Entirely sensible

National Gallery bosses have admitted that none of the museum’s works are insured – with staff relied upon to protect the priceless masterpieces by ‘intercepting lunatics’.
The institution’s chairman Hannah Rothschild revealed the art in the central London building is worth so much that the premiums are unaffordable.
Instead, room attendants are responsible for keeping the works safe – with members of the public also stepping in during two recent attempts by vandals.

The pieces are never going to be sold. So what would be the value of an insurance payment if they were to be damaged or stolen? Thus, why bother?

45 comments on “Entirely sensible

  1. Bit of a head scratcher for the insurance broker too. How do you value something that is priceless?

  2. You might not get theft insurance but how about restoration insurance? I suppose self insurance would be cheaper, especially if you have mostly in house experts.

  3. Could they insure against loss of income if the gallery had to close part of the exhibition?

  4. “How do you value something that is priceless?”
    You don’t. You just set a maximum insured value.

    I wonder whether any potential crooks take comfort from knowing there is no insurance cover – one less aggrieved party that might be inclined to spend millions recovering a loss?

  5. It’s free to get in isn’t it (re lack of income)? We take the kids once a year or so and never pay anyway!

    Re insurance, I suppose if (hypothetically) 50 paintings were destroyed they would want ideally to buy in stuff to replace them?

  6. The Royal Mail don’t insure their vans* either- they self insure. Ditto for the fire service with their engines.

    The premiums would far outweigh the actual annual losses.

    It’s only us poor folk who need to insure.

    *A question I cannot answer easily is- how does self insurance work from a RTA perspective? AFAIK, the Road Traffic Act still requires insurance, and by self insuring do they have to have a policy somewhere naming themselves as insurer? Or is there some exemption as they are ‘Royal’? OR do they buy RTA insurance, and simply meet all the non RTA stuff out of their own pocket?

  7. Buy from where? Not really an active market in old masters to replace a significant quantity. Most of the temporary exhibitions in the “free” galleries are paid entry (to subsidize the free entry in the permanent collection). They probably have some insurance for being on their own site to cover repairs or destruction ( a couple of £100k – £1m) as the odds on loosing a significant portion of their collection is remote. Better to spend the money on salvage training, fire compartmentalization and security systems.

    Business interruption insurance is normal in the sector. Don’t forget significant income is derived from gallery catering and shopportunities, so if you gave to close even a “free” exhibition you’ll take a hit.

  8. Interested,
    The stuff on display is the tip of the iceberg, they won’t need to go into the market.

    The Government has its own art collection as well, the stuff not being used is in a building off the Tottenham Court Road, some of it by famous artists.

  9. Is self insurance not the same as a floating charge over assets? If you have a strong enough balance sheet and the risks are not systematic can anyone do it.

  10. Many large companies do it. Oil majors tend to self-insure for example. OK, separately capitalised subsidiary and so on, maybe buying out a chunk of reinsurance, but generally everything other than Armageddon is self-insured. Many larger US companies self-insure health care costs for the employees (contract out to an insurer to manage, but carry the costs internally). It’s entirely common above a certain size.

  11. ‘Buy from where? Not really an active market in old masters to replace a significant quantity. ‘

    The market might become more active if the money was there. You’d pay a long way over the odds, but it’s the UK government so just borrow a few more billion.
    I wouldn’t put it past them, either.
    But I take your point.

  12. Had a look not so long back at blanket corporate policies – stuff that will cover me and the wife as impossible to get travel or life insurance for either of us that we could ever claim on.
    So a blanket policy to cover regardless of circumstances and health.

    Expensive. When you see adverts for £7 a month life insurance, try closer to a weekly wage.
    To cover 2 people who are no more likely to die while employed than anyone else. That was just the corporate life insurance, haven’t had a reply yet on the travel.

    Can understand companies self insuring where they can. Its cheaper.

  13. When I worked for the Met Police back in the 80’s none of their vehicles had insurance. In the event of an accident they always paid the third party costs regardless of blame. It used to be that anyone could drive without regular insurance as long as you lodged a considerable sum of money with the Crown, but I don’t know if this is still the case.

  14. It’s like most local authorities don’t insure their buildings, that’s what the reserves are for. (Looking at you, Grenfall complainers)

  15. Some years ago I met a chap whose job was moving artworks. He charged a fortune because goods in transit were low risk but high stakes.

    It’s possible that DHL has eaten his dinner but I doubt it. Risk may be lower – fireproof boxes, hidden trackers, etc – but stakes are een higher.

    I can’t see any museum curator in his right mind putting the Mona Lisa in a cardboard box and handing it over to a bloke with a bar code reader.

    Possibly insuring loans from private collections is a requirement, best done by the gallery not the owner.

    So we’re not getting the full story here, methinks.

  16. Insurance:

    premiums = claims + admin + profit

    The big corporation I worked for had no insurance on facilities, as the company had enough capital to cover losses, without paying someone else’s admin and profit.

