Art Market Maneker: Freeports Concentrate Art Creating Massive $10bn Risk
(from FT)

The problem lies in the fact that many collectors mainly purchase art for investment purposes, using free ports in order not to declare where works are kept, as well as a way of avoiding taxes and duties.

The majority of the world’s art that is not on display, either in museums or private residences, is stored in a small number of tax-free ports across the globe, mainly in Switzerland.

Until recently, this was a world shrouded in secrecy, and insurers had no idea of the true value of the art treasures they were insuring, according to Adam Prideaux, a leading broker with Blackwall Green, a specialist art insurer.

Clients used to receive worldwide cover that allowed them to keep works in their house or in storage without the need to specify details.

Recent changes to Swiss customs laws mean that art stored at the country’s free ports must now be declared and descriptions, values and country of origin provided. Specific declarations are also now required by insurers. It is these changes that made insurers pay attention: in trying to collate all this information, they started to realise the level of risk involved, and have been prompted to scrutinise cover more closely.

Each of the main ports is thought to house an average of $10bn of art, a staggering figure. “It’s a huge value of art; it goes into hundreds of billions of dollars [worldwide],” Prideaux says. “But they really don’t know. The pressure they’re under – they’ve got to find out what’s there.”

Despite high-security warehousing, there is just too much value and too few insurers. They simply would not have enough funds to pay out in the event of a catastrophe. This has led insurers to think the unthinkable – and to start preparing to protect themselves against the worst possible scenario. What if an aircraft crashed into one of the free port warehouses adjacent to an airport? Insurers could not cover the loss if a single warehouse containing, say, a Rembrandt, a Titian and a couple of Picassos were destroyed. Picasso’s “Child with a Dove”, for example, is on the market and it is thought it will fetch about £50m.