The science of art

The accurate assessment of art collections is invaluable to insurers

In the art world, beauty may well be in the eye of the beholder, but a piece’s financial worth is very much in the hands of a specialist group of valuers. Taste will vary from collector to collector, but valuing art is a more exact science.

This process is vital for the insurance industry, which relies on valuers’ prices being correct in order to set premiums at the right level. “We have very good relationships with the insurance companies and their brokers,” says Stephen Meadowcroft, Director of Valuation Services at valuation and fine art consultant Gurr Johns. “We are able to go into our database, look for items that are underinsured and contact our clients with a recommendation.”

Calculating cover
Firstly, valuers need to know whether the piece was bought at auction – which are traditionally wholesale – or from a dealer, where art is usually sold at a marked-up retail price. With that difference in mind, it is important to know where the piece was purchased, so that an accurate replacement value can be determined.

“Rarity, condition, damage and restoration are all factors that affect the final valuation of an item to a greater or lesser degree,” says Andrew Cheney, Senior Risk and Evaluation Advisor at Hiscox, who visits hundreds of clients every year.

The artist is obviously important, as is the date the work was completed – certain periods of an artist’s career will typically fetch higher prices than others. Damaged works are traded at a discount and outsized paintings tend to cost less than standard-sized ones.

Art is susceptible to the vagaries of fashion, though. For example, the current high price of Chinese art should be reflected in valuations, as this will be the amount needed to pay for an appropriate replacement. However, it is important for clients to remember to revalue expensive items regularly to avoid overinsurance if the market dips.

“The most difficult valuing scenarios tend to arise with art that’s been inherited, or in the family for decades,” Andrew says. “I’ve known expensive items to become just accumulated decoration in a family home, with the owner remaining blissfully unaware of its potential value.

“I remember, back in the 1980s, Sotheby’s discovering a porcelain Chinese bowl being used to feed the family dog! It subesequently sold for about £40,000, and I’m sure that would fetch much more in today’s market.”

On top of the market
Stephen’s company, Gurr Johns, has introduced an annual updating service that reassesses clients’ art every 12 months. “Most insurance companies insist upon a revaluation every three to five years,” he says, “but the market is ever changing and our service provides much more frequent updates.”

This is potentially critical. If, for example, there were a sudden spike in art prices and the value of the asset exceeded the sum insured, the client would lose out on the appreciation in the event of a claim. This can of course work in reverse, as fashion often dictates the market; in such cases, the client ends up paying excessive premiums.

That revaluations can work in both directions is important advice to keep in mind, as some clients may be reluctant to update their appraisals from fear of higher insurance costs. “If a client wishes to insure at a lower figure, this is something that has to be agreed with insurers and noted on the valuation document,” Stephen says. “More often, however, knowing that their collections are kept insured at realistic levels provides peace of mind from year to year, even as prices fluctuate.”

The past decade has seen some sectors in the art world increase in value dramatically, while others have decreased or stayed the same. “Georgian furniture, for example, has barely changed in value, whereas the big thing at the moment is Chinese art,” Stephen says. “Another trend is that, in the current climate, high-quality pieces increase in value far more quickly than something that’s more run of the mill. Even in a financial downturn, there are still people making money in art.”