Children take crayons to valuable canvases, pets damage 19th-century Oriental rugs, climate control systems fail and damage vintage wines, priceless vases get knocked over and poorly placed elbows puncture famous paintings. These are the everyday perils of living side-by-side with a valuable collection—and they are why you have insurance.

But as prices for certain types of art have spiraled upward, premiums have risen, too, because insurers are trying to adjust policy values to keep up with the items they cover. This means collectors need to shop more carefully for policies and take better advantage of the services insurance companies offer along with their high-end policies, such as consulting on ways to mitigate the risks associated with a particular collection.

PINNING DOWN INSURANCE IN A FAST-MOVING ART MARKET

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There are two basic types of policies available for insuring fine art and other collections. One, a blanket or loss-limit policy, assigns a value to the collection as a whole, which serves as a cap on how much you can be paid for a total or partial loss. Separately, it caps the amount you can collect on any single item based on the worth of your most highly valued piece. So, for example, if you owned several dozen vintage posters and you knew the whole collection was worth about $300,000 and that your most valuable one was worth about $10,000 at the time you insured them, those would be the caps on your policy.

The other, a scheduled policy, lists every item in your collection and assigns a value to it (based on a recent purchase price or a third-party appraisal). Should you make a claim, the insurer will pay you based on that agreed-upon value. Some policies combine these two approaches, scheduling particularly valuable pieces and using a blanket policy for the rest.

But Charles Dupplin, chairman of the Art & Private Client Division at Hiscox in London, observes that “the difficulty in a fast-moving market is not having the option to insure for full value,” because the value of a piece might change substantially just a few months after you’ve purchased your insurance. “We’re all Bacon-minded this week,” said Dupplin in early February, soon after a Francis Bacon painting was sold at Christie’s London for a record $27.5 million—far more than expected. Anyone who owned a work by the artist very likely was instantly underinsured as a result of that sale and then again by Sotheby’s May auction of Bacon’s “Study of Innocent X,” 1962, which reached a new record of $52.6 million.

There are cushions you can build into your policy to guard against these rapid moves in the art market. Most typically, the insurer promises to pay whatever the current market value is for a piece of art, regardless of the agreed-upon value when you bought the policy. Often, but not always, insurers will cap this “mark to market” policy at 150 percent of that agreed-upon value. For example, if you insured a painting for $1 million, and it was subsequently stolen, the insurer would pay up to $1.5 million, if you can prove the painting had appreciated that much since the policy was written. “These are more expensive products,” Dupplin notes, and the onus would be on you to prove the appreciation had occurred, but these options are becoming more common in response to a faster-moving art market.