Rare whisky, like all things collectable which are of repute, scarcity and exclusivity, cannot easily be replaced.
In the unfortunate event of you suffering loss or damage to a private whisky collection a replacement ‘new for old’ cannot always be offered in the manner a new television set can be. It may take months or years to build up a similar collection again. Insurers in the ‘collections’ market offer two ways in which to settle the value of claims: the fair market value or the agreed value.
Broadly speaking, there are two ways in which the value of a whisky collection can be determined for insurance purposes. The fair market value, or the agreed value, or in some cases a mixture of the two. It is largely a decision a client has to make with the help of their broker and can depend on their buying habits, i.e. whether they buy at auction, retail or direct from distilleries.
The fair market value takes into consideration market fluctuations, therefore the claim settlement could be more (or less) than an individual has paid for an item depending on market movements.
Market value is an opinion about an object’s likely sale price if offered by a willing seller to a willing buyer at auction. Since the auction process is open to all bidders, a sale at auction is considered to be a measure of fair market value.
However, sometimes the likely sale price is greatly exceeded (or not met) which then sets a new market value. As such it can be unpredictable and it can be very difficult to establish the market value of an item after a loss has occurred especially if there isn’t a valuation to back it up.
Most of our clients hold whisky collection insurance on this basis because the whisky market has been on an upward trend unlike for example antique brown furniture. Many clients run their own inventories of their collections, tracking them against current auction trends and are happy with this basis of settlement even if the market value has gone down.
Agreed values are used where the insured wishes to fix the value of an item rather than relying on the fluctuation of the market. A supporting professional valuation or purchase receipt, if it is a recent purchase, is required and must be agreed upon by the insurer and the individual items noted on the insurance policy schedule.
The advantage of agreed value is that it takes out any potential negotiation of the value at the claims point and speeds up the claims process. Typically ensuring a quick clean settlement because a clear professional valuation will have tracked provenance, condition, detailed description and given the value.
Usually, the disadvantage of agreed value is that the client does not benefit from an uplift in market values in the event a claim occurs. However, as a unique benefit, our specialist private whisky collector policy has a built-in set percentage uplift to accommodate any market increase (for bottled collections only – this does not apply to casks).
The other disadvantage of agreed value is the cost of the professional valuation at the outset. Nevertheless, knowing the amount that your claim will be settled for in the event of a total loss is reassuring to some rather than trying to establish the value post-loss.
It is of course very important to keep your valuations up to date. Most insurers would suggest a review within 3 to 5 years.
The responsibility of the value to be insured rests entirely with the policyholder. If you are not sure of the value of your collection and don’t track auction trends, taking advice from a professional valuer is the best course of action.
Insurance brokers cannot comment in any way on values for individual bottles or collections. But we can refer you to specialist valuers and you should review the value of your collection at each renewal.
If a bottle(s) is lost or destroyed, insurers will pay you the value of that item, where the value is either the fair market value or agreed value depending on how you have chosen to insure your collection.
If your bottle(s) have suffered a bit of damage but are not destroyed the insurers will pay to restore the damaged item to a condition as close as practical to the item’s condition prior to the loss. This is known as a partial loss. For example, the presentation case may be partially damaged as a result of being knocked accidentally. Insurers would pay for the restoration of the case.
Any loss in value of the bottle, after the restoration is completed, is agreed upon between the policyholder and the insurer. This usually requires the assistance of a professional valuer.
If you have any questions about private whisky collection insurance, you can visit this page, or you can get in touch with me by clicking the link below.
Image supplied courtesy of Bonhams