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These are interesting times for the fine arts insurance market.

Insurance claims are on the rise as thefts increase in Europe and elsewhere.

Thefts from both commercial dealers and public galleries have increased as the criminal community learns to appreciate fine art's potential for both extortion and as collateral in illegal deals. In addition, the recent recession in many countries has cut margins for commercial art dealers and government subsidies for the public galleries, reducing the funds available to install or maintain adequate security systems.

At the same time, specialist fine art insurers are facing a softening market, due in part to a softening in the overall market and to more players entering what has traditionally been perceived as an attractive and profitable market.

But in spite the softer pricing, not all owners of works of art are rushing out to buy the coverage.

Governments as a rule do not insure the contents of public galleries because the cost of insuring a high value national collection is prohibitive.

Private owners that inherit valuable works also are often reluctant to insure them because of the risk of tipping off European tax authorities to new assets that may be subject to hefty inheritance taxes.

Even without tax burdens, a buyer's typical concerns are: "Is it worth it? Can you afford it? And is there any point when you can't even replace these things?" said Aron Shapiro, director at London-based brokers ArtScope Ltd., a division of the Aon Corp.

He noted that smaller commercial art dealers in London previously did not bother to insure their works because of high costs until they were forced to do so by their banks. The banks insisted on coverage of the dealers' stock, since it was often used as a collateral for loans.

Today art dealers not only are insuring their collections but also are becoming more security conscious, installing automatic alarms on doors and video cameras operated from back offices, said Clare Goddard, a fine art specialist at London broker Bain Hogg Group.

Insurers and brokers say that the art sector historically has been perceived as an attractive risk. But inexperienced underwriters entering the market may get their fingers burnt, since losses can be catastrophic.

Ms. Goddard explained that it can be common to insure a $20 million art collection at a benchmark annual rate of around 0.1% of the perceived value. "Within that collection you can have a $10 million painting. That loss cannot be covered with a $200,000 annual premium. The losses are few but when they do happen the values are so enormous that you will never be able to recoup your losses on an individual risk."

But against the backdrop of new capital entering the market, losses in recent years have grown more frequent and of a higher profile.

Some of the major works of art stolen in recent years include:

Edvard Munch's "The Scream," which was stolen in February 1994 from the National Gallery, Oslo, Norway (BI, Feb. 21, 1994). The work, valued at about $72 million, was later recovered. The painting was uninsured.

Picasso's "La Source" and seven other paintings by the artist, which were among works stolen from the Museum of Modern Art in Stockholm, Sweden, in November 1993 (BI, Nov. 15, 1993). The stolen works were uninsured.

The loss of a Picasso painting, "Tete," valued at $500,000 and a less valuable work in a daring smash-and-dash theft from a Chicago art gallery in January 1994 was insured by CIGNA Corp. and Nordstern Insurance Co. of America U.S.A. (BI, Jan. 10, 1994).

Two paintings by Joseph Mallord William Turner, "Shade and Darkness" and "Light and Colour," which were on loan to the Schirn Kunsthalle in Frankfurt, Germany, and worth about $40 million. They were stolen in July 1994. The combined value of those paintings, insured by Lloyd's of London syndicate 33, managed by Hiscox Syndicates Ltd., is estimated to be $30 million.

In addition, "Wafting Mist" by Caspar David Friedrich was taken in the same raid at the Frankfurt Gallery.

Eight paintings valued at $44 million, including seven Picassos. They were taken from a private art gallery in Zurich in October 1994 (BI, Oct. 31, 1994). The works, which included Picasso's "Christ at Montmartre," which alone was valued at $12.5 million, were not covered by insurance.

A Rembrandt painting, "Bearded Man." It was stolen from a national museum in the Dutch artist's house in October 1994 (BI, Oct. 17, 1994). The painting is regarded as state property and is not insured.

