ESCALATING VALUES

A major factor in the fine-arts insurance market today is the anticipated escalation of prices at auctions this fall in London and New York, principally at Sotheby's and Christie's. Or, more accurately, record-setting and attention-getting prices at the fall auctions will create the expectation that the art market is poised for all upward spike following two unnerving years of general inactivity and flat prices post-Sept. 11. The Impressionist, Modern, and Contemporary. categories, in particular, now appear likely to be market leaders.

In short, results of this fall's major auctions are likely to be a classic double-edged sword for museums.

The first swing of the sword will be the almost automatic obligation to revalue the worth of art collections, if not soon after the auctions, then certainly at museums' annual insurance evaluation.

The second swing is likely to come if--as has been predicted in the press and anticipated by dealers and the auction houses--a new generation of younger, wealthy, determined buyers emerges in force at the fall auctions. This new wave of enthusiastic, knowledgeable collectors will need assistance from the growing number of firms, with insurance companies in the forefront, that already are tailoring services to suit them.

How important is the impact of a steady rise in prices of art in calculating premium prices? "Significant," says the Kimbell Art Museum's vice president and CFO Brenda Cline. "like many other museums, an important part of our annual insurance evaluation is to analyze the impact of rising art prices. It definitely is an important cost consideration."

From the insurance industry side, Nicholas Reynolds, vice president of underwriting for XL Fine Arts and Specie, is convinced that the inexorable rise in art prices over the past 20 years has been the dominant factor in calculating fine-art insurance premiums.

"Art prices have soared more than 20-fold since 1985," says Reynolds, who is based in Chicago. "The major museums, therefore, are feeling price pressure in two ways. Of course, they want to acquire new worlds for their own collections, but the substantial rise of prices curtails what they Call spend. At the same time, the regular rise of art prices in the marketplace have caused the values of museum art collections to increase far beyond the money that is available for insurance purposes."