Insurance Frauds in the Art Business

Insurance frauds of all types often become more prevalent during economic downturns, as those who liquefy assets find that the market values of their assets are less than they expected. If property owners cannot sell assets for a profit, or even what they paid for the assets, they are often tempted to collect the sums for which their assets are insured. A poor economy can make the temptation even greater among art collectors and art dealers, who face a volatile market. Works of art can sell for much more than their assessed value if eager buyers compete with each other at auction. However, the insured value of a piece of art can be significantly greater than its market value if too many potential buyers decide to postpone decorating or collecting until business improves.

In most ways, insurance frauds involving art are not different from other frauds. Owners of the items stage robberies and file claims. Art dealers take advantage of real robberies and claim losses on items not taken in the robberies. Claimants inflate values of stolen items. A collector may sell an item at auction and then file an insurance claim several years later, claiming that he or she sold the item. If investigators cannot prove that the collector knew of the sale, the collector may avoid punishment for fraud. Organised criminals often purchase jewelry, antiques and pieces of art with the proceeds of their criminal enterprises. They then insure the valuable items and report them as stolen or destroyed. The money that they receive from insurance firms has been washed of its illegality.

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What makes art insurance frauds different than other frauds is the ambiguity of the values of many pieces of art. Market conditions can cause the value of items to increase or decrease dramatically. Different experts may have differing opinions on the values of pieces of art. In many cases, fraud starts with the valuation of an art object. Minor works by major artists are given greater values than they deserve because of the artistís name. Unscrupulous art dealers may forge the provenance of unmarketable pieces of art. One tactic used by those who conspire to defraud insurers exploits the ambiguity and complexity in art object valuation: They purchase policies in August, when senior insurance executives and underwriters are on vacation. Insurance firms are starting to specifically address frauds involving art by insuring more art objects individually, rather than covered with other property owned by the insured. Each art object is insured for an agreed upon sum and revalued at specific intervals. The holder of the policy or the insurance firm may request a revaluation upon the death of the artist, when the value of a piece can rise dramatically.

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