O cover, where art thou?

Three decades after his death, Pablo Picasso is still topping the table of money-earners in the art world. In 2005, his paintings sold for $153,174,166 (£82,227,200), nearly £37.5 million ahead of his nearest rival, Andy Warhol. If you think that’s impressive, the year earlier his Garçon à la Pipe sold at Sotheby’s in New York for a cool £50 million.

The Spaniard’s paintings have helped the international art market perform like never before. According to artprice, a leading provider in art market information, turnover for fine art sales in 2005 broke through the £2bn barrier, growing by £215,000 despite a stable number of lots. Incredibly, no fewer than 477 went for more than a million dollars, compared with 393 in 2004.

With these kinds of figures, it’s unsurprising that art has become the investment of choice for those wanting to diversify their portfolios. Victoria Beckham, Sir Elton John and new James Bond star Daniel Craig have all expressed their willingness to part with millions for a slice of art history, although the bulk of the market is more attainable than ever, with 56 per cent of lots in 2005 going for less than £1,100.

“There’s a lot of cash around at the moment, which means any alternative investment is quite attractive,” says Robert Read, Fine Art Underwriter for Hiscox. “Art has always been seen as a trophy – if you make a lot of money, you want a nice art collection, along with the yacht and everything else. It’s something people aspire to.”

Budding Saatchis
Research commissioned by the Affordable Art Fair found that a third of the British public own a piece of original art and the majority of those who don’t would like to. While these figures support Robert’s assertion that art is aspirational as well as inspirational, he says buying art is just the first step to securing a prized collection. “It forms part of peoples’ wealth, so investors may want to protect that asset,” he says. “Insurance is a sensible provision to take, in the same way it would be inconceivable not to insure your house.”

With 17 years’ underwriting experience, Robert knows a thing or two about the risks of insufficient cover, yet sadly some investors are willing to gamble with their assets. A Hiscox survey of 351 visitors to the British Antique Dealers Association Art & Antiques Fair in 2004 revealed that 80 per cent didn’t have adequate art and antiques cover and 30 per cent had never sought a valuation, exposing them to significant financial loss if their pieces were damaged or stolen.

“They could find themselves greatly underinsured, which means if they had a painting worth £1 million but it was only insured for £100,000, they would be £900,000 worse off because the painting wasn’t properly valued,” Robert warns. His advice is clear. Art should be re-evaluated on a regular basis so that its contemporary value, rather than its historical worth, is secured.

Based on typical rates of appreciation, this process should be carried out every three to five years by third parties such as Sotheby’s or Christies, who typically conduct evaluations on site rather than removing items for assessment. Causing minimum disruption, this process is as much about gaining peace of mind as it is about protecting an investment.

If brokers find their clients baulk at the perceived time and money involved in revaluation, there is a way to make their lives easier. Hiscox has devised a policy tool to track the value of homeowners’ belongings. The Hiscox Art Market Research Index correlates the value of individual collections so that investors can gauge their value against prices at auction and art dealerships.

As Robert explains, the system enables policyholders to keep track of their art’s financial performance on an annual basis: “We recognise that investors are unable to get their collections revalued every year, so we devised an art index to help guard against underinsurance as it provides an approximate rise each year.”

With art prices on the up, brokers would do well to remind their clients that properly insuring their treasures is the prudent thing to do. “If you had a pile of cash, you wouldn’t leave it on the street; you would put it in a safe,” Robert says. “If you’ve got an art collection, you’d want to insure it regularly to protect it. You’re protecting your financial asset for you, your family and whoever you pass it on to.

A 30-second beginner's guide to collecting art

The keys to art collecting and investing are passion, patience and hard work. Information is vital. Look at everything you can. Plug into the buzz. Go to art events, openings and school shows. Read widely and talk to gallery owners – they are the market makers. If you’re collecting contemporary artists, talk to the artists themselves. Who is collecting their work? Where are they exhibiting?

When you’re starting out, find people whose opinion you trust. Then cultivate your own eye, learn to spot quality and trust your own judgement. This can take time. Realise that you will make mistakes, and that is part of the education. Don’t dabble, be systematic and focus – find what you’re interested in and work on that. Always buy what you like; if it doesn’t make money, you can still keep and enjoy it. Beware of fashion, in both buying and selling. Art can be painfully illiquid, so be patient. Finally, quality is what matters – always.

To learn more about the Hiscox Art Market Research Index, contact your Hiscox underwriter

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