For the large majority of Chubb customers who insure their art collections with us, art is a passion, and those who love art buy what they like. Still, more people are looking to art and other collectibles as a relatively stable place to invest their money.
While Chubb does not offer investment advice, we will advise customers about how they can protect their collections, whether it is art, jewelry, fine furniture, classic cars or whatever they have a passion for. That, of course, goes beyond the insurance policy, but I will touch on some key loss-prevention tips later in this blog.
The emotional aspect of buying art still ranks as the most important motivation for collecting, according to a 2011 Deloitte/ArtTactic Report, with 97% of the collectors surveyed mentioning this as one of their primary motivations. However, 49% of art collectors are also strongly driven by investment returns, and a further 39% see art as a key component in their portfolio diversification strategy, according to the report.
Insurance broker Sandra Berlin has witnessed this firsthand. A senior VP at Willis in Chicago, Berlin has been working in the personal and commercial art insurance world for more than 20 years and has helped place insurance for individuals who own hundreds of millions of dollars’ worth of art.
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“A certain percentage of art collectors do it for investment,” she admits. “But for most, they purchase art as a passion. They enjoy both the aesthetic and intellectual aspects of their art collections. Often collectors build a great deal of knowledge about the art that they collect.”
Still, she adds, those who have the means to afford a sizeable fine art collection are not foolhardy with their money. “No one wants to collect art at a high level and lose money on their investment.”
The Ups and Downs of the Art Market
The art market, like the stock market, has experienced cycles of boom and bust. There was a boom in the mid-1980s, when Impressionist and post-Impressionist works soared in value, then a meltdown between 1990 and 1992, when prices fell more than 44%. The market did not return to sustained growth until 1998. The global art market, including auctions and private sales, grew 95% between 2002 and 2006, from $25.3 million to $54.9 million. The art market peaked in 2007, but the collapse of the financial markets in 2008 precipitated a sharp decline. From October 2008 through September 2009, art sales declined by more than $30 billion.
As the financial markets gradually solidified in 2010, art buyers started coming back. In February 2010, Giacometti’s Walking Man sold at Sotheby’s for $104.3 million, a record price for art sold at auction. Three months later, Picasso’s Nude, Green Leaves, and Bust, sold at Christie’s for $106.5 million. Last spring the record for the most expensive work sold at auction was broken when Edvard Munch’s The Scream sold at Sotheby’s for $119.9 million.
In addition to auction houses, the private art market has been growing in recent years largely because of the rising number of art fairs and auction houses increasing their private sales. The growing popularity of art websites like Paddle8 and Artsy, which make middle-market art widely accessible, may drive growth in this sector.
Art as a Value Investment