An exhibition of strength: Managing risk in a virtual art world
From galleries to auction houses and dealerships, the fine art world has faced a turbulent 2020 as it adapts to survive the effects of a global pandemic and restrictions on public life. Like so many parts of the economy, the sector had to act swiftly, moving its affairs almost entirely online to continue to reach markets, and manage imports, exports and the day-to-day running of their business. Beazley underwriter Ariane Roux-Pagès considers how the sector is responding to this new trading environment and how the transformation is changing organisations’ risk exposures.
The Covid-19 pandemic has impacted every aspect of how we work, live and learn. Business models have been overhauled and transitions to new ways of working have accelerated, especially around technological adoption and introducing more flexible employment practices. In the fine art and jewellery sector, the story is no different.
Galleries and exhibitions felt the heat in the early days of the pandemic, closing their doors in March to help reduce the spread of the virus. While they have since reopened with more limited capacity, there have been gloomy predictions of up to a third of France’s commercial galleries shutting completely due to crippling losses 1 and the upfront financial burden of shifting to an online model.
Meanwhile public institutions have been postponing exhibitions and have introduced limited and online-only ticketing.
As pressure has mounted, a strong survival instinct has taken hold and many organisations have dug deep to find ways to adapt their models and build their resilience. In a sector that depends on the strength of collectors’ appreciation for the aesthetic, ensuring that potential buyers can still get a sense of the art in a virtual setting has been paramount for galleries, auction houses and art dealers. With most auctions moving entirely online, auction houses have sought to enrich the virtual experience. Sotheby’s for example offered an augmented reality app that enables clients to visualise one of their paintings in their own home and anticipates 80% of their auctions to become online only. 2 While most major art fairs were cancelled this year, some have chosen to experiment and to proceed with the show in a different format. This has included focusing on the local art scene to avoid negotiating travel restrictions for shipping international art works and creating online viewing rooms.
Without underplaying the dramatic impact on the art world, in many ways the pandemic has accelerated, rather than been the catalyst for, a shift to online trading that was already underway. The growing online art scene of virtual galleries and auction houses has taken off during lockdown. Traditional auction houses already registered strong interest from clients for remote bidding pre-lockdown. When restrictions began to lift in France, some auctions combined virtual bidding with a socially distanced in-person option for those that prefer to be in the room. Sales figures suggest that rather than dampening the market, the pandemic has invigorated the top end of the art world, with some auction houses reporting exceptional financial results in the first half of the year. 3 Through online trading it has arguably become more accessible and opened to new buyers, particularly younger generations.
Meanwhile economic volatility is again driving investors towards ‘safe haven’ asset classes such as art and gold. This shift towards digital trading has changed the operating models for those in the fine art and jewellery world, which has, in turn, created new risks that need extra thought.
As more fine art and jewellery is bought online, transporting and sending high-value items has become a bigger consideration for the seller.
Over the last few years, the increased police and army presence in French cities to prevent terror attacks has probably helped curb the occurrence of armed robberies. But as a result it can provide an incentive for criminals to turn instead to more discreet thefts. While we see a higher prevalence of break-ins through neighbouring, empty properties, we fear that, in parallel, the higher reliance on postal and courier deliveries due to the pandemic has led courier and transport companies to hire employees or temporary staff with less careful screening, and that more items will get “lost” during their shipping.
With more transits occurring and their increase in average value, it is important that sellers of art or precious items review their level of cover to make sure their insurance reflect the increased risk.
Separately, as the recession bites and gold prices go up, the demand for bullion and fine art increases; so too does demand for secure storage capacity meaning higher vault limits for commercial and private clients. Under financial pressure, some clients also consider using cheaper storage solutions, which are not always satisfactory. Again, with these new exposures and rising values it is essential that clients review their insurance policies, in terms of limits required and of accuracy in listing their locations and security measures.
Lastly, not only is the way that art is bought, sold and transported changing rapidly but as trading moves online, the risk of clients’ personal and financial data being lost or stolen is also heightened, and every size of business is affected. Cyber criminals will target weaknesses in security systems or trick people into clicking on messages designed to look legitimate. For businesses, this is compounded by the fact many employees work from home using their personal hardware, which often lacks the same technical protections that a corporate network is likely to provide. 4 We recommend that organisations constantly update their cyber security measures, train their employees in phishing risks – especially as more people work from home – and consider cyber cover to protect them in case of a crisis.
With a rapidly evolving risk landscape it is essential that clients are aware of their changing risk exposures, and work closely with their broker and insurer to take pertinent preventative measures to avoid losses, and have the cover they need in place when a claim occurs.
About the author:
Ariane is an underwriter within Beazley’s global jewellery, fine art & specie team. Based in Paris, she specialises in fine art & jewellers’ block risks in mainland Europe. She joined Beazley in 2019 bringing a deep understanding of the French & European markets having spent 13 years as a broker.