Over the past 30 years, the use of freeports has significantly increased, with dozens of sites available for storage of paintings, sculptures, antiquities, and other precious and valuable items. The Geneva Freeport alone is estimated to hold 1.2 million works of art – a remarkable number - especially when compared with leading institutions such as the Louvre, which has 460,000 works in its collection and displays only 35,000.
Given this high concentration of specie, how do we accurately assess the risk of losses from catastrophes at all stages of storage, transportation, and display? Though the city of Geneva may not be overly susceptible to natural catastrophes, the insurance industry has learned the painful lesson of billions of dollars of exposure stored in close proximity (e.g. the Port of Tianjin).
There are two major hurdles to accurately estimating the risks: (1) quantifying accumulation of exposure; and (2) assessing the true vulnerability of the artwork housed in these specially designed facilities.
The accurate recording of exposure value and location is vital to accurately estimate catastrophic loss. Storm surge, for instance, is highly sensitive to exposure positioning. Storage methods may also vary, from climate-controlled warehouses to display in museum quality venues or private homes. Artwork may also be moved out of harm’s way in anticipation of a catastrophic event, as occurred at the New Orleans Museum of Art prior to Hurricane Katrina’s landfall.
Furthermore, the vulnerability of these structures to earthquakes, for instance, can be vastly different to windstorms or flooding. Extraordinary measures are taken to package and protect fine art from catastrophic perils in these facilities. The presence of earthquake resistant pedestals or water-tight containers, for instance, needs to be considered in measuring cat losses. Yet, these items tend to be irreplaceable and highly vulnerable to financial loss, even at low levels of damage.
These considerations create hundreds of possible loss scenarios for fine art exposure, necessitating specialised modeling to estimate losses in a granular fashion. Even with thorough exposure data and detailed modeling, loss uncertainty is considerable and must be kept in mind to accurately estimate the level of risk associated with specie exposure. With a better understanding of this kind of exposure, how it accumulates, how vulnerable it might be to future losses, and improvements in data capture, insurers can be more confident about covering the risk.
