Collecting wealth

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In recent times, art collections have grown as a form of investment as many individuals are looking for ways to diversify their investment portfolios and are seeking assets that will appreciate in value over time. 

While smaller galleries took a knock during the COVID-19 lockdown, many of the bigger galleries went online and were thus able to access an international market. As a result, many private collectors grew their collections during this period.

According to the Knight Frank Wealth Report, Sotheby’s posted record sales of $7.3 billion (R124 billion) in 2021, while Christie’s recorded a five-year high of $7.1 billion (R120 billion). The All Art Index reveals that average sales were up 13% since 2020, with much of the new ground made up by a handful of big-ticket works.

Art, or any other form of collectible, is an asset that appreciates in value and needs to be protected. With this in mind, specialist risk insurers have created instruments to allow people to continue to protect the rare and valuable assets that form part of their investment portfolio.

However, investors should insure these assets and insure them with the right insurance provider and in the right way. For instance, on a general contents policy, these collectibles would be insured for replacement value, but on a unique item, how does one determine that value? 

Investors or art lovers?

While it is difficult to differentiate between buyers who are art lovers and those who buy art purely as an investment, there usually are multiple reasons why people would consider buying artworks. Typically, even though some may want to procure art as an investment, their selection is still driven by personal choice, preference and style.

So, whereas collectors often start out with a view of buying art as part of their investment portfolio, there is often a consideration of what they like and hence what they ultimately want to buy. Uniquely, even if art is seen as primarily an investment, it is also something that people end up looking at on a daily basis. 

Often, potential buyers will want to know which artist’s work will definitely appreciate in value and thus make a good investment, but that can never be guaranteed. The best advice is to buy art that they like. If it appreciates, then great. If not, at least they still have an asset that they enjoy looking at.

It is almost impossible to predict what will happen with an artist’s work, as it often depends on what is trendy and fashionable at the time. Take Nelson Makamo for example, who has done so well that his artworks now form part of Oprah Winfrey’s and Trevor Noah’s collections. You can imagine that the value of his work will skyrocket.

Avoiding fakes and forgeries

On the other hand, artists who have had a number of fakes or forgeries of their work show up on the market might scare away potential buyers, who may be afraid of ending up with a worthless fake instead of the real deal. This may well negatively affect the value of the artist’s work.

In some cases, provenance could impact the value of an artwork. For example, you could have two prints that are exactly the same, but one has previously been owned by Bill Gates. This one would be worth more because of its history. However, this kind of information is often difficult to access, as collectors as a whole are generally quite private about their collections.

But regardless of the reasons for buying art or the criteria that a buyer might consider when investing in artwork, it is unique in that it can be insured to mitigate risk. While every investment carries a risk, by investing in art and insuring the collection, this risk can be hedged and the investment itself remains a tangible asset.

Investors need to keep in mind that it is vitally important to have an up-to-date value of their assets, because not all art or collectibles appreciate at the same rate. Ideally, clients should regularly re-evaluate their collections to ensure their investment is insured at the right value.

Typically, for contemporary works, it is recommended that a re-evaluation is done every year and for older works every two years. Older items’ value tends to be more stable, while contemporary items tend to fluctuate more. 

Specialist insurance products

One of differentiators of a specialist insurance product, when compared to standard content insurance, is that the assets are not insured for replacement value, but at the agreed value. So, if the client suffers a loss, the insurer would have the damaged piece professionally restored and then professionally revalued. Thus, the client not only gets their restored work back, but also the amount that they’ve lost in value. Should a collector not want the piece after it has been restored, they can declare it a total loss and the insurer will take it as salvage and pay out the agreed value, ensuring that the client’s financial interest is protected.

For collectors who are adamant about protecting their privacy, but want to insure their collectible assets, there are ways to do this. While insurers value our clients’ privacy and will not share the details of their valuable collection with anyone, there are mechanisms to establish the value of their art in case of loss.

Typically, clients can log their collection list with their lawyer, who will provide the insurer with access to it at the time of loss.  A specialist insurer can issue a policy without initially having access to the list, but it must be made available in the event of a claim. Other options include sending the collection list to the insurer on a password-protected document and, if there is a claim, the insurer is given the password. 

Collectibles are not just limited to paintings that hang on a wall. They can be classic cars, antique furniture, stamps, whiskey or firearm collections. The point is that these items can be a great investment as their value appreciates over time. However, as with any investment, there will also be an element of risk. Be sure to mitigate this risk by insuring your valuable collection in the right way.

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