Cologne Fine Art Insurance Talks

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KKVG 2016

Depreciation in value - reality or fiction, curse or blessing?

 • Rapid price increases aggravate the determination of depreciation in value

 • An objective standard of evaluation is missing - but is not demanded either

• Art insurers in the USA circumvent the problem by simply refunding the full value and taking over the damaged artwork in return

 

Cologne, April 18, 2016

The Art Cologne is one of the leading international contemporary art fairs and thus an important indicator of the development of prices. In its 50th anniversary year 218 galleries and art dealers from all over the world exhibited until this weekend in Cologne. Silence is maintained about the height of the traded values as usual. However, the trend seems to be unbowed: Since 1998, the prices for contemporary art have more than doubled. These values are not always traceable. This makes the issue so tricky for insurance professionals. Nevertheless, they prefer not to openly advocate an objective assessment - even in matters of depreciation in value after a loss.

How much is a work of art worth after a damage and after its restoration? Who assesses the depreciation in value? Which interests stand behind that? These all are questions which the actors like to go out of the way. Zilkens Fine Art Insurance Broker GmbH has put these "hot potatoes" on the agenda of its Fifth Fine Art Insurance Talk in the framework of the Art Cologne. A large panel of renowned experts answered in front of 170 invited guests from Germany, Austria and Switzerland. The discussion made clear how different the respective interests actually are.

Insurance markets do not reflect performance

The art insurance books a premium of 1.7 billion US dollars volume worldwide. In contrast, Swiss bankers estimate the global artistic assets to almost ten trillion dollars. And the prospect of high returns attracts investors magically. As long as the interest level on the capital market remains as low as it is, huge sums continue to flow into the art market unabashed, boosting the prices. At the same time art and its determination of value remain highly emotional and subjective.

The heated growth is not reflected in the German insurance market. On the contrary: The off galloping prices are causing the insurance industry quite a headache. Premium income stagnates here already since 2010 at around 130 million euros - a generous estimate. How does this come? "The competition has become so fierce that the average premium now is cheaper than ten years ago" said organizer Dr. Stephan Zilkens, managing partner of the same Cologne art insurance broker. In addition, the exhibition sector notes an abrasion. At extremely high sums the contributions have plummeted by about 40 percent since 2010. "The market does not permit increase in premiums" confirms Peter Meili, Senior Underwriter of XL insurer Catlin.

Insurers seem to treat damages similar customer-friendly. "Insurances regulate the total loss rather as to engage in a long-standing procedure," Kristian Jarmuschek summarizes his observations. He is gallery owner and CEO of the Bundesverband Deutscher Galerien und Kunsthändler e.V. (Federal Association of German galleries and art dealers). Abroad, the balance of power is somewhat different. In the USA, for example, insurers reimburse the total loss - but in return have the right to take over the damaged artwork from an impairment of 30 per cent. So they avoid expensive processes and can achieve recovery on top of that.

US regulatory model for the German market?

The actors in this country don’t want to know anything about such hardball. "Museums would not agree with that" replies registrar Weber by the Kunstmuseum in Bonn, "there would be no more lending". And art legal expert Yasmin Mahmoudi doubts that such a 30-percent rule in Germany would ever legally possible. "I see no need for a change," says Dirk Heinrich, Managing Director of Axa Art Germany. "In 80 percent of the cases we quickly find a solution and in the remaining cases, we agree after some time by mutual agreement." Apparently there are few intercessors, like art collector and restorer Sebastian Jacobi: "I am excited about the American model". He is less excited about the trend towards perfection of art. For him patina belongs to the old art. For others the question of impairment already occurs here.

"In every second claim depreciation in value is an issue" says registrar Weber. Art dealer Thole Rotermund, board member of the Bundesverband Deutscher Galerien und Kunsthändler e.V., confirms that it is a big problem for art dealers. That was not an issue in the past, knows Brigitta Werner, founding member of the Verband unabhängiger Sachverständiger (Association of Independent art experts). This has changed only in the course of the market development: "It is simply more money on the move". Jacobi observes that in the settlement of damages it is actually always about pocketing as much money as possible. But totally exaggerated demands come probably only from inexperienced collectors. In this respect the professionalization of the market poses a regulative.

So many reasons speak for an objective benchmark, like in the manner of Schwacke-list for used cars or the dismemberment schedule for the accident insurance. But there is neither reasonable statistics nor mathematical formulas or literature. "In terms of depreciation in value we depend in experts in a high degree" says host Zilkens. After all, they are free from self-interest. This is less to expect from gallerists, artists and collectors and restorers sometimes miss the knowledge of the market. Incidentally the latter may afford even great work: The question of depreciation in value remains. Finally the buyers have to be informed. Thus the issue remains hanging on experts and insurers.

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