According to INTERPOL, statistics regarding the cross-section of art and antiquities crime are unreliable. Although it is often touted as a $6 billion-a-year problem, the true total of the losses is very likely exponentially higher. Interpol attempts to maintain a comprehensive database of global art thefts. This requires regular reporting by participating countries. Out of 188 member countries, on average, only 60 replies a year are received. Many of these countries reports are incomplete or reflect no statistics are available. It is clear that the United States is the most prolific consumer of fine arts, including black market works.

Claims Rise in Hard Times

Currently, the leading commercial brokers with specialists in fine arts have reported a substantive increase in suspicious claims since the onset of the recession. This phenomenon has a recent precedent–commercial devaluation of art occurred in the 1990s and sales were flat. In many instances the policy coverage value vastly exceeded market value. As a result, suspicious claims spiked during this period as well. The number of fraudulent art claims clearly follows the pattern of all insurance fraud, claims rise alarmingly during hard times.

The FBI and the New York City Police Department along with Italy's Carabinieri and The New Scotland Yard have the most sophisticated art criminal investigation units in the world. Yet, these units are proportionately small when compared to the high number of thefts and frauds. Many municipalities have no art theft investigation resources at all. As a result, this problem requires diligence on the part of underwriters, risk managers and claims professionals. Vigilant protection of the keys to the vault can be affected by what you do or do not require during risk evaluation, risk and claims management.

Agreed Value Coverage

A good start for all insurers is to provide agreed value coverage. Although this is commonly practiced by firms with specially trained underwriters, non-specialty firms have been known to group works of art together that have vastly varying values and provide lump-sum coverage. The valuation of contemporary art can complicate agreed value coverage. Its value can vary significantly over short periods of time. Examination by specialists in contemporary art and averaging valuation may be one solution. Another method is to track the valuation during predetermined periods of time and revise the policy accordingly.

It is equally important to periodically inspect and verify risk management methods used by an insured. This applies to high value private collections, galleries, and museums. It has been our experience that administrative security procedures, applied security method, and execution of protection strategy can vary to the degree that makes even the most sophisticated institutions vulnerable to internal and external theft, mysterious disappearance and fraud. Insurers would be unpleasantly surprised by the results of some risk audits of the most famed institutions. Special attention should be given to galleries and private collections regarding alarm systems, surveillance systems, inventory control, transport and delivery of high value art. During periods of recession or the flattening of the art market, the frequency and value of claims are known to rise significantly. Policy requirements stipulating specific class and category alarm systems, inventory control methods, and transport and delivery by specialist trucking firms, are sure methods to limit losses or detect fraud.

A Global Concern

Annual theft and fraud involving priceless and high value art and antiquities appears to be rising. It is unmatched by the limited resources of national and international law enforcement agencies, despite the dedicated efforts of individual police investigators. Insurers, who have agreed value provisions, require viable insured risk management programs which address security, electronic protection, and transport, coupled with periodic inspection audits, will enjoy a lower frequency of claims and lower claims cost, benefiting the insured and insurer.

Anthony C. Roman is CEO of Roman and Associates, a global insurance & corporate investigation, risk management, and security consulting firm. He is a frequent contributor to CNN, MSNBC, CNN International, Associated Press, New York Times, Crain's New York Business, and New York Newsday. He is the software designer of WEB TRAC ©, a claims, legal, risk management and security intelligent software program. You can follow him @RomanSearch.com, Twitter and Facebook. He may be reached at [email protected].