This section includes only a discussion of insurance needs specific to museums. It does not include insurance coverages common to other organizations, such as directors’ and officers’ insurance, liability insurance, bond coverage on employees, auto and building insurance, and coverage ordinarily offered to employees. Those coverages should certainly be considered, but they are not unique to museums. For more about them, see the Insurance Checklist published by Huntington Block.
Insurance companies compensate only for monetary loss. Since museum collections are often deemed to be irreplaceable, many museums choose to insure only their most important pieces of art. Therefore, the museum should first institute security measures to prevent loss or damage. Common security measures include controlled access, proper storage, crowd control, security training, inventory, record procedures, and careful packing and shipping during transportation. Without these steps, insurance premiums would be higher, and often coverage would not be obtainable. In any case, an insurance program is often viewed as the last line of defense.
Should insurance be considered necessary, collections insurance falls under the heading of fine arts insurance, even if the museum collects something other than art. In order to secure appropriate coverage, the museum should first determine how the pieces in the collection support the museum’s mission and then identify the risks to those pieces. Trevor Jones in Active Collections discusses tiering the collection so that the most significant pieces receive the best security and care. The museum should then identify the risks to those pieces so that it can secure appropriate coverage.
Sean Tarpey includes some important considerations in his “Insurance” chapter of New Museum Registration Methods, a used manual edited by Rebecca A. Buck and Jean Allman Gilmore:
- Does the proposed coverage specify the classes of property insured (permanent collections, loan collections, and objects with joint insurable interest, such as promised gifts and bequests)? Which categories of property are not covered, and can those properties be covered under separate policies?
- Does the policy clarify the locations that are covered? If coverage is restricted, the museum may need extra coverage for objects shipped beyond the designated coverage area.
- The museum might be unable to afford a policy that covers all perils, but it should negotiate the removal of restrictions that inhibit its mission.
- Will the valuation be scheduled or the fair market value at the time of loss?
Marie Malaro adds the following:
- Is a pairs and sets clause important? Such a clause allows the museum to claim at total loss if any of the pieces are lost. In that case, the remainder of the set becomes the property of the insurance company.
- Is a buyback provision included? With such a provision, the museum may buy back an item that is recovered after the claim has been paid.
- Who bears the responsibility for diligently pursuing a loss? Usually, the owner of a stolen object must take reasonable measures to pursue the loss, but since the insurance company becomes the owner after it pays a claim, which party assumes responsibility for pursuit?
- Is it prudent to include a deductibles or franchises provision to reduce premiums? In such cases, no claim is paid if the loss falls below the stated deductible or franchise. The museum must weigh the potential cost of covering the losses below the premium against the savings of the reduced premium.
Finally, look at the Insurance Handbook for Nonprofits glossary developed by the Nonprofit Risk Management Center (NRMC).