  17. Gamecock: if I understand correctly (doubtful) insurance company profit isn’t so much from premiums as it is from having a large pot of money to play with.

  18. Properly done (correct valuation, correct-enough quantification of risk) the advantage of insurance (wherever sourced) is that you can budget very simply for losses, thereby avoiding a hideous quarter when one of your buildings burns down unexpectedly.

    But I suspect that valuing things like a museum’s collection is a little iffy, and estimating the probability of loss is also a rather fuzzy operation.

    Hmmm.. Looks like I haven’t added much to the conversation.

  19. Crown Immunity used to apply to the legal requirement for third party insurance.

    Nowadays, the requirement to have an over-arching third party motor insurer does apply, even to central govt departments, but I think they set the “excess” really high and self-insure for the other risks.

  20. Good comment, MattyJ.

    I should correct as

    premiums + return on assets = claims + admin + profit

    Though as “return on assets” approaches zero, the first formula would be correct. In P&C, volume/cash flow may be so big for some companies that assets are minimal.

  21. “It’s only us poor folk who need to insure.”
    Even that is limited. You can opt not to go fully-comp for your car insurance, or you can accept a large excess to reduce the premiums.
    And of course every winter the news is full of people who went off on expensive winter sun holidays while leaving their house contents uninsured in their house on a flood plain.

  22. @ bif
    There are a number of companies that specialise in transporting artworks between galleries/exhibitions/long-term storage. Momart, now owned by the Falkland Islands Company* (renamed “FIH Group”) is the most visible and makes decent but far from extortionate profits. Your acquaintance was either extremely lucky or was a pal of the Museum Director.

    *Why? You may well ask, but I don’t know.

  23. When I worked for a Lloyds broker, many moons ago, self-insurance worked roughly thus:

    Suppose you have a large fleet of vehicles. In any year there is a probability of so many accidents, at so much cost. Instead of paying premiums, put it in a captive insurance fund, often off-shore, and insure against a catastrophe. So, a road accident would be met by the captive fund, but if a plane crashed on the depot, writing off 200 of them, then external cover would pay. It’s like having a very large excess.

    Dunno for sure, but I expect that such an arrangement, with suitable reserves and documentation, would meet the insurance rules for road vehicles.

  24. @ MattyJ
    That was largely, but not wholly, true until 2007/8. Since “real” interest rates went negative, the returns on their investments fail to cover the rise in the cost of reparing damages between taking out the insurance and paying claims. In the early 1980s, Eagle Star pioneered “Cash Flow Underwriting” that relied on investment returns that reflected out-of-date inflation rates to generate insurance profits reghardless of the quality of underwriting but that is half a lifetime ago.

  25. @ Nautical Nick
    For road vehices the owner is required by law to have a third-party insurer approved by the FCA. So, when I covered BP a dozen years ago they had to externally insure their cars and lorries under the RTA, but not the Macondo well.

  26. Wow. Something I know about again…

    Motor self insurance is really about high attachment points aka a very high deductible. You don’t need a captive to self insure up to a certain point but you do need cover with an insurer. You can set an aggregate amount over which the insurer steps in, providing cover against lots of small losses, and you can set a per event limit providing cover against someone killing young parents and leaving the kids needing lifetime care sort of stuff.

    You can self insure buildings completely but it may not be that sensible as catastrophic events happen more often than you might think. Schools are a good example. They used to burn down quite frequently across the Uk but as there are so many each authority was likely not to have a loss. And as someone else points out… it isn’t the replacement but the disruption so an ex-employer worked on faster recovery from a major loss as it was valuable to the LA to get up and running but likely they wouldn’t have done a recovery before so experts from the insurer, who do several a year, could step in.

    Different for motor as catastrophic claims will require lots of lawyers. Self insuring when your driver goes over a bridge and details a train causing massive disruption willbankruot you which is frowned upon hence the insured driver crackdown.

    Back to paintings. If something happens very rarely, is hard to value and possible to guard against then insurance is going to be expensive and come with lots of conditions as a small premium will never allow you to recover back to profit after a catastrophic loss which are likely to be the only sort you have.

    @john77. And where is Eagle Star now…?

  27. ‘Instead, room attendants are responsible for keeping the works safe – with members of the public also stepping in during two recent attempts by vandals.’

    This does seem to be the British way. RE: Previous thread on Americans carrying firearms, and Brits seeing no need for it. You survive on the good graces of the public. Occasional collateral damage is acceptable.

  28. @ Andrew Again
    Eagle Star was taken over by Zurich a long time after it had done the damage because there werre some good bits in the group.

  29. Thanks, John 77

    Thanks for that, it was a long time ago! Even so, perhaps there is scope to design insurance cover in such circumstances, with high excess, and bare minimum cover, with the rest self-insured.

  30. Are the works of art priceless or worthless?

    Me, I’m going with worthless, at least until there’s an open market for the stuff, without any government paying huge amounts for “art” largely to stroke ministerial egos and / or increase Sir Humphrey Appleby’s power and perks.

