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Museums cut corners on coverage to reduce costs in difficult times

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Taking a cue from their environment, many museum risk managers are responding creatively to the challenges they face at a time of global economic turmoil.

Many museums are asking for larger deductibles as well as less-than-full loss limits for the art and artifacts they display, even though the cost of coverage for most museum risks continues to decline, several sources said.

In addition, some museums seek lower premiums by combining coverage with sister institutions, while hundreds of historic U.S. homes are using a single broker to boost their insurance-buying power, sources said.

As museum endowments decline and other financial pressures related to the recession take hold, museums are seeking to save money wherever they can, they say.

In at least one case a museum is shutting its doors and planning to sell works, as Waltham, Mass.-based Brandeis University announced recently. Yet, selling off artworks may bring a new set of problems, including ownership disputes, which have spurred inquiries into title insurance products.

"Insurance is a necessary cost of doing business, and the prices continue to rise," Janet Vaughan, senior director of member services for the Washington-based American Assn. of Museums, said in an e-mail. "So, in this economy where revenue is declining, any cost that's on the rise puts pressure on the museum's budget."

Several brokers and insurers, though, say coverage rates for museums are falling. Rates are expected to rise later the year, however, due to expected higher reinsurance costs, some sources say.

Until recently, "it's been a bit of a buyers' market," said Jennifer Schipf, New York-based senior underwriter with XL Insurance Fine Art and Specie, a unit of Hamilton, Bermuda-based XL Capital Ltd.

"I think it is pretty competitive across the board," said W. Robert Berkley Jr., executive vp of Greenwich, Conn.-based W.R. Berkley Corp., which began offering $100 million in fine art coverage limits last year.

One bright spot is that the recession-driven drop in the value of scrap metal has reduced the number of thieves stealing museums' outdoor metal sculptures--or hacking limbs off immovable ones--said Joseph C. Dunn, president and chief executive officer of Huntington T. Block Insurance Agency Inc., a Washington-based unit of Aon Corp. of Chicago.

It's "a fairly competitive environment" for museums that do not face coastal windstorm or earthquake perils, said Robert Salmon, the Bethesda, Md.-based managing director of the Willis fine art, jewelry and specie unit of London-based Willis Group Holdings Ltd. For example, an inland museum without such exposures could get a 15% to 20% reduction in premium for $20 million to $50 million in fine art collection limits earlier this year when compared with the previous year, he said.

Museums typically buy an all-risk perils package policy for their general property and liability exposures as well as additional coverages for their collections, workers compensation and umbrella protection, according to Maureen Waterbury, Whitehouse Station, N.J.-based vp and manager of Chubb Corp.'s cultural institutions segment. They also may buy a variety of other coverages, including directors and officers liability as well as kidnap and ransom insurance, she said in an e-mail.

As they strive to reduce costs, some museums are restructuring their programs, she said.

"We are seeing more museums looking into higher deductible options and are more willing to take on risk, whereas in the past they would insure the exposure," Ms. Waterbury said.

Travelers Insurance Cos. Inc. also is seeing requests for higher deductibles as well as some museums buying joint policies with sister institutions, said Andrew Gristina, the New York-based director of fine art insurance for Travelers inland marine division.

Also, according to Ms. Schipf of XL, it is "very common not to insure to full value."

Smaller museums, though, especially in catastrophe-prone areas, benefited from the expansion of a U.S. government program that provides up to $1.2 billion in indemnity agreements for art and artifacts in international exhibitions. Such grants became available last summer for U.S.-owned items on exhibit in U.S. museums, if the exhibit includes some eligible non-U.S. artworks.

Since the federal Arts and Artifacts Indemnity Act program began in 1975, "the program has indemnified nearly 900 exhibitions, saving organizers more than $230 million in insurance premiums," according to a statement by the National Endowment for the Arts, which oversees the program.

Also seeking to reduce costs, about 250 historic home museums in the United States have consolidated their buying power by using the National Trust Insurance Services L.L.C., a Baltimore, Md.-based brokerage affiliate of the National Trust for Historic Preservation, said Greg Coble, vp-business and finance for the Washington-based parent organization.

Title insurance

Those museums that are unable to survive the economic downturn face liability issue when they seek to sell their collections. For example, ownership disputes have spurred inquiries into title insurance products. Some of those disputes involve the claims of heirs to Holocaust-era seizures of art by Nazis.

Museums, private dealers and owners are increasingly considering the appropriateness of securing title insurance for contemporary artworks, several sources said, although a few raise concerns about adverse selection.

Only 25% of art-related claims stem from outright theft, the other 75% stem from disputes over other encumbrances such as tax-related liens, said Judith Pearson, president of ARIS Title Insurance Corp. in New York.

Title insurance can help museums cope with the problem of "abandoned property," when artworks have been on loan so long that their ownership is unknown, Ms. Pearson said. It also can help museums cope with ownership issues when cash-strapped museums like Brandeis sell their works.

Some insurers provide related coverages, said Andrew Gristina, New York director of fine art insurance for Travelers Inland Marine unit of Travelers Insurance Cos. Inc. Travelers provides a limited amount of defense cost coverage for title disputes, he said.