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October 2008 - The Advisor's Corner: Buyer Beware: Art and Collecting in a Global Economy

Buyer Beware: Art and Collecting in a Global Economy
By James P. Kane, CIC, President of HUB International Personal Insurance

Fueled by the rapid expansion of global wealth, the market for fine art and collectibles continues to climb – along with prices. The recent explosion of interest in the art and collections market creates new threats and complex challenges. This paper provides an overview of the changing state of the global collections market, describes the emerging risks, and offers advice on what the savvy collector can do to manage and reduce these increased risks.

The global collections market continues to grow despite the current economic challenges. The record-breaking sales reported by Christie’s and Sotheby’s in 2008 represent a new breed of super-rich collectors from emerging economies such as China, the Middle East and Russia. These new patrons of the arts are often less experienced buyers who are willing to pay inflated prices. This buying behavior has impacted the valuation of art and increased the risks associated with collecting.

Along with less experienced buyers comes greater potential for fraud, theft, and counterfeit sales. The Federal Bureau of Investigations estimates the black market for art to be around $6 billion per year. Recent art thefts at well-known institutions illustrate the desire to possess works of art that are not available through legitimate avenues. Wine collections can be misrepresented by re-labeling or re-filling bottles. This paper offers suggestions on how to reduce the risks associated with authenticity and title fraud.

The inclusion of art, wine, or other valuable articles in one’s investment portfolio is a newer trend fueled by expanding global wealth. This article will examine the risks associated with purchasing art for investment purposes. It will also provide advice on how to assess value, evaluate insurance options, develop an estate planning strategy, and protect a collection from physical damage.

Building a valued collection can be an exciting and rewarding experience, if one understands and takes the appropriate steps to manage the risks. Whether it is the result of a lifelong passion or simply a means to diversify an investment portfolio, a collection needs to be protected with the same focus given to other highly valued assets and investments. Proper diligence, expert advice and close attention to market changes are critical success factors in building and protecting a valued collection.

The rapid expansion of wealth can count among its many unintended consequences an explosion of interest in the art and collectibles market. In his 2006 book Mind Set, John Naisbitt writes that contemporary art has become the chic world’s most coveted commodity.1 The rise in global wealth has increased the demand for art and collectibles. The July, 2008 market report posted on www.artprice.com noted that despite record oil prices, a crisis in the credit market and the real estate bubble bursting, the market for art has exhibited a resilience that defies a wobbly world economy.

As the demand for fine art and collectibles continues to climb – along with prices – so have the risks. We will review the changing state of the global collections market, examine the emerging risks, and offer recommendations on what the savvy collector can do to manage and reduce these increased exposures.

To download the full white paper, please visit: http://www.hubinternational.com/uploadedFiles/Personal_Insurance/BuyerBewareWhitePaper.pdf

 

 

 

About James P. Kane.  James P. Kane, CIC, President of HUB International Personal Insurance, Ltd has over two decades of experience in personal insurance. Jim has held positions with local and regional insurance agencies in Philadelphia, including General Accident Insurance and Personal Lines Insurance Brokerage (PLI). He joined HUB International in October 2005, following the acquisition of PLI. In addition, Jim served for 10 years as a faculty member of the Insurance Society of Philadelphia, a nonprofit organization that offers educational courses and workshops to the insurance, legal and financial services industries. In this role, Jim taught a Personal Risk Management Chartered Property Casualty Underwriter (CPCU) course as well as contributed to chapters on personal risk management in the course’s textbook. Jim is a regular presenter at key Family Office conferences and has contributed to numerous articles on insuring high net worth clients.

About HUB International Limited
Headquartered in Chicago, HUB International is a leading North American insurance brokerage that provides a broad array of property and casualty, reinsurance, life and health, employee benefits, investment and risk management products and services through over 200 offices across the United States and Canada.

HUB Personal Insurance, Private Client Advisors
This dedicated practice within HUB International Ltd offers one of the largest and most sophisticated personal insurance practices in North America. Licensed in all 50 states and the territories and provinces of Canada, HUB International Personal Insurance has access to the products and services of hundreds of insurance carriers and intermediaries. For more information, contact personalinsurance@hubinternational.com.

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