Titian's "Rest on the Flight to Egypt," worth about $7.5 million, which was stolen from a private collection at the Wiltshire, England, home of Lord Bath in January 1995 (BI, Jan. 16, 1995). The painting, along with a few other works that were stolen, was insured by Nordstern Art Insurance Ltd. and Hiscox syndicate 33.

There are a number of reasons for the increase in art thefts, according to David Scully, chief underwriter at Nordstern Art Insurance in London, a division of Cologne-based Nordstern Allgemeine Versicherungs A.G. With fewer border controls in Western Europe, stolen art is easier to transport to other countries, he said. Art thefts have also risen with the vast increase in illicit narcotics use, because a thief may use the proceeds of the theft to buy drugs or a stolen work of art can be used as collateral in a drug deal, he explained.

In London, thieves are turning their attention to commercial art dealers in a more robust manner.

"In the late 1980s and early 1990s we had losses from a huge number of ram raids on dealers," said Mr. Scully. A "ram raid" is one where thieves gain access to premises by driving a car or truck into a display window. "These have tailed off now because the owners had the glass strengthened. But today there is a gang going around London catapulting metal ball-bearings into display windows."

Brokers and insurers vary in their view of the security of public galleries to theft. While governments tend to self-insure their national permanent collections, they often buy coverage for special exhibitions so that a borrowed work of art may be insured in transit from the lender to borrower and while on display in the exhibition.

"Safety for a blockbuster exhibition, where the value of exhibits is over $1 billion, can be very cost-effective," said Mr. Shapiro of ArtScope. Although the premium to insure such an exhibit may run into the millions of dollars, security for these events is very tightly run, he said.

Public galleries have become more security-conscious and are installing closed-circuit video monitors, and internal and outside security patrols, agreed Bain Hogg's Ms. Goddard.

But Nordstern's Mr. Scully said that even the best security technology has its shortcomings.

"All public institutions have been suffering in the recession and this limits their security expenditure," he said. There also is a problem in relying too much on one type of high-tech security, he added. If one key person monitoring a security screen is either corrupted or is knocked out by an intruder, the whole system can be blown away, Mr. Scully explained.

One positive result of the rash of high-profile, high-value art thefts from public institutions is that governments are obliged to allocate funds to upgrade security and loss prevention.

This was the case for the National Gallery in Oslo, Norway, where Edvard Munch's "The Scream," arguably the country's best-known painting, was stolen in just 50 seconds. It was accomplished by using a step ladder to access and break a first story window, grab the painting and escape.

The painting was recovered in May 1994 and earlier this month the two thieves, both Norwegians, were sentenced to terms of six and three years in jail, respectively.

Coming just a day before the opening of the 1994 Winter Olympics at Lillehammer, Norway, the theft had a devastating effect in Norway.

"We were very, very depressed," said Roy Jameson, the gallery's chief of security. "Of course, we knew that the physical condition of the building made the theft possible but we couldn't do anything about it because we didn't have the money."

Afterward, the Norwegian government was pressured to come up with the money for a refurbishment of the museum's security, not only because of national pride, but also because of international pressure from foreign cultural institutions that may loan works to the Norwegian Gallery.

"If we didn't do anything there would have been a problem in borrowing paintings from elsewhere. Every museum we spoke to about (borrowing works) said, 'Yes, but what have you done since The Scream?'*" added Mr. Jameson.

The result was that the government increased the gallery's 1995 budget by 25 million Norwegian kroner ($3.87 million), all of which was used to improve security. Among other things, all of the windows in the building were replaced with four-centimeter thick glass. There are now security bars on all the doors, windows and skylights. A 10-year old internal closed circuit TV was scrapped and a new state-of the-art video surveillance system installed. Five more security guards have been hired.

"We have been given all of the money we needed and we have done what we wanted to do," said Mr. Jameson.

