We are continuing our discussion of the considerable losses experienced by art galleries during Hurricane, or Superstorm, Sandy. The insurance industry has been making predictions for total claims payouts since a few hours after the rain and wind stopped, but the damage to businesses that sell or display original artworks did not make it into the early estimates. In the grander scheme of things, when entire coastal communities were decimated and buildings in one of the biggest cities in the world sustained damage that will take months to repair, a niche like art galleries may seem inconsequential.
When a storm like Sandy hits a city that is also a major art center, though, the losses mount. As we said in our last post, one gallery specializing in the art of Peter Max racked up $300 million in insurance claims for damaged or destroyed art. These are works that are irreplaceable, too, so the losses are more than monetary; they are cultural.
The insurance industry could lose big. The total claims payout, which industry analysts say could end up being as much as half a billion dollars, could effectively wipe out almost every cent of one year's expected revenues for the art insurance companies. Florida property owners can easily predict the effect on the market: Art insurance rates will soar, some companies will withdraw from the market, or both. The anticipated hikes in insurance rates for some art warehouses and galleries could be as much as 25 percent.
Two companies dominate the art insurance market, and they report that all companies selling art insurance take in as much as $600 million in premiums during an average year. The business has become more competitive in the past few years, for the most part because there are so few claims. All those premiums are pure profit.
The industry has not experienced losses like those expected from Sandy for quite a long time, if they ever have. In 2004, for example, a fire destroyed a collection worth $33 million; in 2006, a $40 million claim resulted from casino owner Steve Wynn putting his elbow through one of his Picassos. If analysts are right, the industry and the policyholders are looking at a situation more than ten times as costly.
Source: Insurance Journal, "Art Insurers Face Record Loss from Superstorm Sandy," Sarah Mortimer and Myles Neligan, Dec. 21, 2012
Our firm works with individuals and companies that believe their insurers have wrongfully delayed or withheld claims payments. Please visit our website if you would like to learn more about our Miami, Florida, practice.