Remember when some Beanie Babies were fetching nearly $1 million a pop? Then they fizzled, and most are now selling for a quarter at yard sales.
Still, experts caution collectors not to ditch their seeming has-beens, as events or TV shows can propel items back into the limelight. CBS’ Big Bang Theory made comic book collecting cool again, and Star Wars memorabilia surged after Disney bought Lucasfilm last year.
Specialty insurance exists for many types of collections, backed by differing methods of authentication or “agreed value” coverage. Experts advise collectors on how to best protect items, when to restore damaged items — and when to just cut their losses.
And for those who have inherited a house full of knickknacks from their grandmother, experts recommend local experts over estate sales to spot — and sell — newly hot items.
Today’s valuables include vinyl records, rare books and pre- and post-WWII gun collections, said Orlando Morales, underwriting manager at American Collectors Insurance in Cherry Hill, N.J. Figurines, stamps, coins and sports memorabilia never go out of style.
The next hot items could be vintage Atari 2600, Nintendo and Sega consoles, but collectors should also hold on to their Christmas ornaments, Longaberger baskets and other faded items, Morales said.
“All you need is for media to put a spotlight on it or one gets sold in an auction house for a ton of money, and boom, it becomes a hot item,” he said.
American Collectors has a collectibles policy for many items, including Barbie dolls, G.I. Joe and Star Wars action figures, Coca-Cola advertising memorabilia and collector quilts. Rates range from $4 per $1,000 for some collections such as books and stamps, to $7.50 per $1,000 on fragile items like Hummel dolls and porcelain. The minimum annual policy premium is $65.
The insurer doesn’t require appraisals or certificates of authenticity to secure coverage on most items, but the company might require a bill of sale for higher-end items. Upfront underwriting is really the key to protecting against fraud.
“We’ve been doing this for a long time, so we know the telltale signs of possible fraud, such as overvalued collections, applicants who are new to the hobby, or the lack of any documentation,” Morales said. “Fortunately, this particular product performs very well from a loss standpoint, and we don’t see a lot of fraud.”
American Collectors recommends that collectors inventory and photograph items, and store those documents offsite in a bank vault or a relative’s house, to be accessed in the event of a loss.
The Operation Bullpen sting operation in 1999 by the Federal Bureau of Investigation and the Internal Revenue Service seized over $500,000 in cash and roughly $10 million in forged memorabilia, from 60 individuals and businesses across five states.
Baseball memorabilia is especially hot, said Keith McConnell, vice president, business development at MiniCo Insurance Agency LLC in Phoenix.
A Honus Wagner baseball card, for example, sold for $2.3 million and Mark McGwire’s 70th home run ball sold for $3 million.
MiniCo offers annual blanket coverage starting at $75 for a no-deductible, all-risk policy that also covers losses during transportation, accidental breakage and “mysterious disappearances,” McConnell said.
If there is a claim, the insurer works with the collector to determine the current value, typically relying on appraisers or purchase receipts. However, for older or unappraised collections, MiniCo may research recent transaction prices on the secondary market for similar items.
McConnell recommends appraisals for higher-priced items every three to five years, “as sometimes items such as fine art can double or triple in value within a year.”
Collectors should minimize handling of their items, as just touching with bare hands can lower their value, he said.
Put pictures or cards in hermetically sealed protective plastic cases to avoid creasing or wrinkling, and use tinted glass for display cases to keep direct sunlight from damaging items.
Storage room temperatures should not be too hot, cold or damp. Some collectors have alarms that indicate temperature changes.
Kenny Davis, co-owner of Worthridge Inc., an online auction and retail company in Kernersville, N.C., said that his company works with “well-respected companies” to authenticate sports memorabilia, as forgeries are on the rise — even after the 1999 Operation Bullpen sting operation by the Federal Bureau of Investigation and the Internal Revenue Service, which seized over $500,000 in cash and roughly $10 million in forged memorabilia, from 60 individuals and businesses across five states.
Worthridge hosted its first sports memorabilia online auction this summer. The offerings included San Antonio Spurs NBA Championship rings from 1999 and 2003, an unused ticket from Babe Ruth’s first World Series in 1915 and an oversized boxing glove signed by Muhammad Ali.
Some jewelry and stamp collections have appreciated more than 100 percent in the last several years, said Julie Sherlock, fine arts practice leader at ACE Private Risk Services in New York City. Certain genres of art, such as Chinese, Eastern and contemporary art, have significantly appreciated, and in those cases collectors should reappraise even more frequently, “as records are being broken in auction houses.”
Such appreciation might catch collectors off guard. ACE recently conducted research that found many wealthy homeowners are under-insured for their personal property by an average of $415,000. The carrier reported that wealthy individuals tend to have a “blind spot” in managing their valuable collections.
