Why not put your year-end bonus into an investment you can appreciate every day?

 Are you struggling to decide whether to use your end-of-year bonus to treat yourself or invest the money to enjoy the benefits of compound interest? You can do both simultaneously by treating yourself to a beautiful piece of local fine art – an asset class that is proving to be growing in value over time.

The AfrAsia Bank South Africa Wealth Report 2019 shows that South African fine art prices have risen by 33% over the past decade, compared to an 18% increase globally.

I would therefore urges all South African art collectors to ascertain the current market value of their artworks and to ensure they are sufficiently covered with the necessary policy extensions.

Even if an artwork is irreplaceable, failing to insure it properly could result in substantial financial loss should something happen to it. Insuring these pieces for their correct value – taking into account the current valuation of the artwork, as well as any potential appreciation – is also becoming increasingly important in today’s inflationary market.

Local art collectors should obtain cover from an insurer that is able to offer a special extension under the household contents section, which caters specifically for the insurance of fine art and collectables. In addition to having access to a panel of professional valuators who provide a full assessment of replacement values, specialist insurers will also allow for future appreciation of the art.

Top five reasons why art collectors should ensure their art is properly covered: 

  1. Appreciating value

While household contents would usually appreciate by just above the inflation rate – currently between 7% and 10% – fine art can appreciate at a much higher rate.

  1. Death of an artist

The death of the artist can result in the replacement value of a piece increasing by as much as 150% in just one year, and the insurance cover should be adjusted for that appreciation.

  1. Commissioned pieces

In the case where an artwork has been commissioned, but is stolen or damaged before it is completed, proper insurance will allow for the deposit paid for the commissioned piece to be recovered.

  1. Exchange rate

As the value of local artwork is subject to the rand-exchange rate, cover is needed to safeguard against any sudden currency depreciation. This is particularly relevant given the rand’s high levels of volatility in recent years and the economic uncertainty that continues to plague South Africa.

  1. Transit

Whether the piece is newly purchased and being delivered to the individual’s property, or is being transported to and from an exhibition, it is vital that collectors specify the artwork in their insurance policy so that they will be able to submit a valid claim in the event of damage.

A properly documented inventory of artworks, along with their up-to-date valuation certificates, will prove critical when filing a claim. The more information, the better, so be thorough with details and include photographs for reference.

Despite the increasingly high valuations of local art, premiums for insuring art are relatively reasonable. Specialist insurers want to cater specifically to high-net-worth clients, so rates are generally very competitive for insuring luxury assets like fine art – especially if the policy is included as part of a consolidated insurance package.

That being said, it’s always important to shop around and ask the right questions to ensure you’re getting the most comprehensive policy on the market.