As individuals and families, as local communities and as a nation, most Americans will come together this September to commemorate the one-year anniversary of the events of September 11, 2001. Many people are seeking a meaningful way to observe this solemn and tragic milestone, from participation in organized religious and civic ceremonies to seeking solace and comfort in museums and galleries. As collectors, we know that the familiar company of beloved works of art can be a deep source of uplift and spiritual renewal.

After the massive loss of life, there was an additional shock and surprise at the loss of thousands of works of art during the attacks on the World Trade Center and the Pentagon. As the one-year anniversary looms, now may be a good time to reflect on some of the changes that collectors and the professionals who advise them are grappling with in relation to the protection and preservation of their collections. When people feared for their lives, personal safety was primary. But once the imminent threat receded, to be replaced by a vague and pressing anxiety, collectors began to realize that they needed to improve their risk management strategies to cope with new threats in an age of global terrorism. In this article, we outline some of the changes this new awareness has wrought.

A New Look at Risk Management

It is safe to say that risk management was not the top priority for most art world insiders prior to the terrorist attacks on the World Trade Center and the Pentagon. Typically, collectors, dealers, and museum directors and their advisors concern themselves with protecting collections against routine hazards, such as fire, theft and damage. During the 1990’s the big new threat to valuation in the art market was the danger of inadvertently acquiring a looted or stolen work; worse was the discovery that a tainted work with defective title could already be in the collection. World War II restitution issues combined with beefed-up foreign or national cultural patrimony regulations generated stricter standards for good faith purchasers to demonstrate their due diligence by researching and verifying gaps in provenance [history of ownership]. Before September 11 faulty provenance would have probably ranked higher on the art world’s scale of “clear and present dangers” than the threat of terrorism.

However, last September’s attacks have forced collectors and professionals involved with arts issues, including accountants, appraisers, attorneys, collections management specialists, conservators, framers, insurance brokers, shippers, and underwriters to discard traditional assumptions and reassess their client’s current needs within the context of urgent and undefined new challenges. According to Crain’s New York (Nov. 19 “WTC Losses $100 million”) insurers estimated the value of lost public and corporate art following the collapse of the WTC buildings in lower Manhattan at more than $100 million dollars. Cantor Fitzgerald L.P. owned a major sculpture collection. Silverstein Properties, Inc. acquired several valuable site-specific works, including a mobile by Alexander Calder ($2.25 million) and a tapestry by Joan Miro ($2 million), among others, originally commissioned by the Port Authority of New York & New Jersey. Add in the works of art lost or damaged in the private collections of lower Manhattan residents, and the overall loss only increases.

The worst case scenario of a total loss concerning art is a very rare occurrence but the events of September 11 demolished that long-held assumption. From now on risk managers for private, corporate and public art collections need to anticipate the possibility that an entire collection might be lost or destroyed in an single event and organize special fine arts insurance coverage accordingly. “Loss Limit” policies that underestimate total loss probabilities and prevent insureds from recovering the full value of a total loss should be avoided.

Collectors should request insurance policy coverage for “Replacement Value”, defined by the Appraiser’s Association of America, Inc. as “ the amount it would cost to replace an item with one of similar and like quality purchased in the most appropriate marketplace within a limited amount of time.” This definition is applied, almost exclusively, to insurance policies. Replacement value, sometimes called Retail Replacement Value, is generally the highest valuation figure for personal property, including works of art.

Finding New Ways to Prepare and Preserve Collection Records

How many of the insureds with premises in the WTC had the foresight to duplicate and forward collections management data, including cataloguing, photographic images and valuation information to off-site locations? What if the back-up copy and documentation burned along with the objects? In that case, the financial recovery process becomes more subjective, more complicated, and ultimately, more prone to dispute. Collectors should protect themselves by updating insurance appraisals to reflect current values and to be thorough in their own record-keeping in terms of costs and provenance. Data should be copied and stored in a separate location from the art. It would not be a bad idea for collectors to request that their attorneys retain copies of appraisals and other collection-related data to be placed in a client’s permanent file. That would assure that there would be at least one copy of the client’s valuation documentation in an off-site location.

According to Robert W. Koo, founder of ArtManager Online Services, LLC, specializing in secure Internet-based collections management systems, collectors should keep in mind that they may need to keep track of collections that are stored or displayed in multiple locations. Koo added, “Another benefit of utilizing such services is the relative ease of updating values and information as well as adding and deleting items from the inventory.” In addition to remote data storage, collectors can work with their advisors online at any time or place, whether for collection building purposes or to modify data. (Chubb customers, click here to read about Masterpiece Manager, Chubb’s online collection management system.)

