Whisky Guru - Insuring your investment
By Alexandra Richards, Private Clients Development Executive
If you are fortunate enough to have a sizeable distinguished private whisky collection, you may want to consider insuring your investment. The valuation of premium whisky has been on the increase in recent years. According to Rare Whisky 101, one of the world’s leading authorities on rare whisky, prices for the 1,000 most-prized releases of single-malt Scotch (the RW101 Apex 1000 Index) have risen 545.15% between December 2008 and December 2017, based on UK auction figures. Rare Whisky 101’s recently published report for the rare whisky auction market said the most expensive bottle sold in 2017 was a 62-year-old Dalmore, which went for £95,000. A Macallan sold for £65,000 and a Bowmore for £61,000.
Many might assume that their whisky collection will be insured under their general home contents policy. However, many household policies have low single article limits, meaning that they will not pay any claim for a single item that is worth more than on average, £2,000 in value. Even then, the cover might not recognise the insurance needs that a collection warrants. Bruce Stevenson are specialists in private client insurance with access to household policies that happily accommodate high-value wine and whisky collections, or insurers who offer wine and whisky insurance in isolation with a specialist policy wording in the UK.
When it comes to buying an insurance policy for your whisky collection, can you explain what is meant by the terms “Actual Cash Value”, “Retail Cash Value”, “Insurance Value”, and “Replacement Cost Value,” and what we might see in this sort of contract? What degree of coverage should whisky collectors be looking for, in relation to these terms? When collectors have exceptionally rare bottles that cannot easily be replaced at retail, or by auction, how do insurers cover those items in the event that they are damaged or destroyed?
Insurance is there to put you back in the same financial position that you were in immediately prior to an insured event happening (a loss).
Collectable whisky, like all things collectable which are of repute, scarcity and exclusivity cannot easily be replaced following loss or damage on a ‘new for old’ basis in the same way that a television can be. It may take some months or years to build up a similar collection again searching auction sales, sometimes globally and Dealer’s.
So, insurers in the ‘collections’ market (and it is the same for fine art and antiques) offer two basis of settlements when it comes to claims; agreed value or failing that, market value.
Once a value has been ascertained, the client can then determine how they wish to insure the item against it. The agreed value approach is flexible and can be adjusted as the client requires.
Agreed value is beneficial because it allows you to set the value of the item in advance of a claim happening and thus negates the chance of any argument around the value of the item post loss. The items are listed within a valuation. At the point of purchase the agreed value might be set at the purchase price, since that is what you paid for it and if it was lost there and then, to replace it would be what you paid for it. However, in 10 years time, its value could have significantly increased and therefore to replace it could cost you a lot more which is why it is important to keep valuations updated every 3-5 years. Likewise it could have decreased in value.
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 therefore 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. Agreed value avoids this and will assist in claims being settled quickly and efficiently.
The way in which a collection is valued also rather depends on personal circumstances. If you inherited a collection and therefore not paid for it yourself you may feel a responsibility to insure it, but if it was lost you would not replace it with a close match – instead you might wish to have some sort of financial compensation (lower) and use the cash for something else entirely or buy something of a lesser nature. Alternatively you may be a keen collector purchasing directly from distilleries or Dealers and would wish to replace as best you can any lost item whereupon you would need to call upon an agreed value / retail valuation to ensure that you are properly compensated, quickly.
In any case, taking the advise from a professional valuer is the best course of action. At Bruce Stevenson we are not valuers, but insurance brokers so cannot comment in any way on values for individual bottles or collections of whisky.
Naturally the higher the valuation, the higher the premium is likely to be.
Will Insurers accept a do-it-yourself appraisal on the value and contents of a rare whisky collection if a client is seeking reimbursement, will they need to find a commercial appraiser, or will one be appointed to them by the insurer?
This rather depends on the overall valuation. If a collection was in the low tens of thousands and has been bought recently, then yes. A DIY inventory, accompanied by full descriptions and photographs and of course the amount paid for it (along with the purchase receipt) would be acceptable as evidence of ownership and provenance and value. If however the collection is more significant with high value individual bottles and has been collected over a number of years with some really key rare items in it then a professional valuation will in all likelihood need to be provided. Insurers and indeed insurance brokers can usually put you in touch with a company or qualified valuer that can undertake this for you, but it is the Insured’s responsibility to make sure that the sum insured (the value you are insuring) is correct. It is not common practice for an insurer to appoint a valuer to appraise the collection on the Insured’s behalf.
Do commercial appraisers operate to a recognised professional code of conduct? Is there specific accreditation or credentials that whisky collectors should be asking their appraiser to produce before letting them work on their collection? How much would a professional appraisal of a whisky collection for insurance purposes cost the collector? How frequently would you recommend having the collection appraised?
Not as such. As far as I am aware there is not a recognised professional code of conduct or qualification. Reputation and experience would be the key indicators who are clearly experts and are known in the rare whisky market. In terms of pricing, this really depends on each individual valuer and how far they may have to travel in order to appraise your collection. Often a lot of it can be done over the phone and email in the first instance, but you could expect to pay £350 for the first hour and £150 per hour thereafter if the collection is fairly significant. If done over the phone with images emailed, then less. If however you are having a valuation with a view to selling your collection these are often provided free of charge by an auction house.
As a specialist insurance company, what advice do you give whisky collectors about keeping an inventory, home security, insuring individual high value bottles, and storage of whisky bottles?
