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October 17, 2013 at 04:24 AM
The ownership of fine art is one of life’s great pleasures. A magnificent painting, sculpture or more rarefied forms of artistic expression bring delight to the viewer, make us ponder the work’s meaning and imagine the artist’s own musings.
Then there’s the other pleasurable part of art ownership—the possibility of significant appreciation in financial value. Among those who can afford to collect pricy artworks, fine art has always been part passion and part investment. When the recession railed, many wealthy people were buffered by rising values in their art portfolios. Stocks, bonds, Treasuries and other investments may have faltered, but their paintings, sculpture, rare jewelry, vintage automobiles and other valuable collections rallied.
Not all fine art followed this trend, however, according to my colleague, Mary Sheridan, who is assistant fine arts manager at Chubb and a former risk manager at auction house Christie’s. She explained that the high end of the art market—Picasso, Warhol and Lichtenstein, to cite a few artists—reap record prices these days. Artwork worth ‘only’ tens of thousands of dollars, on the other hand, fare less favorably. As Mary put it, “Fine art is a tale of two markets.”
While Edvard Munch’s The Scream fetched a record $119.9 million at auction and Andy Warhol’s Double Elvis brought in $37 million, many other excellent works of art tend to be worth what they cost at purchase, essentially holding their value for the time being. Not that the owners are bothered by the difference. “People buy art because it appeals to their aesthetic tastes, investment potential or simply keeping up with the Joneses,” Mary said.
“They’ll overpay for a Picasso and not care—they just want it on the wall,” she explained. “Others buy art purely for investment reasons, and stick it in storage until the market for that particular type of art rises. Ownership of art has always been driven by different factors.”
Risky Business
Money is one of these factors. Extremely wealthy individuals can buy fine art, fine wine and other fine items at the highest prices, while those who are well off but not billionaires are limited to less expensive works that still pack investment potential.
Apparently, this distinction also sometimes extends to how fine art is protected from damage and loss, as well as insured to full value, according to Nikki Brown, global fine art practice leader at insurance broker Aon. “People who generally are new to collecting art and other valuables often don’t have the same level of risk mitigation or appropriate insurance coverage that more seasoned art collectors have,” Nikki said. “They just haven’t been educated about how to properly care for and protect valuable works.”
She blames this lack of knowledge on the collectors’ insurance agents or brokers. “I’ve met collectors with paintings worth tens of thousands of dollars insured under ‘home contents’ in their homeowners insurance policy,” Nikki said. “The policy, meanwhile, is underwritten by a standard insurance company, and not a specialized insurer. The coverages and financial limits are inferior. It’s a problem.”
