FT.com / Personal Finance - Your most priceless items still have a value

An art work or collection can be of immense value for the owner – both aesthetically and financially. But replacing or repairing precious items could be expensive if the owner does not have a current market valuation for insurance purposes.Specialist art insurance brokers regularly encounter art owners who are underinsured as they are unaware that their items have appreciated in value.Daniel Smith, director of Aon’s fine art team, points out that art markets can be volatile.“If an artist has seen a 50 per cent rise in value in a year, which has happened for some artists, then an owner could suffer a significant loss if they want to replace the work with something similar if the value was not correct,” he says.Auctioneers and dealers in the fine art market also report dizzying movements in prices as artists fall in and out of favour.“You just have to look at the last five years to see how the market has moved,” says Harvey Cammell, a director at Bonhams, the fine art auctioneers.“Modern British paintings and sculpture have seen terrific growth from 2000 to 2008,” he adds.“There are some artists who have really come up. For example, British artist Paul Feiler’s paintings were selling for £3,000 several years ago but are now fetching £50,000-£70,000.”Getting a valuation right for insurance purposes can be a challenging, if not onerous, task for smaller collectors. Owners have two options for insuring their works of art – an agreed value basis and a current market value basis.Both valuations will allow the client to insure for the most common risks such as physical loss and damage. Policies typically pay for the cost of restoration if the item is damaged, or a sum up to an agreed policy limit if it is lost or stolen.The type of valuation often depends on the size of the collection but also other factors such as its fragility and sentimental value, whether there is professional management of the collection and how relaxed the owner is about absorbing any financial loss above a policy’s limits.But making sure that values don’t fall too far out of step with the market requires diligence by the owner.“We recommend that people revisit their valuations every three to five years, particularly if they have a contemporary collection where prices tend to be more volatile and move quite abruptly,” says Annabel Fell-Clark, chief executive of Axa Art Insurance.“Thankfully, we haven’t had too many disasters but the market can be volatile. Some artists are reaching record prices now, who six months ago were not selling anything,” she adds.Insurers will accept reappraisals that are performed by third parties, such as an auctioneer or specialist art dealer or a recognized expert.Owners either have to transport the items for reappraisal or arrange an in situ viewing.“In general, there is probably a bit of reluctance to do revaluations on behalf of owners because it can be quite cumbersome in terms of time and money,” adds Smith. “But this diligence is important.”Of course, prices can fall as well as rise, leaving owners with the prospect of being overinsured at some point – as may be the case now for some owners of contemporary art, which has fallen in value in recent years.“Yes, there is a flipside,” says Smith at Aon. “But compared with overpaying on premiums when the value of a collection has fallen, a financial loss is going to be proportionately greater if it occurs when the market is on an upward trend and a valuation is out of date.”