave a piece of art lost forever – a Da Vinci painting cannot be replaced if destroyed beyond repair. To safeguard artwork, most insurers, and brokers offer services to monitor the weather and maintain contact, informing policyholders if their artwork becomes at risk of the elements.  

In 2018, the art market was valued at $67.4 billion. In 2020, art values continued to increase. Therefore, it is extremely important for collectors to have a comprehensive inventory of all artworks and ensure that adequate insurance cover is in place – if not they could risk losing their investment altogether. It would also be good practice to contact storage facilities in an attempt to mitigate losses further. Some storage facilities will advertise the fact that they are outside of high-risk areas. If art collectors stored their art in storage facilities, their investment would be protected from any climatic change. This raises the question that perhaps subterranean vaults are a good idea especially if insurers refuse to indemnify fine art in regions considered at high risk because of climate change.  

Underwriters have been concerned about the impact of climate change on the catastrophe models used for pricing premiums. An alternative insurance option could be parametric insurance. Whilst still based on similar catastrophe models, parametric insurance offers a pre-specified pay-out on the occurrence of a specific trigger event i.e., if the trigger was an earthquake measuring over 4 on the Richter scale, the parametric insurance would automatically pay out if this occurred. These policies may streamline the process and make the losses more predictable thereby becoming more efficient for policyholders and insurers. However, when it comes to parametric insurance insuring fine art, we must be aware that insuring fine art is not the same as insuring property that is replaceable on a like-for-like basis – a historical piece of art once lost is lost forever.  

We have experience in carrying out policy reviews to ensure you have sufficient coverage, and we can also assist with any disputes relating to your policy. If you would like to find out more about how we can help you, please contact us.