Art and specie
In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for art and specie.
Key developments in 2021
Non-fungible tokens (NFTs) became increasingly popular throughout 2021. NFTs are "one-of-a-kind" tokens representing digital or physical assets. Whilst one Bitcoin will have the same value as another Bitcoin, the value of an NFT is set by the highest bidder. NFTs provide unique proof of ownership and the record of ownership cannot be modified. In March 2021, digital artist Beeple sold an NFT for US$69 million at Christie's and in October 2021, the total value of NFTs issued on the Ethereum blockchain was estimated at US$14.3 billion.
The NFT market is immature (and volatile) and insurers are only just beginning to consider the potential exposure. Risks associated with NFTs are increasingly apparent: broken links have seen the art that an NFT represents disappear, accounts have been hacked, devices damaged, and passwords forgotten. If the value of certain NFTs remains high for the rest of 2021 and into 2022, then the market for NFT insurance products may grow. The existing gap in protection represents an opportunity for insurers to develop suitable products: likely to be a hybrid of property, crime and cyber coverage.
There are some cryptocurrency insurance products available, but these are unlikely to cover NFTs. Most existing fine art policies provide coverage for physical loss or damage and NFTs, as intangible assets, do not fall naturally within this remit. For example, in its standard policy wording, one well known art insurer defines "Art" as "anything that could be bought or sold at a reputable auction house…" (which would include NFTs), but excludes liability for "damage to information on computer systems or other records, programs or software…" (which would exclude NFTs).
What to look out for in 2022
2021 has seen increased calls for accountability and decolonisation in the art world and, in turn, an increased risk that items will be claimed by their origin states. Restitution is in the air in museums: the German government has announced the return of Benin Bronzes to Nigeria and an ancient Gilgamesh tablet was returned to Iraq by US authorities. Restitution is part of a wider cultural shift in attitudes towards the history of Western colonialism.
The impact of this shift on the commercial art market and private collectors has been more mixed. Outside the US, there has been limited enforcement of restitution in these spheres and the UK is in fact in the process of repealing an import prohibition derived from EU law designed to stop the import of goods unlawfully removed from their origin states. However, as we move into 2022, the success of restitution claims among museums might encourage origin states to pursue the commercial art market and private collectors as well.
If 2022 does see a rise in restitution claims against private insureds, then there is likely to be a knock-on effect of increased claims against insurance policies. Insurers may wish to prepare for this possibility, perhaps by re-assessing the extent to which cover is offered against this risk.
Written by Connie O'Conor.
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