Valuation & Insurance – An investment not an expense More and more people are turning to non-financial assets as a home for their wealth in times of continuing global economic uncertainty. The 2013 Deloitte and ArtTactic Art & Finance Report estimates that there is something in the region of US$4 trillion held in art assets globally and a Barclay Wealth Insight Report Profit or Pleasure finds wealthy individuals holding an average of 9.6% of their total net worth in such assets. The average annual return of the Mei Moses All Art Index was 13.83% over the period 2007 to 2012, giving a return far greater than the S&P 500 or the Dow Jones industrial average index.
The Barclay Wealth Insight Report also found that the proportion of wealth held in “treasure assets”, such as jewellery, art and antiques, as an important component of wealth varies widely between countries, but topping the list came respondents from the U.A.E., with 18% of their wealth held in such assets, with Saudi Arabia a close second at 17%. These findings hold even when gold, a popular asset class in the Middle East is excluded.
In such circumstances, the point of Insurance is well made by Gary Raphael of ACE Private Risk Services, one of the largest global insurance business:
“Wealthy families should not be looking at their insurance policies as an expense, but as an investment.”
We would argue too that current and regular valuations are equally important as part of responsible asset management where values are changing in a global market in trading art currently estimated at 43 billion euros. This argument strikes those of us uninvolved in the fine arts business as a “no-brainer”, but we are constantly astonished that clients, who will insist on rigorous management of their financial assets, often take a much more relaxed view about alternative asset classes such as art, antiques, jewellery, wine, etc. This laissez faire approach to chattel assets is often reflected in their insurance either because the insurance is inaccurate, out of date or non-existent!
While recent market surveys show that, nearly 40 percent of those surveyed did not have all of their valuable items insured against loss, the picture in the Gulf region is in an altogether different league, with statistics suggesting that only a fraction of the expatriate community has home insurance policies. As EXPATMONEY has noted, of the 420,000 family units in Dubai the figure is as low as 3%. Bearing in mind that the earnings of many of the expat community will place them in the High Networth Category, this quite astonishingly low figure contrasts sharply with the findings of a recent analysis of valuations taken undertaken by Pall Mall Art Advisors. We generally found a much more responsible approach to insurance by people in the higher net worth bracket with our sample finding no over insurance of contents within the £350k and over band, and a lower rate of under insurance than in other bands.
The diamond ear studs (each weighing 2.45cts) and the Rolex watch with its platinum bracelet, which we illustrate, make the point about keeping up with values. The natural yellow diamond (6.20cts) and colourless diamond ring, reflecting the huge rise in the popularity of coloured diamonds, makes the point even more effectively. In 2009 the studs would have been valued for insurance at £44,000, the watch for £31,000, and the ring for £29,000. Currently we would value them at £68,000, £54,000 and £95,000 respectively.
Writing in the New York Times (3 October 2013), Conrad de Aenlle observed “As Art prices rise, the threat that collectors face in theft, fraud and physical damage tends to rise too.” As he goes on to explain, this is not simply because higher values mean more loss, but that there is also a greater incentive for criminals to steal, swindle or commit fraud. It is a sobering thought that after drug and arms trafficking, the trafficking of stolen art ranks third on the register of the world’s criminal activities.
Where insurance exists, the stark reality is that overvalued items result in higher premiums and disputed claims and undervalued items in financial loss once the loss adjustor has arrived on the scene Of course, the absence of a detailed valuation in the first place means you are at an even more serious disadvantage when negotiating with the loss adjuster.
Jewellery remains the most popular “treasure asset” - perhaps unsurprising with the rise in the number of female high net worth individuals and where, according to research from the World Bank, women now account for 80% of purchasing decisions. Pall Mall Art Advisors will be in Dubai during March offering valuations of jewellery. Fees are 1200 AED an hour (minimum 2 hours) for one of our qualified specialists to examine between 7-10 pieces an hour either in the client’s home or at another agreed location. To discus or book a valuation please contact Rachel Doerr on +44 (0)845 882 2794 or firstname.lastname@example.org Further information about Pall Mall Artadvisors on www.pallmallartadvisors.com