Freeports, specie, and hubs of culture: unique and concentrated risks

Over the past 30 years, the use of freeports has significantly increased, with dozens of sites available for storage of paintings, sculptures, antiquities, and other precious and valuable items, writes Bryant Reyes, Senior Analyst, Risk Management CL Solutions, in the June edition of IUMI Eye from the International Union of Marine Insurance.

He noted that the Geneva Freeport alone was estimated to hold 1.2m works of art. This compares with the Louvre, which has 460,000 works in its collection and displays only 35,000.

Reyes asked: “Given this high concentration of specie, how do we accurately assess the risk of losses from catastrophes at all stages of storage, transportation, and display?”

Geneva might not be overly susceptible to natural catastrophes, but the Port of Tianjin event taught the insurance industry a painful lesson when it came to keeping billions of dollars of exposure in a single geographic location, Reyes noted.

He said that there were two major hurdles to accurately estimating the risks:

1. quantifying the exposure accumulation;

2. assessing the true vulnerability of the artwork housed in such specially designed facilities.

Reyes said that the accurate recording of exposure value and location was vital if the potential catastrophic loss was to be estimated. “Storm surge, for instance, is highly sensitive to exposure positioning. Storage methods may also vary, from climate-controlled warehouses to display in museum quality venues or private homes.”

He also noted that vulnerability to earthquakes could be vastly different to windstorms or flooding.

The unique considerations in fine art created hundreds of possible loss scenarios necessitating specialized modelling to estimate losses in a granular fashion. However, Reyes warned that, even with thorough exposure data and detailed modelling, loss uncertainty was considerable and needed to be kept in mind to accurately estimate the level of risk associated with specie exposure.