Unlike general lines of insurance where the main drivers of premiums and capacity include inflation natural catastrophes and claims numbers - specie insurance moves differently.
This niche product covers high value, portable items including fine art, wine collections, classic cars, diamonds and gold bullion. Felicity Sheppard (pictured above), specie underwriter for Keystone Underwriting, said the market value of the item is a primary driver of insurance costs.
The specie insurance market, she said, is generally stable from year to year in terms of claims numbers and capacity. This market, said Sheppard, doesn’t see the same dramatic ups and downs suffered by some other insurance lines.
So brokers – and insurers – who become involved in this space don’t usually have to contend with steeply rising premiums, capacity challenges and difficult risk management issues.
But if a broker has a customer who wants to insure their Picaso painting or fine French wine, specialist knowledge is required - or the help of someone like Sheppard.
She told Insurance Business that many of the brokers she deals with – she has about 500 specie policies on her books – haven’t dealt with this sort of insurance offering before.
She gave the hypothetical example of a construction firm insured through a broker whose owners also have personal assets like jewellery or watches that they want to insure.
“The broker could have this little area of need for a very specific type of cover but their main business is covering those commercial construction businesses,” said Sheppard. “We often pick up things like that.”
The other portion of her insurance business, she said, comes from brokers who are focused on the specie space.
“Some of them are well into the art market, or they’ve got a lot of connections to galleries, particularly little high street galleries,” Sheppard said.
Despite the stability of the specie market, Sheppard has noticed a couple of areas where both valuations and premiums have gone up quite steeply in recent years: pink diamonds and gold bullion.
The reasons for the recent rise, she suggested, include political and economic instability influencing the preferences of collectors – and also a shortage of supply.
In 2020, Australia’s most profitable diamond mine closed down. For nearly 40 years, Rio Tinto’s Argyle mine in Western Australia’s Kimberley region was the world’s biggest source for rare pink diamonds.
Sheppard said, since the mine’s closure, the rising value of these pink diamonds is one of the changes she’s noticed in her specialty field. The short supply of pink diamonds, she said, is pushing up their value and the cost of insuring them.
“As 2024 unfolds,” said a recent article on the website of Australian Diamond Portfolio. “We see several catalysts that will help push the price of pink diamonds higher.”
One of the catalysts, said the article, is high inflation.
“Pink diamonds will continue to benefit from this, as investors gravitate toward hard assets with a history of protecting, and indeed growing purchasing power in periods of higher inflation,” said the article.
Super funds are among these investors, said Sheppard.
“Quite often super funds have these [pink diamonds] as assets and they are giving me valuations every year – as they’re supposed to – because they’re always going up in value,” she said.
Another collectible that Sheppard is seeing rise strongly in value and therefore coverage costs, is gold bullion.
“Bullion at the moment too, I think probably because of world conflict and because it is such a liquid asset, people are putting more of their money into that sort of thing and it’s also going up in value at the moment,” she said.
According to ABC Gold, the price of this precious metal has steadily risen for most of the last 20 years. The price per ounce has doubled in the last six years and is now sitting at about $3.500 per ounce.
During periods of global instability, investment experts say gold – unlike property or money in the bank - is seen as an asset that holds or increases its value. The current era of high inflation, controversial elections and wars in the Ukraine and Middle East is no exception.
“Gold is a safe haven that investors will gravitate to during times of uncertainty,” said Phil George, a private wealth investor to the ABC report.
Are you a broker involved in specie insurance? What interesting private collections have you found insurance cover for? Please tell us below