    I’m mostly retired I travel a lot and hit every museum I can find. Sometimes the stuff I see is laugh out loud funny, sometimes wonderful. I know tastes differ, but I expect there is a quite small supply of billionaires prepared to buy a crucifix in a jar of piss for big money, but a large supply prepared to buy a Matisse.

    I also eavesdrop on other museum visitors. My wife and I speak English with each other but we are also reasonably fluent in German and French. We are assumed by German and French tourists to be the usual unilingual Anglais so they speak freely amongst themselves. Americans and most Brits are less restrained in their contempt and easier to listen in on. Two years ago the comments I overheard at MACBA in Barcelona were even more funny than the worthless trash MACBA has on exhibit.

  31. @ Gamecock
    Assets are never minimal for insurers because sensible government regulations (a rare example where they are both necessary and exist) set minimum capital requirements so that the poor guy isn’t left low and wet if his house is flooded and the insurer cannot pay for the repair bill.

  32. @ John Square,

    “So- a bit like an annual sinking fund?”

    Hmmm.. not sure quite what you mean. As I understand it, a sinking fund is an allocation of money to a fund to replace an asset (or provide for repairs) a savings plan, if you like, at the end of its useful life. It would be purely a balance sheet item, a movement of cash from one account to another. There would be no P & L figures at all.

    So, if ABC Ltd spent £10,000 on an asset with a ten year life, the P & L account would see depreciation over that period (at, say, £1000 p a ), but that does not represent a movement of cash, but a matching of expense to revenues.

    Payments to a captive insurance company (a cost) replaces the expense of insurance. They both represent current expenditure. Hopefully, this should result in a cost saving, but it does not contribute to replacing the asset at the end of its useful life, as sinking fund would.

  33. @ Nautical Nick
    Yes, certainly – there are hundreds of “captive” insurance companies that reinsure 100% of the liabilities thaty their owners are forced to insure with a regulated insurance company. I think that BP considered its Third Party Liability insurance costs in the UK too small to justify the Board’s attention. their argument against taking out catastrophe insurance was that no insurance company in the world had net assets as large as BP so no-one could insure them against a catastrophe [a non-sequitur ‘cos Lloyds had in aggregate assets larger than BP’s accessible to pay claims – and a Lloyds underwriter might have made TransOcean check its BOP, which would have prevented the disaster]

  34. @Nautical nick

    You are spot on about ASF’s

    I was drawing a (cack handed) comparison between paying into a fund to cover predicted losses (uncertain) against the paying into a fund to definitely replace an asset.

    Similar, but different. Your note about P&L effects/differences was welcome, btw

  35. @ Fred Z
    My Great-Aunt was a talented amateur painter. My sisters and I have shared out those of her paintings that were not given away during her lifetime. They are far from worthless.

    “Priceless” does NOT mean “of infinite price” in English English

  36. “Assets are never minimal for insurers because sensible government regulations (a rare example where they are both necessary and exist) set minimum capital requirements so that the poor guy isn’t left low and wet if his house is flooded and the insurer cannot pay for the repair bill.”

    There are also state pools that state licensed insurers must participate in, for the same reason. Which is why I cringe when I hear politicians declaring we must allow insurance sales across state lines, to “lower cost of insurance.”

  37. “Even that is limited. You can opt not to go fully-comp for your car insurance, or you can accept a large excess to reduce the premiums”

    We were discussing this in the pub on Friday. When I bought my new car and got my insurers to quote, I then said I didn’t want an excess. They shrugged and accepted it at no extra cost.

    One of the group reckoned that if you increase the excess too much they start to raise your insurance. Not sure if that is true but after a few pints it seemed plausible.

  38. john77: Likewise my German Opa Fritz, after whom I was named, was a talented amateur. I, each of my brothers and our cousins have a few of his scenes of Paderborn Germany on our walls.

    Now if only we could convince some Sir Humphrey to pay us a hundred mill each for them.

    As for “priceless”, it’s a very flexible word, often intended and understood to mean “very expensive”, which is how I took it. Many museums house things that are priceless in its other sense of “irreplaceable”, but really, everything is irreplaceable, even my Opa Fritz’s daubs. And insurance discussions require us to think of the money meaning.

  39. I take priceless as meaning ‘not for sale, at any price.’

    To wit: I came across an untitled 2006 Ford GT in Heritage paint (John Wyer Livery) at a car dealership. Salescreeps said, “It’s not for sale.” I said, “What if I offer him $3,000,000?”

    “He HAS been offered $3,000,000. Didn’t take it.”

    I’d say it’s priceless.

  40. @ Fred Z
    Good comment, but I still think that a “work of art” can have worth that does not depend upon price. I also have one painting that was given to me by the artist and two that my wife persuaded me to buy on two different holidays; there are also half-a-dozen that she bought which are IMHO worth far less than the ones for which I paid nothing.

  41. Can you not ransom stolen goods?
    As for artwork there are lots of rich folk would buy discretely (of course)

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