Museums have a permanent collection as well as organising temporary exhibitions.
The artwork may belong to the museum – often a government body – or third parties, frequently in the form of long-term or short-term loans for use. Loans for use can be private or public (mostly from other national or international museums).
There are extensive and numerous risks associated with the management, exhibition and preservation of artwork. Besides fire, theft and water damage, there are many other risks, including those related to handling, transport, disappearance, humidity, insects and vandalism.
Most of these risks are insurable. Yet the cost discourages museums. In many cases, only the loaned items are insured through a private insurer, and artwork belonging to the museum (government body) remains uninsured. If damage occurs, it is ultimately the general public that foots the bill for restoration, and the reduction in value is disregarded. The cost of private insurance for temporary loans can also be excessive, which sometimes means that certain masterpieces are not put on display.
In order to avoid paying for ‘expensive’ art insurance, a large number of European countries have developed an indemnity scheme. The government then bears most of the financial risk associated with the ‘temporary’ exhibition of artwork on loan. We can distinguish between three variations of this scheme:
- The most extensive coverage is 100% indemnity, with the government assuming responsibility for the full amount of the claim, normally after deduction of an excess payable by the borrowing museum.
- In case of first-risk indemnity, the government assumes responsibility for claims up to a specific amount, normally a percentage of the total value of the artwork.
- In case of residual-risk indemnity, only claims exceeding a specific amount are paid out.
In 2012, the Flemish Arts and Cultural Heritage Agency (Agentschap Kunsten en Erfgoed) presented a draft memorandum for an indemnity decree for the Flemish Community. This memorandum was updated in 2014. It examined whether and how museums within the Flemish Community could benefit from a Flemish indemnity scheme for temporary exhibitions.
This memorandum broadly concluded the same as most other European countries prescribe:
- The indemnity scheme can only be used for artwork on loan for the purpose of temporary exhibitions. Open-air exhibitions are best kept outside the scheme, due to the high risk involved.
- The memorandum favours a 100% indemnity scheme, mostly because more exhibitions would be eligible for the scheme than with the other two models.
- The total value of the temporary exhibition must be sufficiently high for a 100% indemnity scheme to be more beneficial than protection through a private insurer. Based on the claims cost analysis, the memorandum states that only temporary exhibitions with a total value in excess of 20 million euros would be eligible.
- On the basis of the number of exhibitions organised by Flemish museums in recent years, no more than ten and no fewer than five exhibitions would be allowed to benefit from this indemnity scheme each year.
The indemnity scheme as proposed in the draft memorandum is thus reserved for a very limited number of temporary exhibitions:
- Artwork that belongs to the museum (government body) would never be covered by this scheme. This is understandable, as the government could hardly pay itself. However, this does not eliminate the risk.
- Temporary loans for an open-air exhibition would be excluded.
- Long-term loans would be eligible only if they provide added value to the museum (including a temporary boost to its international image).
- Temporary loans with a total value of less than 20 million euros (sum of all artwork on loan) would not be eligible.
- The memorandum also makes it clear that there are limitations on coverage by the government body. How the coverage provided by an indemnity scheme compares with an extensive ‘all risks’ policy through a private insurer depends mostly on the further details of the indemnity scheme.
The proposal in the draft memorandum therefore involves heavy anti-selection.
However, the plan may be useful to curators who want to bring expensive masterpieces to their exhibition, but are unable to pay the insurance premium. For exclusive works of art, loan conditions relating to security and environment are often so strict that the indemnity scheme isn’t just a potential budgetary benefit, but can also guarantee that the artwork is displayed under the best possible conditions.
The draft memorandum refers to the claim statistics of a large number of Flemish museums. Linked to an average premium rate of 0.8°/°°, this results in a C/P (claim to premium ratio) of 6% (see table below).
The figures for the reported exhibitions offer detailed proof that no claim payment has ever exceeded EUR 25,000, even with insured works of art worth millions of euros. If such a work was a total loss, the total premium volume of EUR 1,874,250 for the eight years under review would be used up in one fell swoop.
The indemnity scheme offers a solution for temporary exhibits whose value amounts to several tens of millions. An average premium rate of 0.8°/°° on the insured value seems reasonable, but the claim statistics show us there is a margin. There is scope for lowering the premium rate, especially for smaller and medium-sized exhibitions (where catastrophic risks are almost impossible due to the lower insured values and premium rates normally exceed 0.8°/°°). However, the claim statistics suggest that there should be scope for reducing the premiums for large exhibitions as well.
If museums are prepared to take out more insurance (including for their long-term loans and more works owned by the museum/government body), the insurance market would expand and premium rates would fall.
It is important to challenge the insurance market sufficiently, not just through more art insurers, but also more specialised art insurance brokers. These offer the best guarantee of comprehensive coverage and good service provision at the most competitive insurance premiums.
The current insurance market within the museum landscape urgently needs more than one insurance broker to keep insurance premiums for museums under control and to guarantee continued good service.
If Flemish museums want to include masterpieces in their exhibitions, an indemnity scheme is an appropriate tool for this purpose.
The best option is first-risk indemnity, because it is preferable for disasters not to be borne by the government – i.e. taxpayers’ money. Rather, this is a task for the private insurance market, where premiums are also much lower than for coverage ‘including first risk’.
For all other insurable risks, museums can make enquiries at several insurance brokers to obtain the best rates.
A third alternative besides an indemnity scheme and private insurance is ‘shared liability’. Under this method, the lending and borrowing museums agree on which risks the borrowing museum will be liable for in advance. Some Flemish museums already apply this method.
Lastly, Flemish Community museums could issue a joint invitation for an insurance tender to insurers and brokers. However, such a public tendering procedure involves a lot of preparation and is expensive. Furthermore, it is a balancing act between cost, coverage and services, in which the lowest price often comes at the expense of coverage and service provision. The content of such a tender is accordingly decisive and merits the assistance of a consultant if the Flemish Community and the relevant museum do not wish to be left with a financial hangover.