Insurance of art objects is a relatively rare service on the Latvian market. This is partly caused by the characteristics of objects themselves (e.g., difficulties in determining (or agreeing with the owner upon) the market value or its decrease in case a damage), partly by additional security requirements imposed by insurers (e.g., storage and monitoring requirements, obligation to place the objects in the special protective frames), etc. ArtLaw.club had the honor to talk to Mr.Vitis Nolbergs, a head of the Latvian branch of UADBB Aon Baltic, an international insurance brokerage company that offers art object insurance solutions as one of its services
- Mr. Nolbergs, we know that artworks’ insurance is quite problematic in Latvia. It is difficult for many collectors to insure their object or entire collections and later on get compensation in the event of an accident with an insured object. What do you think are the main problems?
Vitis Nolbergs: Yes, you are right, insurers in Latvia are generally reluctant to offer insurance of artworks. The main problem is to determine value of the object, which can be solved in two ways, either by presenting a purchase document or by an insurer-approved appraisal of the work / collection. For example, in case of paintings, the evaluation is usually carried out by the Art Museum, or there might be an agreement with an expert. We have, for example, a collaboration with the Birkenfelds Gallery.
If the value is determined, the next thing most insurers ask for is that the works of art are insured together with the rest of the movables or the real estate as part of the whole, thus reducing their risks and developing wider cooperation with customers. Of course, there are also some other solutions available to insure, for instance, an exhibition.
The issue of security is also being considered, of course. Additional security requirements are often required. However, it is not only the low risk appetite of insurers that is to blame. Collectors themselves or possessors of the works of art are not prepared for this serious insurance because they want to avoid additional costs for the valuation, often refer to confidentiality issues (no one should know what is in his/her possession), carelessly treat security requirements. Of course, insurance of works of art, if compared, is several times more expensive than insurance of ordinary property.
- Do similar problems exist in Latvia's neighboring countries? What is different there?
Vitis Nolbergs: If we are talking about the Baltic States, then yes, we are very similar. If we talk about the developed Western world, then like with all other kinds of insurance, art is insured there.
Aon Corporation in Amsterdam even has a separate department that specializes only in the insurance of works of art - Aon Art. We have also placed the risks that were necessary for Latvian art projects with our colleagues in the Netherlands.
- What are those risks against which an art object can be insured?
Vitis Nolbergs: The risks may vary depending on the particular insurer. In general, however, there are two approaches to securing ordinary property: coverage of named risks (which usually include standard risks,such as fire, natural disasters, unlawful acts of third parties, utilities accidents), and coverage of all risks (where the object is insured against everything not mentioned in the exceptions). The main exceptions are usually wear and tear, mold, damage done by rodents and birds, gross negligence, war, unrest.
- why Latvia does not offer insurance applicable predominantly to the works of art (for example, insurance against losses arising from defects in ownership rights (title insurance))?
Vitis Nolbergs: It must be said honestly that the Latvian insurance market, even the one in the Baltics, is quite small and it is not profitable for insurers to introduce such specific types of insurance at all, because there will be very few potential customers. Many of us don't even have standard property insurance because we don't have the willingness to pay, we don't believe in the possibility of being reimbursed, or we believe that "nothing will happen to me." Similar situation is with the expensive works of art, which insurance must be carried out additionally. In my experience (and I have been working in the industry for 22 years) there have been only a few dozen collectors who were willing to insure their collections or works of art properly in order to actually receive full compensation.
- what are the criteria for concluding an insurance contract? What are the required documents, pictures or other prerequisites?
Vitis Nolbergs: As I mentioned at the beginning, works of art usually have to be insured together with all the other property, whether it is an individual or a legal client. There ought to be purchase documents or an assessment by a competent authority / expert. Then there are different approaches depending on the insurance company. Some also require pictures, others require to keep the most expensive items in safes, to put grilles on the windows, and so on. Each case is discussed separately with the insurer before an agreement is reached; additional matters are stipulated in the policy.
- How is the insurance object (antiques, works of art, prints, sculptures, etc.) value assessed? Are there differences depending on the type of subject?
Vitis Nolbergs: Again, it is possible to agree differently with each insurer, but basically, as I mentioned, one option is to provide purchase documents, the other is an appraisal, where the appraiser must also be agreed with the insurer (they are usually accepted on an "expert in their field" basis, such as an art museum). Of course, appraisers also depend on the type of subject, for example, refurbished old vehicles are usually appraised by the Latvian Antique Car Club.
