The price of the attacks on the World Trade Center in 2001 on both the insurance industry and the American psyche was high, but part of that toll is being paid by art gallery owners, museums and even some high end collectors of art, especially in New York City and a few other presumed areas of potential future terrorist acts. Fine art insurance policies that collectors and dealers in these areas purchase nowadays regularly include terrorism riders that add on average between two-and-a-half and seven-and-a-half percent (and sometimes as much as 10 percent) additional to the overall premiums they pay.
Prior to 9-11, the unlikely event of damage or total loss due to terrorism was automatically covered in a personal or commercial property insurance policy. However, the insurance industry suffered losses of approximately $50 billion in the September 11th attacks, and individual companies began to either exclude acts of terrorism or require additional payments by policy holders for this type of coverage. Henderson Phillips Fine Arts insurance company in Washington, D.C. increased its premiums by one cent for every $100 in collection value for policy holders in Chicago, Los Angeles and New York City, and Gail Sweeney, an insurance writer for the Washington, D.C.-based brokerage firm Flather & Perkins noted that 10 percent of premiums on art galleries are attributable to terrorism coverage. Insurance "agents that reside in New York City make a big deal of terrorism," she added.
Terrorism riders are not mandatory on commercial policies but, since 2002, this coverage must be offered. Michael McCarter, vice president of Industry and Regulatory Affairs of the New Jersey-based AIG insurance company, noted that the federal Terrorism Risk Insurance Act, a post-September 11th measure which promises federal government assistance to the insurance industry in the event of a catastrophe exceeding $100 billion, "requires that the insurer offering a commercial property policy for purchase also offer the prospective policyholder the option to purchase terrorism coverage, but the prospective policyholder is not required by law or by the insurer to buy it. TRIA does not apply to personal property coverage such as homeowners, so it is up to the individual insurer as to whether it chooses to offer coverage for terrorism. A personal lines policyholder desiring terrorism coverage for his artwork or other property might have to search for an insurer that was offering it." A 2006 report on terrorism policies by Marsh & McLennan of commercial policy-holders found that 67 percent of the customers surveyed in the Northeast had purchased these riders and 53 percent in the West Coast. Wells Fargo, which provides insurance coverage for many Manhattan art galleries, has found that 90 percent accept the additional terrorism charge.
Insurance coverage for a personal art collection is an all-risk rider on a homeowner's policy, which by law automatically includes terrorism. However, for very large and valuable private collections, according to John Dunn, president and chief executive officer of the Washington, D.C.-based Huntington Block, "the threshold of coverage may be so great won't want to insure it alone, and they will look for an additional insurer to provide a fine arts policy," which is separate from the homeowners. That stand-alone policy will be commercial and include a terrorism rider. "If you have, say, a $100 million art collection, the premium may be $100,000, and the terrorism coverage is an additional $10,000," he said. An indirect additional charge related to terrorism may be assessed for those living in areas, such as Manhattan, where the threat is greater. He speculated that there may be thousands of high-end collectors in this category, who have elected to purchase separate terrorism coverage, particularly those residing in New York City.
Dorit Strauss, worldwide fine arts manager for the New Jersey-based Chubb Insurance, noted that one client who lives two blocks from the United Nations had considered doing without terrorism coverage for her sizeable art collection, "but I convinced her that she really needed it. I told her that charging an extra 10 percent for the risk is not going to make Chubb profitable, but it will afford her the protection she needs considering where her collection is located."
Homeowners insurance fees are set by the individual states, but the commercial policy rates "aren't filed, but are based on loss experience," Dunn stated. As a result, these fine art policy premiums may be significantly higher than ordinary riders on a homeowners policy. Christiana Fischer, chief executive officer of AXA Art, a leading insurance carrier, speculated that a Manhattan-based policy holder with an art collection valued at $20 million may pay between $8,000 and $10,000 per year in premiums, $2,000 of which is specifically to cover an act of terrorism. In contrast, were that same $20 million collection located in "Minnesota or Connecticut or somewhere not likely to be a target for terrorists and not in some hurricane or earthquake zone, there would be no additional cost for terrorism coverage."
As significant as terrorism protection in the amount that policy-holding New Yorkers may pay, she added, is the accessibility of insurance for valuable personal property. "After 9-11, we all in the insurance industry began to look at how we were managing risk and exposure, how much insurance we are providing in one geographical area," she said. Manhattan, with its museums along Fifth Avenue, art galleries and fine art storage facilities in the Chelsea section and collectors in the Upper East Side, posed a great risk to the entire insurance industry in the event of another terrorist attack. "Someone may ask us to write a policy, and I see that we already insure two other collectors in that building, so I have to tell them that I'm sorry I can't write any new policies for where you live." The more limited supply and growing demand, she added, may increase the costs of insurance.