The new security set-up is ready in time for a blockbuster exhibition next month of the Spanish painter Francisco Jose de Goya. Mr. Jameson explained that the exhibition will occupy one half of the gallery's first floor. The other half, which houses part of the permanent collection, will be closed off to free up security guards for the Goya exhibition. Circulation and overcrowding will be controlled by arranging a route around the exhibits. In addition, the Norwegian government has provided a financial guarantee for the show to the tune of 1 billion kroner ($154.8 million).

Despite the recovery of "The Scream," the retrieval of stolen works of art remains the exception rather than the rule.

However, the creation of the London-based Art Loss Register five years ago, and its New York-based affiliate, the International Foundation for Art Research, has begun to put a dent on the traffic of stolen art.

The ALR was created to record art thefts and to match these with items recovered by the authorities. The owners of ALR include the major art auction houses, such as Christie's International Ltd. and Sotheby's, broker Bain Hogg Group and underwriters Nordstern Insurance.

The register of stolen art was set up because of the glaring need for a data base of art losses that would be open to the insurance industry, law enforcement bodies, and the public in general, explained ALR Managing Director James Emson. The data base, which includes images of the works when available, consists of two main groups: Stolen works, information about which comes from national police and Interpol, insurance companies and the public; and works thought to have been stolen or destroyed in suspicious circumstances, such as inexplicable fires.

ALR staff scan art auction catalogues from dealers worldwide and attempt to match the items listed to those on the data base.

Currently, the data base consists of information on some 70,000 stolen works of art, including 287 Picassos, 243 Joan Miros and 210 Marc Chagalls. Most of these artists' missing works are high-priced signed prints, etchings and lithographs.

By its fifth year of operation in 1995, the ALR had assisted in the identification of 700 stolen items valued at $25 million. Some 130 insurers benefited from the recoveries, according to the ALR's 1995 annual report.

Mr. Emson said that in the six weeks preceding Christmas 1995 there were only three days when the register did not successfully identify a stolen item. On average, he said, identifications are made two days out of three.

But Nordstern's Mr. Scully is reserving judgment on the effectiveness of the register, saying that five years is not a long enough trial period.

"We must think of the long-term. There are problems in identifying some things. How many pictures of Victorian streams can you identify?" he asked.

In addition, even the most prestigious international auction houses find that they have to make up attributions, which identify the artists, for more than one third of the work that they sell, he said. "It's not even enough to photograph something."

But Bain Hogg's Ms. Goddard remains optimistic, noting that after five years the ALR, which is funded by subscriptions to its services from auction houses, insurers and others, is making a profit. This means that it is recovering a sizable amount of stolen goods, to the benefit of the insurance industry, and is thus justifying its existence, she said.

But even when stolen goods are recovered there is still the thorny problem of title to them, a matter that varies according to legal practice in each individual country.

In Anglo-Saxon economies, such as the United States and Britain, title for stolen goods cannot pass legally to a buyer even if that buyer did not know they were stolen. This, however, is not the case in many countries whose legal tradition is based in Roman law, such as most of Europe, said Mr. Scully. At best, some of these countries permit a period of five years or so after the theft when the legal owner may recover the goods from an innocent buyer.

"There is no global harmonization on titles when you move stuff. If your picture is stolen in France and then sold at auction to an innocent buyer then that person has good title and there's nothing you can do about it," he said.

With concerns about theft, insurers have been slow to expand fine arts coverage into the recently opening markets in Eastern Europe.

The ALR's Mr. Emson said that inquiries are being received from East European cultural institutions and contacts exist with government organizations in the former Yugoslavia, such as the Museum of Documentation in Zagreb, Croatia, to track objects stolen during the recent war.

One of the side effects of economic liberalization in eastern Europe and the developing world-as well as conflicts such as those in the former Yugoslavia and the Caucasus-has been the release of large quantities of both documented and undocumented art and antiquities onto the world's black market by sellers desperate for a quick profit.

"They are flogging them off for beans, bombs and bullets," said Mr. Emson.