Theft is not the most common risk to art assets

Art has become big business in South Africa and record results during auctions and the success of the FNB Joburg Art Fair attest to this. Recent research has shown that internationally, the art market is recovering and Sotheby’s has reported record London Auction attendances with items exceeding all expectations.

However, the recent theft of five paintings possibly worth hundreds of millions of Euros, including major works by Picasso and Matisse from the Paris Museum of Modern Art illustrate the need to secure and insure these investments.

While this is a sensational theft that is grabbing the headlines, the truth is that in South Africa, theft is not the chief threat to art investments. It is the lesser dramatic and non-newsworthy risks that cause depreciation in value and pose the biggest on-going threat to collectors. The most common financial risks to art are fire, water or accidental damage and ownership disputes

Statistically, the biggest exposure to risk for owners of art assets is thinking they are adequately covered when in fact, their policy does not recognise three critical risk areas:

1) The true market value of the artwork, memorabilia or antique item

2) Loss in value following damage

3) The lack of cover for ownership disputes known as defective title exposures

The effects of fire and water are probably the greatest catastrophic risks. And it’s not only destruction by fire itself that is the problem. Damage from smoke and fire-fighter’s water can seriously depreciate the value of assets. Smoke damage penetrates layers of paint to different levels, depending on heat. This requires expert and sensitive restoration work. However, despite the most careful restoration, an art asset is likely to depreciate in value by up to 35%.

We have also seen an unprecedented number of claims due to water damage and an increase in the frequency of accidental damage. This could be due to the increase in the number of assets in transit on SA’s roads as well as the condition of our roads. These claims can be attributed to service providers using lower quality of packaging material and the lowering of general transit standards.

According to Wayne Klinger, a senior loss adjuster at Cunningham Lindsey South Africa, it is vital to insure items of value. “I have worked with Artinsure for three years and have seen claims that have varied from fire to transit damage. Most people consider theft as the primary threat to artworks but water or even storm damage all affect the value of works of art. There is a lot more art in transit and something as innocuous as transporting an object from a gallery to a home can cause damage”.

There are several examples of artworks damaged or lost in transit. An Ardmore Vase purchased for R200 000 at auction in Johannesburg arrived in Cape Town with a piece broken off it. The depreciation in value after restoration was 25%. We recently encountered a case where a client used a reputable transit company to move a high value work of art by Sam Nglengethwa. The transit company, which when faced with the choice of losing the job or using their only available vehicle, went ahead with the move using an open top bakkie. This resulted in the art work flying off the bakkie on a highway and being severely damaged.

Another example cited was of a client with a rare triptych by a leading South African artist who returned home to find that one of the panels had been blown off the wall by the wind and was considerably damaged. The client had the choice to declare the triptych a total loss and be compensated for the value of the whole set. In this instance the client chose to have the work repaired and Artinsure’s specialist returned the work to their pre- loss position.

Insurance against this type of risk is vital to a collector and is not the type of cover one receives as a matter of course. This situation is an example of the need for specialist insurance that includes cover for decrease in value as a result perils of this kind.

Fine art and collectable claims are not standard asset claims. In addition to our expertise and experience in resolving art claims, Artinsure employs trained specialist adjusters, restorers and recovery agents together with an international network Interpol, FBI, Scotland Yard, Art Loss Register and Trace.

Often unreported in the media is the issue of lack of title. The acquisition of an art asset may not give your client title to the work. This is more common than one might expect. Even if a person unknowingly buys a previously stolen work of art, they have to return it to the original owner.

In view of the fact that South African art sales are soaring and achieving record prices above estimate, it is clear that South Africans need to consider how they secure and insure their assets. Even in SA, risk is not all about theft.

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