Written by Taylor Armstrong
WHAT IS A POLICY LIMIT?
An insurance policy is written with specific maximum payout amounts called limits; usually these limits are written on a per-occurrence basis, meaning that the limit is the most the insurer will pay in any one event or disaster. A gallery’s limits may be considered “blanket” and as such, applied as needed for losses to owned inventory and consignments.
WHERE DO YOU START WHEN DISCERNING WHAT LIMIT TO PURCHASE?
At minimum, insurance must be purchased to cover all consigned artworks in a gallery’s care, custody, or control for which the gallery is responsible for insuring. The total value of consignments at any given time throughout the year should serve as the baseline for a gallery when determining what policy premises limit it needs. Additionally, a gallery should be considering any art fairs it plans to attend and what total values they will bring with them (e.g., how much transit and other locations sublimits the gallery will need).
Beyond this baseline, a gallery can determine how much additional coverage it will purchase to protect the owned inventory if there was a catastrophic loss. This determination looks at several factors, including the spread of total artwork value throughout the main gallery, any additional gallery location, or off-site storage locations; the gallery’s internal risk tolerance level; and the gallery’s susceptibility to natural catastrophic events (e.g., hurricanes, earthquakes). All galleries should have a thoughtful understanding of what policy limit they are comfortable with for each policy year.
WHAT IS PROBABLE MAXIMUM LOSS (PML)?
A gallery may determine their policy premises limit by assessing its Probable Maximum Loss (PML) scenario. The PML is generally defined as a significant loss resulting from a covered disaster (e.g., fire, flood, tornado), assuming the normal functioning of protective features (e.g., firewalls, security system) and proper functioning of most (perhaps not all) active suppression systems (e.g., sprinklers). For example, the destruction of a main gallery location or an off-site storage site may be used to estimate PML. When calculating this figure, it is important to remember that all property owned by others (such as consignments) for which the gallery is responsible for insuring will account for the first payment in the event of a catastrophic loss. Examine the PML estimates regularly, especially in times of high value exhibitions, inventory growth, gallery construction, or increased art market values.
Once or twice a year, a gallery may need to increase its policy’s premises limits temporarily for a high value incoming consignment or its policy’s off-site limits for artworks going to an art fair. Review the policy limit with your broker in advance to determine if changes may be needed.
Your gallery’s inventory and consignments are always changing; fine art insurance should give the gallery peace of mind in the event of a catastrophic loss. For more information on reviewing your gallery’s policy limits, contact a representative from Huntington T. Block at HTBinfo@huntingtontblock.com.
Applying the concept of PML can help a gallery understand just how much insurance to consider purchasing. For example, a gallery had four separate locations between the main location, the gallery owner’s home (artwork on display for sale), and two off-site storage locations. The gallery performed an inventory and determined the total value of owned and consigned artworks at each location. The gallery decided to purchase a limit equal to the total value of the highest valued location. Since the other locations were separated sufficiently, the gallery felt comfortable that a catastrophic loss would not impact more than one location at the same time.
This strategy was put to the test when a rash of tornados came through the area in a significant convective storm. One location was completely destroyed, and the others experienced only minor damage. The artworks located at the destroyed location were a total loss as many were paintings, prints, and sculptures that could not be restored or salvaged. While the gallery suffered a catastrophic loss, it was paid to its fine arts policy limits. Had the same storm severely impacted multiple locations, the gallery may have been underinsured. However, it was fortunate that for this particular situation, its PML strategy worked, and the gallery had sufficient limits of coverage. Every gallery is different in how they examine what limits are appropriate. For more information on reviewing your gallery’s policy limits, contact a representative from Huntington T. Block at HTBinfo@huntingtontblock.com.
WHY HAVING A FINE ARTS BROKER IS IMPORTANT?
One of the biggest advantages in purchasing a dealer policy is working with a specialized broker who is knowledgeable regarding fine art insurance coverage. Fine art brokers provide galleries and dealers with personalized guidance and work on their behalf to place appropriate insurance coverage. For more information, please contact a representative from Huntington T. Block at HTBinfo@huntingtontblock.com
This article is provided for general informational purposes only and is not intended to provide individualized advice. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy. Huntington T. Block Insurance Agency, Inc. is a licensed insurance producer in all states; Texas License #17489; operating in CA under license # 0825502.
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