The damaging storm surge strike dealt by Hurricane Sandy to New York City art galleries could be responsible for wiping out up to nearly three-quarters of global premiums and potentially lead to re-underwriting of risks as insurers assess exposure to the type of wrath the late-season storm unleashed.
Filippo Guerrini-Maraldi, executive director and head of fine art for London-based insurance broker R.K. Harrison, said the fine art insurance industry takes in roughly $600 million in global premiums and Sandy could possibly be responsible for 50% to 70% of that figure.
"Sandy is a big one," Guerrini-Maraldi said. "Sandy is definitely a big loss for the market and whether it will move the market upward, if I was a betting man I would say it probably will because ... there is so much competition out there, the market rates are virtually at an all-time low."
Axa Art Insurance Corp. pegs its losses from Sandy between $35 million and $40 million, according to Christiane Fischer, the company's president and chief executive officer. Fischer, putting the losses in perspective, said the value of Axa's art clients in the Chelsea area of Manhattan which is home to a high concentration of art galleries is roughly $1 billion.
"We've settled the first claims," Fischer said. "We hope to have the majority of them settled by the end of February and a couple of them, especially where there is a lot of restoration work going on, might take a little longer."
Fischer said her company's art-loss figure is not exclusively from galleries, but that is from where the bulk of the figure stems. She said many fine art insurers have not been reporting their losses and it's possible at least some of them will never release detailed information.
Sandy made landfall on the evening of Oct. 29, just southwest of Atlantic City, N.J. as a post-tropical cyclone, bringing with it significant storm surge levels. Catastrophe-modeling firm RMS estimates total insured losses from the storm could reach as high as $25 billion.
Fischer said most of the damage from Sandy to the art insurance industry was caused by water and flooding. "There is almost no wind damage" to art works, she said, adding that flooding is typically covered in fine art policies, unless it is specifically excluded. Most of Axa's policyholders in New York have been covered for flood and Axa Art was proactive in reaching out to its insureds before the storm to advise them to move their art to safer locations, she said.
"There were galleries with four feet of water in them, but there wasn't a single art loss because before the storm hit they had removed the items," Fischer said.
Guerrini-Maraldi said most art galleries policies have stipulations that art in storage is six inches off the ground, which is referred to as a stillage warranty. That requirement could be in store for changes following the recent flood experience.
"I think now, post-Sandy, I would say that's going to increase from six inches to 18 inches," he said.
Aside from flooding, power outages left art works exposed to freezing weather when an icy bout of weather followed Sandy's siege. That made some art "very vulnerable to cracking. Certainly works on wood were affected," Guerrini-Maraldi said.
Fischer said works on paper were the most susceptible to damage from Sandy. She said some paintings could be damaged, but many of those can be restored. Photography works were also impacted. Most of the works shown in Chelsea galleries is contemporary, "so these are all living artists and most of the works have been just recently produced ... the artist will just reprint the works," Fischer said.
Even though Chelsea has always been susceptible to flooding and heavy rains, the industry hasn't experienced something like Sandy in that area before, Fischer said. That will likely lead Axa to re-underwrite its art policies on a risk by risk basis, as part of what Fischer calls the new post-Sandy world, because there is proof that six feet of water can inundate Chelsea galleries.
"We will go in and see, so how did you do during Sandy? How high did the water come? Do you have storage here? And then re-engineer every risk so that we can still provide the coverage that galleries need," Fischer said.
The scope of damage left by Sandy is not unprecedented in the art insurance industry, Guerrini-Maraldi said. The industry dealt with losses following 2005's Hurricane Katrina and the Sept. 11 terrorist attacks and one-off events like warehouse fires. One of the most devastating storage fires in recent history was one that happened in 2004 in the East London warehouse of Momart, a company that specializes in shipping and storing art.