Until this year, Kevin Daley, the president and private client leader at EPIC Insurance Brokers & Consultants, spent most of his time with family offices discussing casualty and cyber insurance. Those are always high priorities. Being liable for harm to someone, or suffering from a digital ransom or theft, can be financially ruining.
Lately, Daley says more offices have been asking for his help with something else.
Since 2022, the financial risks posed by the growing frequency and severity of wildfires have surpassed the insurance rates that homeowners are paying, causing insurers to cancel or decline to renew policies. Wildfires are unpredictable; wind can carry embers and spread them miles away from their origin. And because of their nature and scale, they tend to have binary results. “Very rarely do you get a partial fire loss. During a wildfire, if your house catches on fire, it's going to the ground,” Daley said.
California’s Palisades and Eaton wildfires in January, which destroyed more than 12,000 structures in Los Angeles County and killed 28 people, have rattled the insurance market further. The cost to insure a home in California and in other places now more susceptible to fires, such as Colorado and Montana, is expected to keep climbing.
In addition to their homes, some ultrawealthy people are facing a related conundrum within them: The risk of owning expensive art is also being recalculated.
Just a couple of weeks ago, Daley visited a prospective client whose art collection was estimated to be worth more than $50 million, and was uninsured. That only sounds insane if you don’t know the details. “The economics around the indemnification just didn't make sense,” Daley said.
Homeowners' insurance won’t cover a multimillion-dollar art collection. Collectors have to purchase a standalone policy, which is nonetheless subject to the same market forces. According to Daley, there could be a “crisis of capacity” on the horizon, meaning insurers won’t be as willing to insure especially valuable paintings, sculptures and more. There’s a good chance that significant collectors in Los Angeles, San Francisco, Santa Barbara or San Diego will have to pay higher premiums next year, if the policy covering their art is even still available, he said.
In anticipation of that prediction, FortressFire, a wildfire analytics and property-specific protection service firm, partnered with BMS Group and EPIC to launch a new wildfire insurance program for fine art and collections. The idea is that with improved risk mitigation at properties — including defensible space, hardening materials, flame-resistant roofs, grates on building openings, and more — and effective monitoring, a collection will be more insurable. The goal is for policyholders to save money even after capital improvements, FortressFire services and insurance premiums. However, if the costs are even, it beats the alternative: having no insurance available at all.
“This is a property-driven strategy. It benefits not only your collection, but also your home and everything, all the property that goes with it,” Daley said.
The program, which the creators say will address a critical gap in the market, will target collections valued between $5 million and $250 million. It’s designed for all 50 states, but Daley expects many policyholders will be in California.
It won’t be the last program like it, either, Daley and others said.
“There are capital sources that want that business. There is technology, whether it's the connected home or the sensors technology or imaging technology, that is all important to basically manage and de-risk a little bit of what you're insuring,” Sean O'Neill, head of the global insurance practice at Bain & Company, said. “The combination of capital technology and these people or capability, I think, will bring more of these programs to the market, and they will tend to have combinations of multiple players.”
While small compared to homeowners and other lines, the business of insuring art and collectibles is also plenty large enough to support a diverse ecosystem of carriers and agents. In the future, O'Neill anticipates that there will be more specialization, for example, some focusing on work in Florida or California, and others specializing in wine, jewelry, or couture fashion.
Anne Rappa, the national fine art practice leader at Marsh McLennan Agency, said a healthy insurance marketplace remains for institutions and private collectors. Although at the same time, expectations of understanding, articulation, and communication about risk, and that policyholders are going to take steps to reduce the likelihood of losses, have all heightened. In the case of art collectors, who are typically passionate about their expensive wares, those aren’t tall asks.
“When you understand the nature of an art collector and the associated cost, you understand why the insurance market remains optimistic and willing to underwrite,” Rappa said. “The fine art insurance landscape is not all gloom and doom.”
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