Fine Art: A change of art

The global art market has emerged from its down period, with figures from the influential European Fine Art Fair painting a picture of a recovering market – particularly in the US. And despite contemporary art auctions in London being several brush strokes behind New York’s record sales, buoyancy continues.

Alex Branczik, head of Sotheby’s contemporary art auctions in London, says these results mark the strength of the contemporary market. “We saw a depth of international bidding right across sales, flying from Asia – not only mainland China, but Japan too – and South America. Both new collectors – amounting to 25% of buyers – and existing collectors drove the total for the sale above estimate. We saw demand ranging from pieces by the greatest contemporary artists to new talent appearing at auction for the first time.”

The global art market amounts to $66bn (£38.54bn) annually, but what of the regional picture?

“There has been an Asian art boom from Hong Kong, China, Singapore and Malaysia. That has been the biggest single influx of the very rich looking for something to do with their money. The Chinese are also buying back Chinese art that has previously moved westward,” explains Axa Art underwriting director Nick Brett.

The art landscape also extends to India, the Middle East, Europe and the US, with no particular signs of cooling off in the near future, notes Clare Pardy, Ecclesiastical’s head of fine art. She comments that art investment is not solely the preserve of the Chinese, with other parts of the world also continuing to purchase with vigour.

For example, White Oak Underwriting Agency reports strong growth in the upper end of the market, and Patricia Watling, its jewellery and fine arts underwriter, says the European fine art market is strong, with very high sums being paid for some artists.” [German visual artist, Gerhard] Richter is now among the world’s most highly paid living artists, and it is vitally important for collectors to have watertight insurance for such work, the value of which appears to be rising all the time,” she adds.

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Indeed, this growth means opportunities for fine art insurers, including in underinsured countries such as Sweden, where insurers have been canvassing prospects. Valdemar Matheson, Axa Art’s agent for the Nordic region, reports: “The majority of Swedish private and corporate clients we come across are either uninsured, underinsured or insured on vastly inferior cover.”

But the picture is changing, as Ingallil Iselius, senior underwriter of art and collectables in Markel’s Swedish office, observes. “Until 2012 there was an increasing level of underinsured fine art, but in 2014 [there is] increasing interest from collectors to purchase insurance. It’s worth noting that, in Sweden, private collectors have always been able to insure their art through a household policy for up to SEK 5m (£427 300), paying SEK 10m to SEK 15m for high-net-worth clients.”

The approach to buying contemporary artwork is altering, primarily because young people are more comfortable using the online medium, while some of them may feel inadequate in galleries or art fairs.

Hiscox’s 2014 Online Art Trade Report noted the discovery that the art world is often perceived as exclusive and inaccessible to new buyers, and 39% of respondents found the process of buying from an online art sales platform less intimidating than from a physical gallery or auction house.

Strong online appetite
The appetite for buying online was strong among collectors, with 71% of respondents having done so and 26% spending more than £50 000. Andrew Mitchell, Fine Art Underwriter at Hiscox, comments: “It is more pronounced in the younger market, and those who have never bought art before have a greater propensity to buy online.”

However, Pardy doesn’t believe serious collectors buy online. “They will, and always have, relied on brokers as intermediaries. Also, the limits of indemnity offered online are restrictive.”

Brushing aside the attractions of online buying, are there downsides? If you aren’t knowledgeable about the art or artists you are considering buying, it is best to purchase from established galleries or dealers, says Alan Bamberger, a consultant for Art Business.

Provenance issues around ownership history are not necessarily worse in online sales, since the buyer is relying on someone else’s due diligence as well as their own, comments Brett. However, he warns: “You can establish provenance, but verifying authenticity is more difficult.”

In this vein, imitation may be the greatest form of flattery, but opportunistic forgers brushing up their copying skills are not doing it in the name of art. For example, in April, the New York Times reported on dealer Vincent Lopreto’s admission to counterfeiting dozens of Damien Hirst works to sell on eBay, providing fake documents of authenticity.

However, most commentators observe that fakes and forgeries in the art world are nothing new – Mitchell is cautious about saying online sales are riskier, observing that the pool of data is too small to say whether there is a trend of more fakes online.

Contemporary art is easier to copy, says Markel’s UK technical lines manager of art and collectables, Richard Norman – and the technology is there to facilitate it. “David Hockney is doing work on an iPad, so it can be copied if it is produced on a computer,” he explains.

Old Masters are more difficult to forge, because forensics and technology can spot different paint pigments, comments Guerrini-Maraldi, who says they are a better risk for insurers.

