The more experience insurers have with historic properties, the easier it is to calculate replacement costs, LaVardera adds, but he and other carriers that specialize in these clients prefer to err on the side of increased valuations. Whether or not cultural institutions are willing to accept the resulting higher premiums is another matter entirely—particularly in today's tough economy.

“We've seen some reluctance from insureds to increase values,” observes Jim Henry, underwriting manager of the social-services business unit at Markel Corp. “They feel they just don't need it now since construction costs are down.”

Although they don't recommend it, carriers are increasingly willing to work with clients to reduce premiums by allowing higher deductibles. “Nonprofits especially have to watch that,” observes Maureen Waterbury, cultural-institutions market-segment manager at Chubb Commercial Insurance. “Nonprofits don't have a lot of cash sitting there if they have to front a loss. They have to decide what their pain point is.”

The reason carriers are willing to negotiate, Waterbury continues, is the continuing soft insurance market. Even long-term clients are now asking brokers to get new bids on their accounts. “Insurance is a major outlay every year, and these organizations are watching every nickel and dime. If they can go out to market with their insurance needs and save money—that maybe means an employee they don't have to lay off.”

HISTORIC BUILDING BOOM

At 109,000 square feet, Oheka Castle, built in 1919, is the second-largest private residence ever constructed in the United States. After its original owner died, the property, in Huntington, N.Y., became a retirement home and then a military academy. By 1984, it was abandoned and rundown, which was when developer Gary Melius restored the estate and transformed it into one of the nation's top venues for weddings.

Although business has remained strong even during the tough economy—the castle has hosted fairy-tale weddings for reality-television shows—Melius is now looking for ways to boost revenue and is pouring $2 million into constructing a new restaurant inside his landmarked building. “We're hoping to offer our guests more amenities so they stay throughout the week,” he explains, adding that plans for an on-site health spa are next.

Enhancements like those being done at Oheka are becoming increasingly common among historic houses, cultural institutions and museums today. Responding to an economy in which families are taking fewer long-distance vacations and instead are opting to explore local cultural sites, properties are making capital investments to expand or to take advantage of existing real estate in creative ways—creating both new attractions as well as new and sometimes unexpected coverage needs.

“I've noticed an incredible amount of this [building] activity in the last few years” at historic homes and cultural sites, says Standring of Fireman's Fund. “During the building boom, many of the high-end, artisan contractors were occupied doing additions or renovations to private homes. That demand has dropped significantly, so they're willing to take a lower profit margin to keep busy.”

In addition to restoring their properties, many historic sites are looking to add food-related offerings, which, especially when alcohol is involved, create obvious additional coverage needs. “There's a lot of profit to be had from running a food court,” Standring says. “I just had a really in-depth conversation with a presidential property that's considering it. They're counting on visitors buying a book and then staying for lunch with their families. They want to become a major destination.”

This trend is most evident in large properties such as Civil War battlefields, which can accommodate the footprint of a food court featuring a choice of national franchise restaurants, Standring continues. But even smaller historic houses are looking at upgrading from an existing coffee stand to a café.

FOCUS ON FAMILIES

Another trend with insurance implications at cultural sites is a growing focus on attracting families. Institutions ranging from museums and historic houses to zoos and botanical gardens are beefing up their educational programming, as well as offering physical activities, summer camps and sleep-over nights for children.

“We've definitely seen cultural institutions try to use all their real estate to a much higher degree,” Waterbury says. “If they have fields of open space, they don't want them vacant when they could be making money using them for a sports camp during the summer.”

Some organizations are even going so far as to install rock-climbing walls and zip-lines, adds Shirl Hedges, an underwriting manager specializing in cultural organizations at the Philadelphia Insurance Cos. This kind of amenity creates obvious risks, she says, but as long as clients follow established safety procedures and seek waivers from their visitors, carriers will include it in their regular coverage.

When it comes to courting families by offering camps and sleepovers for children, a less obvious but no less important risk that needs to be addressed is sexual molestation. “You're seeing more clients asking for sexual-molestation coverage, and you're seeing carriers get more restrictive in giving it,” LaVardera says. “You see it a lot with theaters that are doing child workshops or day camps. It's definitely something we have to discuss and be able to react to.”

LaVardera adds that insurers are generally approaching the risk in three ways: staying silent, resulting in coverage by default; offering affirmative coverage; or excluding it. The third option has led to a burgeoning after-market in new products that address solely the concern.

Overall, the cultural sector often poses some tough insurance challenges, LaVardera admits, but this simply means a steady supply of new coverage opportunities—particularly in a fragile economy when museums and historic properties experiment with their spaces and offerings. “It's a creative group of organizations,” he says, which helps keep the job fresh.