Public sector organisations own art collections of huge national and international importance. James McDowell, head of fine art at Aon, explains why an accurate valuation is key to protecting these collections.
Across the UK, local authorities own more than 1.9 million pieces of art1, ranging from paintings by Constable and etchings by Hogarth to street art by Banksy. As these are of huge importance to the nation, having appropriate insurance in place is essential.
A valuable valuation
An accurate valuation is key to getting the right level of cover but determining how much an organisation’s art collection is worth is notoriously difficult. Art works are unique, with their value coming down to factors such as the rarity, desirability, the medium and each piece’s provenance.
Values also fluctuate enormously, with demand, fashion and even politics influencing what a piece of art is worth. This means that if a local authority starts out with an inaccurate valuation and then increases it in line with inflation every year, it’s likely to get further and further away from the true value of the piece.
On top of that, public sector organisations’ art collections are often large and tend to be built up over many decades, with some pieces bought and other bequeathed by the public. This can make keeping tabs on the value a challenge.
Risks and reputation
Outdated valuations can have serious ramifications for a local authority if an item is stolen or damaged. It may not have adequate funds available to restore or replace the exhibit, which in turn could damage its reputation.
The reputational damage can also affect relationships with other museums and galleries. Lending art works between museums is commonplace. Another authority might have an exhibit that complements one in your collection, or something that fits perfectly with a planned exhibition.
Building these exhibitions can be a great way to generate income through admission fees or increased footfall through the gallery café or shop, but if something happens to a borrowed artwork, it can be very awkward if the insurance isn’t available to cover the loss. As well as the financial implications, the reputational damage could restrict any future loans, potentially drying up the income stream from exhibitions.
Where an item is on a long-term loan, a regular valuation could be part of the loan agreement. If this hasn’t been done and there’s a loss, the museum borrowing the piece could find itself liable for an uninsured loss.
Valuation tips
With an accurate valuation so important, there are some ways to make this task easier. For starters, collections can contain thousands of works of art so valuing everything individually is likely to be an expensive and time-consuming project. In these situations, rather than value everything, it’s sensible to focus on the most important and valuable pieces and extrapolate this across the collection.
Where you have an indication of the item’s value, perhaps as it, or something similar, was recently bought or sold at auction, this figure can be used as a basis for your valuation, with an independent valuation sought to confirm this figure.
Once you have an accurate valuation for the collection, it’s good to establish a rolling programme to ensure the collection’s value reflects the current market trends. The value of artwork does fluctuate, with some pieces leaping up in value while others fall out of favour.
Where you’ve worked with a valuer, they will usually be happy to help with this revaluation exercise. Many will do a quick reassessment of the top 10 or 20 items in your collection on an annual basis and alert you to any unusual movements in value so you can revise your insurance cover. This provides certainty of value to the museum for their core assets by concentrating on the most important items in the collection by value.
There are many other benefits to a local authority in having an ongoing valuation programme in place. Market trends are spotted early and can be incorporated into the valuation process and the integrity of the collection is independently checked. Insurance companies also view this proactive approach positively and have greater confidence following a loss that any claim can be settled quickly and efficiently with the knowledge the valuation is accurate.
Consider specialist insurance
Working with valuers will ensure your collection’s valuation is up to date but this is only part of the story. Specialist fine art insurance should also be considered. This is standard across most museums and art galleries but many local authorities include their art collections under their property insurance programme.
Unfortunately, this could leave them with some significant gaps in their cover. While an organisation can claim from their property insurer for an artwork that is stolen or lost, if a piece is damaged, the insurer is unlikely to offer access to specialist claims services or cover any depreciation due to the damage. Depreciation in value can be as much as 50% of any fine art claims settlement, which is particularly important for exhibits on long-term loan to the local authority.
Similarly, if an organisation owns a pair of antique vases and one is broken or stolen, a property insurer will provide compensation for that one vase, overlooking the fact that the remaining vase has fallen in value as it is no longer part of a matching pair.
Fine art insurance is designed specifically for art collections. Cover can include restoration and depreciation in value following damage, matching pairs cover and defective title cover. With defective title cover, if an item is bought from a reputable source and then turns out to be stolen, certain policies offer cover in the event of a loss. Works of art can also be covered in transit and for temporary removal.
Another key feature of this type of cover is the expert advice and support that’s available. Underwriters and brokers specialising in this area will tailor cover to your specific needs, help with recommendations for everything from valuers to restorers and transport, and provide specialist support in the event of a loss.
And, while it delivers much richer and more appropriate cover than available through property insurance, it’s a myth that it’s more expensive. It delivers the peace of mind that the art collection is insured correctly and, if something does happen, you’re covered.
More information
Aon’s specialist fine art division has many years’ experience arranging cover for private, corporate and public collections. To discuss your requirements, speak to your Aon account manager or contact James McDowell at [email protected].
1 Wasting Monet: TaxPayers' Alliance reveals that only a third of council-owned art is on display (taxpayersalliance.com)