Firstly it is important to establish the difference between an insurance broker and an insurance company. Bruce Stevenson Insurance Brokers are the ‘agent’ to our clients if you like. We act as the intermediary between the person purchasing insurance and the insurance company. We source the best product from a number of different insurers for our client. We are not the insurer.
It is important that any inventory or valuation is kept backed up ‘off site’ so that if for instance you had your collection at home and your home burnt down you would still be able to access the inventory or valuation. In summary don’t just have a paper copy. As stated previously however, it is wise to have a professional valuation undertaken that can be updated on an ongoing basis.
With regards to security the usual measures are expected to be met such as good quality locks on entry/exit doors and locks on accessible windows. You are expected to take reasonable steps to prevent accident or injury and protect your property against loss or damage and to keep your property in good condition and repair. Whilst the security is important your collection is more likely to be afflicted by accidental damage. Therefore you should store it in a safe place in your home, where there isn’t a lot of ‘people traffic’. It should be stored out of direct sunlight or heat so as not to undergo evaporation (and indeed damage to the contents of the bottle is not covered if the whisky ‘goes off’ because it has been exposed to direct sunlight or heat). Corked bottes should be stored upright which avoids contact between the cork and the spirit.
Insuring individual high value bottles is no problem as long as there is valuation or purchase receipt to evidence it.
What risks should collectors try to cover for, and how flexible are the policies if you decide you don’t want to cover all the risks?
The policies that we arrange cover whisky collections on a worldwide basis, for all risks. That way, it gives the client ‘peace of mind’. If they keep their collection at home and wish to take a number of bottles to be valued, the bottles are insured whilst in transit to and from the place of home and whilst at the valuer’s. One reassuring aspect is that if you buy whisky at auction and you have a specialist insurance policy, your bottle(s) is insured right from the moment you acquire it without having to immediately tell your insurer. You can acquire between 10% and 25% of the overall value of the collection (varies from each insurer) and be immediately protected. As long as you tell your insurance broker within 60 days of the purchase and the items are then added to the policy and any applicable additional premium paid, the cover would automatically be provided giving you real peace of mind. Unless there is a specific reason as to why you would wish to reduce the level of cover to ‘named perils’ only such as damage from Fire, Lightening, Earthquake and Aircraft only we wouldn’t recommend it, but that flexibility can be there if needed.
In addition it is important to note that whisky collections can be insured as part of your household policy, if you have the right sort of household policy – one which is ‘high net worth’. This is often a more cost effective way of insuring your collection rather than on a standalone basis but does depend on whether your other fixed assets (buildings, general contents, any other fine art/antiques, jewellery and watches) warrant a high net worth policy.
Can you give me any genuine examples of legitimate claims paid out to whisky collectors under their specialist insurance policy?
In my experience to date, whisky collectors tend to be very good at looking after their collections. Losses typically occur when items are moved about and an accident happens such as a bottle being dropped or damaged whilst in transit. Many people store their wine and whisky collection together, often in a basement or cellar. These can be prone to flooding which is why it is important that the collection is raised from floor level. A flooded cellar will detach labels (the most important single element of identification of a whisky bottle) and diminish their value. However, with the correct insurance provision, the cost to restore the label, plus any subsequent depreciation in the collection’s value would be met. One insurer dealt with a claim where wine labels were eaten by snails that had crawled into the cellar. Since the product itself – the wine – wasn’t damaged, a standard household insurance policy would not have paid out. Naturally, the same could quite easily apply to a whisky collection and specialist policy would cover this.
Exclusions - There will be exclusions, so a thorough understanding of the policy wording is crucial. Typically for whisky or wine collections, cover for a single bottle ceases as soon as it is opened. Furthermore, loss or damage caused by inherent defect, wear and tear, gradual deterioration, insects, vermin, rust, corrosion, mildew, fungus, atmospheric or climatic conditions, or the action of light would not be covered. However, if damage was caused by extremes of temperature directly resulting from mechanical failure or breakdown of climate control units damaged by fire, lightning, a windstorm or an explosion, cover would indeed apply.
The whisky market can change rapidly in a matter of weeks - how can you ensure your policy adapts to market conditions and prevent yourself becoming underinsured?
It is the Insured’s responsibility to make sure that their values are correct, not the insurers. Therefore we would advise our clients to re-visit their valuations every 3-5 years. However, some markets like jewellery and whisky are changing more rapidly than that. Some of our insurer’s in the UK have an extended replacement cost provision built into the policy. This means that if you have had a professional valuation carried out within the last three years and the amount insured reflects this valuation, the collection(s) are insured on an increased value basis. This means that insurers will pay the full cost of replacing or repairing any damage, even if it is more than the amount insured. They will only do this if they have been advised of any additions since the valuation was carried out and that you amend the amount insured to reflect this. However, they usually cap the increase to 25% of the amount insured in total for each incident of loss.
We’d like to give a ballpark figure on how affordable it would be to get peace of mind through taking out specialist insurance for your whisky collection. Can you give me an approximate cost to insure a $50,000 whisky collection, either as an annual or monthly sum please?
In the UK you can buy around £100,000 of cover for about £350 per annum depending on satisfactory risk information. If the collection is housed in a commercial location it could be more than this.
It costs nothing to explore your options with us. Please do not hesitate to get in touch with Alexandra.Richards@brucestevenson.co.uk