ACE will schedule items for full cover in an “all perils policy” that does not have a deductible, and also has blanket coverage, Sherlock said. The insurer provides coverage for market value appreciation, and will pay the market value of an item just prior to loss up to 150 percent of the scheduled amount. ACE also provides coverage for similar items that have been newly acquired but not yet scheduled.
The insurer also offers risk management consulting, and recommends that artwork not be placed over fireplaces close to soot, smoke and other damaging debris, she said.
Mid-century furniture is especially hot right now, said Laura Murphy, eastern territory fine art and collectibles specialist at Chubb Personal Insurance in New York City. Sofas or chairs bought for $1,000 in the 1950s might be selling for more than $100,000 today, if they are true design pieces by a mid-century modern designer, such as Arne Jacobsen or George Nakashima.
“A lot of museums are also now collecting mid-century design, which really validates these pieces as artwork,” Murphy said.
Chubb provides valuable articles coverage with agreed value, but the insurer requires appraisals for fine and decorative art items valued over $250,000 and for jewelry valued over $100,000,
For certain items, such as jewelry with three or more carats of diamonds, appraisals may be needed every two to three years to keep up with market fluctuations, she said. For many collections such as stamps, wine or porcelain, Chubb offers blanket coverage.
Rick Drewry, collector car claims specialist at American Modern Insurance Group in Cincinnati, said his unit specializes in insuring collector cars and motorcycles, especially those made before the 1980s.
Some car values are exploding: an early 1970s Camaro Z28 that sold for $5,000 or $10,000 a decade ago, might be selling for more than $50,000 now.
Video: The original Batmobile from the 1960s TV show sold for $4.62 million in January 2013.
“We have weekend warriors who have one or two cars, mainly for fun, and many of their cars are not that high in value because of their condition or because they lack originality,” Drewry said. “Then we have investors who are collecting and maintaining cars as an investment. In fact, a lot of people started investing in cars when the stock market crashed.”
American Modern gives discounts for collections valued at over $250,000, as well as mileage discounts for driving less than 3,000 miles a year, and a larger discount for driving less than 1,000 miles.
When acquiring a collector vehicle, buyers should document that the car is either in its original state or has been restored back to its original specs, he said. Some older cars have build sheets under the rear seat that list the options that came with the car when it was built.
American Modern provides agreed value coverage, and when claims arise, determines book value using numerous sources, including auction houses and private sales. “Having the original engine, transmission and rear end, and having documentation like the build sheet makes a car a lot more valuable,” Drewry said. “If a person doesn’t have the original drivetrain, then that’s probably a 40- percent hit.”
The insurer recommends climate-controlled garages and for vehicles to be driven periodically.
If collections are damaged, insurers may pay third parties to restore items at a lesser value, said Tracy Bachtell, senior vice president, business development at Paul Davis Restoration Inc. in Jacksonville, Fla. Policyholders either keep the restored items and receive a check making up for the lesser value, or insurers pay them full value and then take ownership of the items for salvage. For items that may not be restorable, such as baseball cards recovered from a flood, insurers typically pay policyholders full value and salvage the items.
“The challenge to the property owner is proving what they had and their condition as the time of loss,” Bachtell said. “Appraisals, photographs, purchase receipts and videos are always a good idea.”
Terry Kovel of Kovels.com, a publisher of collection price guides and other collector information, said that people who inherit older furnishings may want to think twice about having an estate sale. They might have a hot item like mid- century furniture on their hands and not know it.
Other household items that are trendy include Hot Wheels and reverse-painted glass advertising signs, as the average sign is currently fetching $3,000 to $4,000.
“It’s better to get an expert who knows about specific items to advise on the value or sell themselves,” she said. “Find a local dealer who has been in business for a long time, rather than someone who sets up a show in a hotel, so you can find them six months later if there is a problem.”
E&S Going Strong
The state of the excess and surplus lines market is strong, as evidenced by the nearly 4,000 attendees, who networked their way through the annual convention of the National Association of Professional Surplus Lines Offices in Atlanta, from Sept. 15 to17.
“There’s a lot of optimism about the market and [the number of attendees] is a testament to the strength and vitality of surplus lines,” said Brady Kelley, executive director of the national organization, which focuses on networking and education for the surplus lines industry.
In fact, A.M. Best reported that surplus lines companies “have been extremely successful when compared with the overall property/casualty (P/C) industry.”
Surplus lines now account for about 13.7 percent of all commercial lines direct premiums written, up from 6.1 percent in 1993, according to a 20-year retrospective on U.S. surplus lines released by A.M. Best in September.
