Insurance reflects fear of art attack
Since the Sept. 11 attacks in New York and Washington, most overseas lenders of fine art have required American museums to insure the artwork against terrorism and war for exhibitions in the United States.
As a result, insurance premiums in the past year have skyrocketed — museum officials say the increase has ranged from 100 percent to 500 percent. And they could stay high despite the passage last month of a new law promising federal financial backup to insurance companies in the event of another terrorist attack.
This new emphasis on insurance against terrorism has left many museum officials, including those at the N.C. Museum of Art, worried that exhibitions could become too costly to stage.
The insurance industry pivots on prediction: Rates are set by modeling, or forecasting, the risk involved. And terrorism, once such a remote possibility that most companies automatically included coverage for it, is now considered a wild card.
“It’s really hard to price this risk,” said Jennifer Gibson, director of federal affairs for the National Association of Mutual Insurance Companies. “Terrorism is not like a natural disaster. You can’t model it. You can’t predict it.”
The N.C. Museum of Art is covered by a master fine art policy by Huntington T. Block, a fine arts insurer. This policy provides coverage for all the art and cultural property owned by the state. The museum’s registrar, Carrie Hedrick, says she expects a hefty increase in the terrorism insurance rate of the policy next year, when the policy is renegotiated.
But Hedrick has already had one experience that hints at the changed times.
No insurance, no art
Nine months ago, Hedrick was making arrangements to borrow several works from Europe as part of “Art in the Age of Rubens and Rembrandt,” the museum’s current exhibition on the 17th-century masters of Dutch and Flemish painting. The Museum of Fine Arts in Budapest, Hungary, would not lend two paintings by exhibition headliner Jan Miense Molenaer unless Hedrick agreed to pay $11,400 in insurance costs to cover all risks — including terrorism and war risk during sea or air transport. That amount was about a quarter of the entire insurance cost for the rest of the 41 borrowed works.
She said she had to buy the extra insurance overseas because no one in the U.S. and few companies overseas sell war risk coverage separately.
“It was the first time I had to buy it,” said Hedrick, who has worked in the registrar’s office for more than 20 years. “I said, ’Who could ever think there would be a war or terrorism here in Raleigh, North Carolina?’ ”
Insurance policies for fine arts institutions vary, but traditionally they have carried language about both terrorism and war risk coverage, which insures art in case it is destroyed or stolen during a war. War risk coverage is usually considered for artwork while it is in transit to the United States. But after last year’s attacks, some overseas lenders also want this insurance to protect art while it’s being shown in the United States, said Frances Francis, the registrar at the High Museum of Art in Atlanta.
Museum directors are concerned also that some overseas lenders won’t risk sending artwork to the United States at all, said Mimi Gaudieri, executive director of the Association of Art Museum Directors in New York.
Underpriced pre-9/11?
Insurance premiums were already rising before the 2001 terrorist attacks because insurers contended that policies were underpriced. And terrorism coverage had been part of most standard insurance policies for art museums, landmarks such as the Golden Gate Bridge and the Empire State Building, and even public buildings.
After the attacks, reinsurers — companies that underwrite insurers — said they would not provide backup for terrorism insurance anymore, Gibson said. Insurers said they could not keep rates where they were because they lost $40 billion from their $210 billion reserves covering losses in the terrorist attacks.
Insurers exempted terrorism coverage on many policies. Museums had to buy this coverage separately with significantly higher rates.
Insurance brokers and officials say they welcome a bill signed by President Bush last month that would reimburse the industry as much as $100 billion in case of a future terrorist attack. The bill also forbids exemption for terrorism coverage. Insurance companies must make terrorism coverage available to policyholders.
The new law works like this: The government could aid the insurance industry on terrorism-related claims of more than $5 million, but insurance companies would pay deductibles to policyholders ranging from 7 percent to 15 percent of the commercial premiums they received the previous year. The federal government would then cover 90 percent of losses over the deductible, and the insurance companies would pay the remaining 10 percent. The program expires in 2006.
Still, Gibson expects rates to go up considerably, though this increase likely will vary by location. And museum officials aren’t convinced that the new law will help protect arts institutions. Edward H. Able Jr., president and CEO of the American Association of Museums, says the law requires no follow-up to check on whether insurance rates are indeed more affordable for policyholders.
“The insurance companies in effect have to police themselves,” Able said. “I don’t want to sound like a Doubting Thomas, but how is that supposed to help us?”
Help from the NEA
If private insurance is too steep, art museums can apply to the arts and artifacts indemnity program administered by the National Endowment for the Arts. Created by Congress in 1975 to minimize insurance costs for international exhibitions, the program has insured 630 exhibitions and saved organizers $134 million in insurance costs.
Next year, scores of institutions are using the program for exhibitions. They include “The Timeless Genius of Leonardo da Vinci, Draftsman” at New York’s Metropolitan Museum of Art in January, and “Paris in the Age of Impressionism: Masterworks from the Musee d’Orsay” at Atlanta’s High Museum, which started in November.
Since late 1999, the number of exhibitions and the dollar amount insured by the program has increased dramatically, according to NEA figures. In the fiscal year that ended Sept. 30, 2000, exhibitions at 19 institutions with a combined worth of $3.3 billion were covered. In fiscal 2002, that rose to 41 exhibitions with a total value of $9.8 billion.
The NEA program can cover no more than $5 billion at one time (in 2002, the exhibitions were staggered through the year, allowing the insurance to be spread out). So the program may need to turn away applicants if overloaded. For the first half of fiscal 2003, 17 exhibitions worth about $4.3 billion have been covered.
The N.C. Museum of Art used the NEA program to insure an Israeli archaeological exhibition in 1996, and Hedrick said the museum will consider the program in the future.
Hedrick is working to obtain several international loans for next year’s “Defying Gravity: Contemporary Art and Flight,” an ambitious exhibition of contemporary art focused on flying.
The show, intended to coincide with the centennial of the Wright Brothers’ pioneering flights, will feature 70 major works and is expected to cost more than $1 million to stage.
And in 2006, the museum is planning an exhibition of French impressionist Claude Monet’s work in Normandy — another ambitious show that will require several international loans.
“Who knows what the world will be like then?” Hedrick said. “I imagine the insurance is going to be tremendously expensive and through the roof. We can only hope for the best.”