However, Norman notes that an Old Master can be copied on a 3D printer, and press reports that demand for pictures by artists like Vincent Van Gogh prompted the Van Gogh Museum to develop a 3D scanning and printing process that reproduces his works – including frames, canvases and brush strokes – demonstrate how advanced this technology has become.

Although it is thought unlikely copies like this would fool an expert, it does raise the question of what proof insurers require before going on risk, since a broad-brush approach could prove risky.

Brett says Axa Art tends to ask for valuations from major auction houses, independent dealers or valuers. “We are perfectly prepared to accept valuations from dealers who have sold items to our clients, provided they are reasonable, and in certain cases we are prepared to accept our client’s own valuations if we are well acquainted with them and their collection, or if they are particular experts in their field.”

Meanwhile, Mark Coffey, private clients managing director at Oak Underwriting, says Oak keeps it simple, weeding the fraudulent element out by appraising valuables and underwriting the risk properly.

However, Mitchell identifies damage in transit as a bigger concern than fraud, along with volatility of value and pricing. There are certainly risks in the handling, packing, storage and transportation of artwork, and Filippo Guerrini-Maraldi, executive director and head of fine art at Lloyd’s RK Harrison, remarks that buying by that route “encourages shipping in the post where a lot of damage is done”. “People insure parcelling, but art can be badly handled and go astray,” he adds.

As for the insurance itself, fine art policies typically cover loss, theft and damage, and Mitchell says insurance can even be bought against the risk of being sold fakes and forgeries – although ‘caveat emptor’ would normally apply, so buyers need to be diligent. Hiscox, Markel and Axa also offer defective-title cover against the risks of the vendor not having had legal title to sell.

The lifespan of art can be affected by time and the nature of the materials used, and this raises insurance issues. If paint cracks, fades or falls off, that is unlikely to be covered, because it is a gradual deterioration as opposed to a sudden accidental scrape or tear.

Contemporary works
Contemporary art is more difficult to insure “because one is generally looking at something that will not last 300 years”, notes Mitchell, while Norman posits the case of a neon-bulb sculpture: “Once a bulb goes, is that an insurance claim or maintenance? In art there can be an argument that once a bulb has blown there is a total loss.”

Add to this the quixotic nature of some artists and insurers of contemporary works can be in for a headache in an art damage claim. Guerrini-Maraldi explains: “It can be a nightmare if there is partial damage to a painting that can be restored but the artist refuses to do it because they don’t recognise their work or have moved into a different phase. It is not a total loss, but the piece is not worth as much, so there is depreciation.”

And it’s not just artists insurers need to be aware of. Dealers can be in the frame if they sell a fake or forgery, mis-value a painting or provide wrongful attribution. RK Harrison launched a professional indemnity policy last year that provides cover for the legal costs and expenses of defending a claim, as well as compensation to clients, but Guerrini-Maraldi says take-up has been slow: “[Dealers] aren’t required to have such cover in an unregulated market, and the cover is not cheap.”

As fine art prices rise, insured values need to be reviewed so owners are fully covered and get the right premium. Coffey says: “We would normally ask brokers to recommend clients to get a new valuation at three-year intervals. If the customer is not adequately covered, any claim would be subject to average, and insurers have to build some level of contingency, and need proper premiums.”

It’s also worth remembering that art can be subject to fashions, and can even be affected by whether its creator is living or dead. Brett observes death can often trigger a reassessment of an artist who might have slipped from view. He adds: “With regard to the value of works by recently deceased artists suddenly increasing, the primary reason is supply and demand. Dead artists produce no more original work, although [their estates] can continue to produce prints and casts.”

Mitchell points out that because an artist’s death can result in the value of their work increasing, it should trigger a revaluation for insurance purposes.

As for emerging risks and potential issues, Pardy flags up concern about Chinese art and jewellery forgeries. With this market expanding relatively quickly, it will inevitably bring issues in the future. “The major auction houses should be able to deal with these problems, but other trade markets possibly not so well,” she says.

Painting a picture of how insurance issues differ around the world is not easy, and new art markets might draw in new issues for underwriters unfamiliar with risk profiles of new collectors.

But commentators say insurance issues in the sector are broadly the same, except for restrictions on trading in some countries necessitating the use of agents. Brett says each territory has slight quirks but there is no major diversion, and all wordings are pretty similar, adding: “Given the areas of cover, you can’t go too far off piste.”

Art is rarely, if ever, stolen to order for private collectors. Theft to order is a popular scenario in fiction but, in reality, art theft is usually based on thieves noticing opportunities such as weaknesses in security procedures and taking advantage of them. There is also perhaps an element of bravado to it for the criminals but, quite simply, there are no private collectors with large-scale illicit galleries hidden away in secret.

This article was published in the 24/31 July edition of Post magazine.