“In 2013, 22 of the top 25 surplus lines groups produced year-over-year growth in premium (as measured by direct premiums written) — a testament to what is likely a contraction in the standard market’s appetite for risk and a broad flow of business back into surplus lines,” according to the report.
“A lot of people are optimistic because the economy is still growing and when the economy is growing, it can make up for a lot of foolish decisions.” — Alan Jay Kaufman, chairman, president and CEO of Burns & Wilcox
But the sector is not without its challenges, specifically overcapacity in the market, according to Alan Jay Kaufman, chairman, president and CEO of Burns & Wilcox, international insurance brokers and underwriting managers.
“The market here is soft,” he said. “I think it’s soft in more areas than people want to talk about. … I would not say ‘doom and gloom.’ A lot of people are optimistic because the economy is still growing and when the economy is growing, it can make up for a lot of foolish decisions.”
E&S underwriting, said Stanley Galanski, president and CEO of The Navigators Group Inc., is “the essence of underwriting. There are no rules. There are no rates. There are no mandatory forms. In E&S, it’s all about your expertise and your judgment.”
To be successful, companies must have underwriters who can bring a “high level of expertise to the risk” and deep relationships with wholesale brokers, he said.
It also requires constant innovation, said Mario Vitale, CEO, Aspen Insurance. “Specialty E&S is tailored for high risk situations. It allows underwriters skilled in these special niches to apply their tools of the trade to help the insured, to help the brokers, with creative risk-based solutions.”
He said Aspen would be releasing some new products in 2015, and noted that there were numerous emerging risks to occupy carriers, including the impact of climate change, nanotechnology, fracking, drones, bitcoin and wearables.
“I believe all of these trends and all of these emerging technologies will bring risks and will bring demands for solutions and underwriter innovations to find them,” he said.
“It’s unbelievable how that [cyber] market is developing so quickly.” — James Drinkwater, president of AmWINS Brokerage
Jeremy Johnson, president and CEO of Lexington Insurance Co., the E&S division of AIG, said in a recent A.M. Best webinar that his organization is designing products to deal with risks from drones, celebrity risk and cyber bullying, and also has “in the pipeline” products to address risks related to Uber and Airbnb.
“If we are not staying ahead of where our customers are going as an industry, we won’t be relevant,” he said.
Bruce Kessler, division president, ACE Westchester, which focuses on the wholesale distribution of excess and surplus lines products, said, “You have to be strategic as an E&S company as to where to grow and where to shrink.”
But, he also noted, the “ease of entry” into the space, which he sees as “healthy and robust.”
“It’s easy for new capacity to come in,” he said, and that has put some pressure on property/catastrophe rates. That softening is “probably the biggest talk of the conference.”
Overcapacity offers one of the industry’s biggest challenges, Kaufman said. “Standard lines companies are aggressively looking to write the gray areas that may at one time have been E&S and now it’s back to standard lines. … You will see companies taking greater risks than they normally have in the past — risks that they don’t understand.”
Jeff Saunders, president of Navigators Specialty, said, “The capital in the industry is looking for a better return than from a Treasury note.”
While the influx of capital has reduced rates — significantly on property and less significantly elsewhere — the company has to compete “no matter what the rate environment is,” he said. That requires E&S insurers to be “agile while rotating in and out of sectors.”
E&S strategies are also increasingly being influenced by predictive modeling, ACE Westchester’s Kessler said. He also noted that he is seeing greater interest in product recall and cyber coverage.
Other experts at the NAPSLO conference agreed that cyber policies were finally taking off.
“It’s unbelievable how that market is developing so quickly,” said James Drinkwater, president of AmWINS Brokerage and one of NAPSLO’s Wholesale Broker directors, during a panel discussion at the conference.
“Companies are getting hit [with cyber attacks] constantly,” Vitale said. “As long as there are more hackers, they will get more sophisticated and we will have to do a better job of staying on top of emerging trends.”
The opportunities in E&S outweigh the challenges, said Peter Clauson, senior vice president, excess casualty, Liberty International Underwriters.
When LIU excess casualty was established in 1999, he said, the E&S business was about a $10 billion market. “Fifteen years later, we are at $37 billion, and there’s a lot of talk that in five years, we could be a $50 billion market.
“That’s a lot of growth and opportunity,” he said.
A Renaissance In U.S. Energy
America’s energy resurgence is one of the biggest economic game-changers in modern global history. Current technologies are extracting more oil and gas from shale, oil sands and beneath the ocean floor.
Domestic manufacturers once clamoring for more affordable fuels now have them. Breaking from its past role as a hungry energy importer, the U.S. is moving toward potentially becoming a major energy exporter.
