A Consumer’s Guide to Insurance Appraisal Reports: Do You Need One and How to Get One?
Many people are familiar with the concept of insurance coverage in the context of car insurance or travel insurance, but knowledge about insurance coverage of personal property such as fine art or antiques is much less widespread. In my own appraisal firm, I answer many questions from potential clients who are unsure if they need an insurance appraisal report or what the process is to get one. I’ve written this article as a general guide to help empower consumers with knowledge about insurance appraisal reports. It incorporates many of my most frequently asked questions and answers. This guide is designed to help readers determine whether they really need an insurance appraisal report, and if they do, what the typical process is for working with an appraiser to have one prepared.
The world of personal property insurance is filled with all sorts of fun vocabulary like “inland marine policy,” “blanketed,” and “rider,” none of which really make any sense unless you work in the field and are familiar with their specific meanings. I’m going to get to all these terms and define them later, but the very first thing I always recommend in my conversations with potential clients is for them to pull out their current insurance policy and check the coverage. Some homeowners policies can already be sufficient for strong coverage of all items in the house, and a written appraisal report for itemized coverage may not be necessary. The best first step is to confirm what coverage you already have.
Sometimes clients can’t find their policy documents or may not have ever received the full paperwork describing their specific coverage details. In those instances, I recommend they call their agent or local insurance office to ask what their policy covers and confirm their current level of coverage. In my experience, the insurance agents are very pleased to hear from the clients and will take time to explain what their current policy covers and what options they have for adding to it. Even if the potential client finds out an appraisal is not needed, it makes me happy as an appraiser to be able to help. The client now has peace of mind of knowing they are already well-protected and don’t need to move forward with engaging me to prepare an appraisal report.
If you find you do need an appraisal report, how to get one? I recommend searching for an appraiser who is USPAP-compliant and who has a strong connoisseurship background in the types of items you need to have appraised. The “Find a Member” search tool on the websites of the major professional organizations for appraisers (International Society of Appraisers, Appraisers Association of America, and American Society of Appraisers) can help you locate an appraiser whose service area is close to you.
Insurance agent Andrew Elliott, CLU states, “In our office, we highly encourage our clients to obtain appraisals for high-valued items or even sentimental pieces passed down through family generations. Whether the item be jewelry, fine art, or antique furniture having a detailed appraisal report allows our clients to feel comfortable with their insurance policy coverage and provides guidance when there is a claim. If no recent appraisal exists after there is a loss such as a fire, then it is very challenging for the property owner to replace or restore the item(s) and the insurance company to settle their claim. If you have questions or would like us to review your options for coverage with our office then please feel free to reach out by email to firstname.lastname@example.org.”
After checking their policy documents or talking with their insurance agent, if clients do need a written appraisal report to obtain an appropriate level of insurance coverage for the art, antiques, and other personal property in their collection, when they call me the next step I recommend is to find out what their scheduling threshold is. A “scheduling threshold” is another insurance world phrase that can be confusing, but what it basically means is the amount of money an item must be worth to require that an insurance appraisal report is needed to protect it with insurance coverage. Any item that falls under a scheduling threshold could be protected with blanketed coverage based on the property class or scheduled individually at its value without an appraisal requirement. Sometimes, the insurance company could use a detailed receipt or invoice for an item to schedule it at its valued amount.
So what does this really mean? Say a potential client has a scheduling threshold with her insurance policy of $5,000 retail replacement value, and she owns a painting that is worth approximately $20,000 retail replacement value. Because the painting has a value above the scheduling threshold, she would need to hire an appraiser to prepare a written appraisal report for the painting to have it “scheduled” with itemized coverage on her insurance policy in order to be able to obtain coverage for the painting in the event of damage or loss. If she didn’t have an appraisal report prepared for the painting and it was subsequently damaged, she wouldn’t be able to obtain a settlement for the actual retail replacement value of the painting because she hadn’t “scheduled” it for itemized coverage with the appraisal report.
Let’s say this same client also has a painting in her collection that has an approximately $3,000 retail replacement value. The painting doesn’t need an appraisal to be covered because it falls below the scheduling threshold and is already protected with blanketed coverage. However, relying on the blanket coverage for your home insurance policy could be subject to your policy deductible if there is a loss. It may be still beneficial for you to review your coverage options for the item(s) to see if you can schedule it with a lower deductible amount or no deductible at all.
So what does blanketed coverage really mean?
Blanketed coverage is a structure of insurance that “blankets” multiple items with coverage protection within a single policy having one total amount of insurance that is applied to numerous items. The purpose of this structure for a consumer is that rather than having to document the precise value of every item they would like to have insured (which is what they can hire an appraiser like me to do for them), with blanketed coverage, they just set a total monetary amount for coverage and all the items they would like to have insured count against that amount of insurance financial compensation in the event of loss of the items. The tricky part is making sure the blanket is set high enough that one is adequately protected. It works very well in settlement claims against the blanketed coverage if only one or a few items are destroyed (the vase breaks, a small fire damages the paintings in one room) but may be insufficient if an entire house burns down and all the art and antiques are lost.
Depending on your specific situation, it can be beneficial to have a mixture of both blanketed coverage and scheduled coverage for your art, antiques, and household furnishings, with the higher-value items protected with an itemized appraisal report and scheduled coverage that would pay a settlement for the full retail replacement value in the event of loss, and the lower-value items covered as a group with blanket insurance. This will prevent you from encountering a situation like potentially maxing out your blanket coverage with the $100,000 painting that would have been better suited for scheduled coverage, leaving you without adequate compensation for your other items lost.
