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By STEVE YAHN, who has been a reporter and editor for national publications.

With Edvard Munch's painting "The Scream," selling at auction for a record $120 million, it's worth asking what collectors need to consider when buying insurance coverage to protect such works of art.

"When we do our analysis of a collection we're looking for key pieces about the security, the valuation, the structure and about the composition of the collection to make sure that we feel it's in sound shape," said Gristina.

It is critical that a valuation clause be put in place to appropriately address a client's collection, he said, particularly in light of a recent survey showing that more high net worth individuals holding fine art than five years ago.

The survey of 2,000 people with investable assets of $1.5 million found that 49 percent of respondents owned fine art, up 8 percent from 2007. Nearly every category of "treasure assets" -- fine art and antiques -- drew new buyers in the past five years, according to the survey.

The survey was conducted by Ledbury on behalf of Barclays Wealth.

The world's millionaires are devoting an average of 9.6 percent of their financial assets to nonfinancial assets like art and collectibles.

Gristina also said that questions a collector should ask their insurance agent include, 'Do I need to put into place a transit clause?' and, 'Do I need to have an appropriate storage facility clause, especially if it's an off-site facility?'

For an individual, where the value of a piece of art may be more important in terms of their overall assets held, the collector wants to know if it's insured for the appraised value, and perhaps add in some cushion for inflation, Gristina said.

"And that also works the same for a corporation when it's looking at its collection and they say, 'OK, what's my balance sheet obligation on this art and is my insurance policy protecting the assets of the company," Gristina said.

It's easier to change the physical environment of a work of art, or something about the way it's being handed than to handle a complex financial transaction, he said.

When it comes to storage and transportation, Gristina said he has found that most people are surprised at how reasonable prices for those services are. "The best of storage and transportation firms can provide solutions that are very cost effective," he said.

When it comes to security, most experts estimate a good, basic alarm system can cost $1.50 for every square foot for art in need of protection.

Experts estimate that the cost of insurance on $1 million in value in art, antiques and rugs to be in the range of $600 to $1,800. "That's a blip on the screen of your art and collectibles maintenance costs," Gristina said. "The value you're getting out of the insurance relative to the costs is very good."

But collectors, especially new ones, tend to overlook some protections, such as insuring against reference materials associated with a piece of art.

"In a disaster, that might be damaged as well, and most collectors would want to have access to the literature, the documents, the books, the journals that tell them what's in their collection," he said.

Collectors need to think of art as an object that is borrowed for the pleasure of the owner. "Really you don't own art," he said. "You're sort of borrowing it from the future."

The owner, or rather the renter or custodian, has a duty to not only maintain the art but also maintain the history of the object so it can be passed on, enjoyed and preserved by the next generation and the generation after that.

July 17, 2012

Copyright 2012© LRP Publications