“As the surge in domestic energy production becomes a game-changer, it’s time to change the game when it comes to both midstream and downstream energy risk management and risk transfer,” said Rob Rokicki, a New York-based senior vice president with Liberty International Underwriters (LIU) with 25 years of experience underwriting energy property risks around the globe.
Given the domino effect, whereby critical issues impact each other, today’s businesses and insurers can no longer look at challenges in isolation one issue at a time. A holistic, collaborative and integrated approach to minimizing risk and improving outcomes is called for instead.
Aging Infrastructure, Aging Personnel
The irony of the domestic energy surge is that just as the industry is poised to capitalize on the bonanza, its infrastructure is in serious need of improvement. Ten years ago, the domestic refining industry was declining, with much of the industry moving overseas. That decline was exacerbated by the Great Recession, meaning even less investment went into the domestic energy infrastructure, which is now facing a sudden upsurge in the volume of gas and oil it’s being called on to handle and process.
“We are in a renaissance for energy’s midstream and downstream business leading us to a critical point that no one predicted,” Rokicki said. “Plants that were once stranded assets have become diamonds based on their location. Plus, there was not a lot of new talent coming into the industry during that fallow period.”
In fact, according to a 2014 Manpower Inc. study, an aging workforce along with a lack of new talent and skills coming in is one of the largest threats facing the energy sector today. Other estimates show that during the next decade, approximately 50 percent of those working in the energy industry will be retiring. “So risk managers can now add concerns about an aging workforce to concerns about the aging infrastructure,” he said.
Increasing Frequency of Severity
Current financial factors have also contributed to a marked increase in frequency of severity losses in both the midstream and downstream energy sector. The costs associated with upgrades, debottlenecking and replacement of equipment, have increased significantly,” Rokicki said. For example, a small loss 10 years ago in the $1 million to $5 million ranges, is now increasing rapidly and could readily develop into a $20 million to $30 million loss.
Man-made disasters, such as fires and explosions that are linked to aging infrastructure and the decrease in experienced staff due to the aging workforce, play a big part. The location of energy midstream and downstream facilities has added to the underwriting risk.
“When you look at energy plants, they tend to be located around rivers, near ports, or near a harbor. These assets are susceptible to flood and storm surge exposure from a natural catastrophe standpoint. We are seeing greater concentrations of assets located in areas that are highly exposed to natural catastrophe perils,” Rokicki explained.
“A hurricane thirty years ago would affect fewer installations then a storm does today. This increases aggregation and the magnitude for potential loss.”
On its own, the domestic energy bonanza presents complex risk management challenges.
However, gradual changes to insurance coverage for both midstream and downstream energy have complicated the situation further. Broadening coverage over the decades by downstream energy carriers has led to greater uncertainty in adjusting claims.
A combination of the downturn in domestic energy production, the recession and soft insurance market cycles meant greatly increased competition from carriers and resulted in the writing of untested policy language.
In effect, the industry went from an environment of tested policy language and structure to vague and ambiguous policy language.
Keep in mind that no one carrier has the capacity to underwrite a $3 billion oil refinery. Each insurance program has many carriers that subscribe and share the risk, with each carrier potentially participating on differential terms.
“Achieving clarity in the policy language is getting very complicated and potentially detrimental,” Rokicki said.
Back to Basics
Has the time come for a reset?
Rokicki proposes getting back to basics with both midstream and downstream energy risk management and risk transfer.
He recommends that the insured, the broker, and the carrier’s underwriter, engineer and claims executive sit down and make sure they are all on the same page about coverage terms and conditions.
It’s something the industry used to do and got away from, but needs to get back to.
“Having a claims person involved with policy wording before a loss is of the utmost importance,” Rokicki said, “because that claims executive can best explain to the insured what they can expect from policy coverage prior to any loss, eliminating the frustration of interpreting today’s policy wording.”
As well, having an engineer and underwriter working on the team with dual accountability and responsibility can be invaluable, often leading to innovative coverage solutions for clients as a result of close collaboration.
According to Rokicki, the best time to have this collaborative discussion is at the mid-point in a policy year. For a property policy that runs from July 1 through June 30, for example, the meeting should happen in December or January. If underwriters try to discuss policy-wording concerns during the renewal period on their own, the process tends to get overshadowed by the negotiations centered around premiums.
After a loss occurs is not the best time to find out everyone was thinking differently about the coverage,” he said.
Changes in both the energy and insurance markets require a new approach to minimizing risk. A more holistic, less siloed approach is called for in today’s climate. Carriers need to conduct more complex analysis across multiple measures and have in-depth conversations with brokers and insureds to create a better understanding and collectively develop the best solutions. LIU’s integrated business approach utilizing underwriters, engineers and claims executives provides a solid platform for realizing success in this new and ever-changing energy environment.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.