"Hearth and Home": Art as an Emotional Outlet

The frightening events of last year, from the WTC attacks to the anthrax outbreaks, remind us how little control we actually may have over our lives. Art collecting affirms that one can strive to re-establish a sphere of control by changing one’s ambiance and personal surroundings. Immediately following the September 11 attacks there was a surge in visitorship to cultural institutions. Throughout the nation museums were seen as places of refuge and tranquillity, offering spiritual comfort and renewal to an anxious and grieving citizenry. Travel restrictions, new security procedures and general anxiety over future terrorist attacks discouraged people from traveling. Collectors found that the contemplation of beauty and creativity can be a source of both pleasure and solace.

At the same time, people have been disinclined to go out as much as before and are spending much more time at home and at the office. Hence, enhancing the desirability and comfort of these spaces has become a new priority. People have recognized that it is prudent to pay much more attention to personal security. Since collectors view objects as an expression and extension of their personalities, protecting their personal property is simply another form of protecting themselves. Many collectors are increasing their insurance, despite higher premiums. Appraisers note an increase in requests for updated insurance appraisals from brokers, underwriters, and clients who suddenly feel the need to have current values for their tangibles. This impulse highlights one of the key post-attack trends influencing the art market in the past nine months, namely the return to “hearth and home”.

On another level, the art world serves as its own emotional outlet. The art market has repeatedly demonstrated that it follows a logic of its own. In fact, new research documents the art market’s resistance to wartime and recession, as well as the unpredictability of art prices. The Mei/Moses Fine Art Index, created by two New York University Stern School of Business Professors, Jianping Mei and Michael Moses, suggests that during three out of the last four major wars, art outperformed stocks. (“Art Markets During Wars and Recessions or Can Rembrandt Get You Through Wars and Recessions”)

While some people are reconsidering their priorities and making lifestyle changes, collectors are rallying. Debra Force, president of Debra Force Fine Art, Inc. specializing in American paintings and works of art, noted, “From my perspective the market has rallied since 9/11. Beforehand, it had been somewhat in the doldrums due to the economy. From what I have seen in the galleries and in the salesrooms, people feel energized to collect, either because they are looking for a diversion from the tragedy or because true collectors will always go for if they see the right thing.”

Increased “Localism”

Another post-9/11 trend can be described as “localism”. For example, diminished tourism from abroad and across the nation has prompted metropolitan area museums to refocus their marketing budgets upon local and regional audiences. At the same time, art fairs scheduled to take place during the autumn season adapted either by relocating (the annual Winter Antiques Fair took place at the New York Hilton because the National Guard was in its traditional venue in the Armory on Park and 67th St.) or, more dramatically, by cancellation. The organizers of Art Basel Miami Beach, a prestigious new international fair scheduled to debut in Miami last December was postponed at the last minute until this December due to uncertainties over international air travel, as well as new risks and expenses in assuring the safe transport of valuable art objects. However, Art Miami, a twelve year old local fair specializing in contemporary and Latin American art took place as scheduled in early January and enjoyed a successful run, both in terms of admission fees and sales.

In the past twenty years there has been a proliferation of art fairs. Some would suggest that the market is quite saturated and that too many fairs are indistinguishable from one another. However, fairs have proven themselves to be popular venues for gallery owners as well as buyers and sellers. Dealers have become more savvy and hence, selective, about which fairs work best for their clientele and areas of expertise. In the current climate in which clients are wary about venturing too far from home, fairs have conveniently evolved into a sort of branch office system useful for client development, cultivation and retention. The dealer and objects travel, the client doesn’t.

Even though Americans may be hesitant to travel abroad, they are not hesitant to buy when they see what they like. According to Gerald Bland, whose uptown Madison Avenue Gallery specializes in fine quality English furniture and decorative arts, “Despite the tragedy, the world realized after 9/11 that America remains the safest place to live and invest in. As Americans on the whole are more reluctant to travel, art and antiques are being brought here for them to purchase, strengthening the art and antiques market here.” Bland further observed that there were historical precedents for this trend following crises in the last century after World War I and during the Depression in the early 1930’s when English and continental dealers also established New York sales outposts.

Clearly, there is deeper anxiety and greater uncertainty about the future than the nation has experienced in more than a generation. But, with academic researchers now providing support for the contention that despite war and recession the art world marches to its own beat, one must conclude that, even with tragedies of such unimagined dimension, the art market possesses a remarkable resilience. It would seem that collectors are in a position to find more reasons than ever to continue to seek out objects to satisfy their passion without undue worry about the risk of suddenly declining values. As ever, values for the best and rarest works, the “freshest” works that have been off the open market for longest, continue to rise and reach new highs.