- are there any insurance sum limits? If so, how can they be explained?
Vitis Nolbergs: The Insurance Law stipulates that the insurer covers actual losses in case of an insured event, which means that there can be no indemnity exceeding the value of the object. Therefore, the purchase documents or valuation are needed (what is important - before, not after the event, because after the event it may no longer be possible to determine the value of the object, which was to be determined individually). Of course, art objects can be insured for a smaller amount than purchased or valued, but in this case underinsurance will be applied and the indemnity will be paid in the proportion for which the amount was insured. Insurers try to avoid underinsurance, because it always leads to a conflict with the client when the insured event occurs, because the indemnity is partial and it will be very difficult to agree on how much the object was underinsured. As a professional insurance broker, we also do not recommend insuring anything on the conditions of underinsurance.
- how much proportionally is the insurance premium?
Vitis Nolbergs: It is difficult to predict, because the insurance of art collections / objects is very specific, rare for any insurer and based on particular experience, risk appetite, type of art object, value, security conditions, joint cooperation with the client, etc. Insurance premuim might be from only 0,…%, up to several % from the value of works of art.
- how the decrease in value is determined in insurance cases? How is the compensation calculated / paid out?
Vitis Nolbergs: If there is a complete loss of the object, then the full amount minus the client’s own risk (which is also indicated and agreed upon signing of the policy) is paid out according to the value agreed upon at the policy. It is more complicated in case of partial damage. Usually, however, if it is possible to restore / repair the object, then restauration expenses are covered; if it is not possible, will have to address the expert who will determine the value of the object after the insured event. But again, all this is agreed with the insurer and usually these processes go very cumbersome, because it is hard to agree on the amount of the loss with the client (the client will argue that his lossed are great, while the insurer will try to reduce his expenses where he is entitled to do so under the Insurance Law).
- In which country do you think there is a more positive experience and a more developed / friendly legal framework for the insurance of works of art?
Vitis Nolbergs: I will not be able to answer about the legal part, but everything related to insurance is much easier to deal with in any developed European country or in the USA, where the amount of insurance policies is huge and insurers' strategy is more oriented on payint out compensations than counting every euro, as is the case with us, because, as I said, we have a very small market.
- Are there any legislative changes or practical improvements that are expected to enter into force in the near future? What are the prospects?
Vitis Nolbergs: In my opinion, practical improvements come only with practice – the desire of collectors themselves to insure their art objects should grow as well as opportunities to insure them. As insurance brokers, we can help to find a solution and improve the practice (as we do every day, since we represent clients' interests in insurance matters). I have not heard anything about any planned legislative changes related to the works of art.
- what obstacles (in practice, in the legal framework, in the attitude of the possessors of works of art) need to be overcome in order to solve the existing difficulties with the insurance of works of art?
Vitis Nolbergs: Art insurance is very specific. I would recommend that if you need such insurance, use professional international insurance brokers who have more experience and can also use international experience from colleagues. There might be less obstacles in this case.
- What is your (your company's) experience in insuring works of art? (precedents, court cases, examples, etc.)
Vitis Nolbergs: As I mentioned, I have been working in the industry for 22 years. My specialization has always been property insurance, including art. In the meantime, there have been only a few dozen really serious collectors/owners who were willing to insure everything properly. Usually everything stops at the purchase documents or appraisal, as well as at the "confidentiality" issues.
As I mentioned before, Aon Amsterdam has a special department for insurance of art objects. We work with them from time to time, but their interest is limited to relatively large projects.
We have experience with collections that are used as interiors of private houses and separate storage rooms, collections of legal entities that are used in the interiors of the offices, insurance of exhibitions for a certain limited period of time, insurance against possible risks during the transportation of objects, etc.
Thanks God, there have been no court cases on these issues, but there were definitely compensation cases. Among the latter there were: fire accidents, pipe ruptures (sloppy paintings), vandalism at exhibitions, attempted theft (but there have been no real thefts in my practice), transportational damage.
- What would you advise to owners (possessors) of works of art to make it easier and more affordable for them to insure their artworks?
Vitis Nolbergs: Dear owners, first of all, know how to prove the cost of your objects with supporting documents. Secondly, don't be afraid that the whole world will find out about your possession, because a professional insurance broker can conclude a confidentiality agreement with you and he will be responsible for confidentiality afterwards.