Often in my assignments I work together with the client and the client’s insurance agent to consider the specific policy’s scheduling threshold and the scope of the client’s collection find the right blend of scheduled coverage and blanketed coverage that will best protect the client. Sometimes items that fall under blanketed coverage are included in the appraisal report anyway if the client wants to have them fully documented. Then the client’s insurance agent can simply classify certain items in the appraisal report for the blanket coverage and other items in the appraisal report for the scheduled coverage. Each client policy can be different, so the key thing is to ask the questions that will help determine what scope of work will best suit the client’s needs in the situation. I can then select the items to be appraised in collaboration with the client and the client’s insurance agent to make sure the resulting appraisal report will provide the appropriate level of protection.
My chief advice to potential clients of insurance appraisals is to remember that it’s ok to ask lots of questions, both of your appraiser and of your insurance agent. The lingo can be very arcane and confusing, such as these phrases:
Inland Marine Policy: originally, this was adapted from insurance for boats (a marine policy) and used to describe insurance for things that moved around but not on the water (i.e. inland). Movement was the crucial theme, describing coverage for things like cameras, catering equipment, and musical instruments that don’t remain in one fixed location. Over time though, an inland marine policy has expanded its associations beyond things that move and into the context of referring to a type of special extra insurance, which sometimes includes valuable articles policies for personal property such as art and antiques that may not necessarily move. For a consumer, it can be completely mystifying to hear about an “inland marine policy” for an art collection as the phrase makes absolutely no sense without being aware of the evolution of the terminology within the insurance industry.
Rider: A rider is an extra option of protection that is added to an insurance policy. A policy for scheduled items (like those an appraiser would appraise in an appraisal report) would be a rider, which is also a type of inland marine policy. A rider is also sometimes called a floater (believe me, I didn’t come up with these names).
Another very important thing for consumers to determine is what type of value your insurance coverage is set at. Nearly all my clients have held insurance policies that set the value level for coverage at the retail level of the market, but that may not be the case in every situation. Some policies may use a different level of the market that incorporates downwards adjustments for depreciation in the appraised value. Before I start preparing the report, I like to confirm the policy details with the client so I can make sure to source pricing data from the appropriate level of the market.
Retail pricing is based on the asking prices of art galleries, antique dealers, and others operating on the retail level of the market. This level of the market is used traditionally in insurance, rather than auction or other lower levels of the market, because the element of time is considered. In the event of loss, you will want to be able to replace your lost item within a relatively short period of time by sourcing a similar replacement that is readily available. Generally, this involves paying the retail markup to obtain immediate availability rather than potentially waiting years for a similar item to surface on the auction market, even though you likely would pay much less at auction than from a dealer.
Retail pricing can be substantially, often exponentially higher than the prices that could often be realized in the secondary market or in an auction sale. It’s important for consumers to remember that an insurance appraisal report does not necessarily double as a planned sale report if they plan to sell certain items in a different level of the market. Galleries and antique dealers have an enormous amount of overhead they must carry as part of sustaining their professional operation: rent and utilities, frequently in expensive urban shopping districts, staff salaries, marketing, insurance for the inventory, and trade show fees. Inventory can also sit in a gallery for years before finding a successful buyer. These hefty carrying costs are one of the reasons that the retail markup can be so much higher than what the same item might sell for at auction. As a consumer who needs to replace a lost item with a similar one in a reasonable period of time, you definitely will be glad your insurance settlement is based on gallery prices. However, it’s critical to remember that if you try to sell the appraised item yourself without working through a gallery or similar venue that accesses the retail level of the market, it is extremely unlikely you will be able to realize a profit matching the appraised retail replacement value of the work.
Proactively reaching out in advance to your insurance agent and confirming the key details of your policy will allow your appraiser to prepare an appraisal report that will best fit your needs and provide you with the appropriate level of protection for your art and antiques. Developing an understanding of the structure of your policy will also help you assess your optimal coverage levels in the future so you can make sure you aren’t over or under insured as you add to your collections or the market shifts.
A final recommendation from my perspective as an appraiser is to remember that an appraisal report is not something you do once and it lasts forever. When a client tells me “I’ve had this appraised previously,” more often than not the appraisal report they pull out to show me is from the 1980s, and the values have absolutely no relevance to the current market. The market is constantly shifting, and it is recommended to review and update your insurance appraisal reports approximately every 5 years to make sure you aren’t paying too high an insurance premium for items that have depreciated, or that you are insufficiently protected for the works by an artist whose career has taken off. Your insurance company may also be hesitant to pay out on a claim against a policy that is decades out of date.
Regular appraisal updates approximately every 5 years don’t need to be a major undertaking. Developing a positive long-term relationship with your appraiser is a great way to handle updates, as it takes much less time (and thus is less expensive for you) for the same appraiser to re-inspect the items and update the appraised values using her previous report as a foundation than for a new appraiser to start all over from scratch. The most important thing to remember is that you as the consumer feel confident in your knowledge about exactly how your specific insurance coverage works to protect you. It’s your right to ask questions to obtain this knowledge — from me and my fellow appraisers, and from our professional counterparts in the insurance world.