Making Sure Your Art Is Yours

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Moreover, finding reliable papers for older works or works seized by the Nazis, for example, was almost impossible.

Jacob looked into the possibility of art title insurance in the 1980s, when issues of provenance in art became topical because of emerging claims on art seized in the Holocaust. At the time, Jacob dismissed the idea. "It didn't have any teeth in terms of financial backing. It was conversational, but there was no entity to take it on," she says. She has since changed her mind, realizing during the past two decades that there is a need for an art title registry. "Fifteen years ago, provenance or chain of ownerships wasn't on anybody's radar, but now it's on everybody's tongue," she says.

Financial backing was not the only obstacle to attracting clients. For example, Hiscox, a syndicate of Lloyd's of London, sells art title insurance policies, but its annual renewal model didn't appeal to customers in the U.S.

A One-Time Premium

"Customers worried that if someone did bring a title dispute, the policy would not be renewed the next year," says Steven Pincus, managing director of insurance brokerage DeWitt Stern Group. Pincus recently learned about ARIS and says he was excited to introduce his clients to the product. ARIS offers a policy that doesn't need to be renewed. A one-time premium, between 1.75% and 6.75% of the artwork's value, buys a life-of-ownership policy that can be passed on to heirs. The insurance doesn't guarantee authenticity of the work, but prior to underwriting a sale, ARIS uses its private research database to provide vetting services and investigate the background of the artwork. In an ownership dispute, ARIS will cover legal defense expenses and the cost of the artwork if it is lost.

Art title insurance through ARIS has been available for purchase since June, 2006, and it has underwritten more than 300 policies. ARIS clients include private collectors, dealers, art funds, and major museums and investment entities, and the values of the works insured have ranged from $20,000 to $4 million. (ARIS has been approached on a $100 million transaction that hasn't yet taken place.) Shindell says that in its second year of existence the company has seen a 300% increase in business, and he anticipates that in five years, "certainly in the U.S. and portions beyond it, it will be difficult to transact something that doesn't have title insurance."

Not everyone is convinced there is enough demand to make art title insurance standard practice.

"This title issue has been around for a long time, and we've wrestled with it for a long time. While it sounds like a good idea, from a pricing standpoint it's not something that a large number of people can afford," says Mark Schussel, vice-president in charge of public relations for Chubb Insurance. Chubb offers protection against "defective title," under its broader valuable-article coverage. In the case of a title dispute, this policy will cover up to $100,000 in legal fees but will not compensate the policyholder for a lost artwork.

Plenty of Objections

Art dealers are sometimes reluctant to purchase art title insurance, citing their slim profit margin, says Shindell. Using real estate as his example, Shindell argues that the premiums will go down as more people purchase title insurance. Robert Koo, who consults with Bonham's auction house on art succession and philanthropy, says that peace of mind regarding ownership is worth the investment, especially considering that its cost is often a fraction of what an art buyer will pay in sales taxes on the transaction.

Cost concerns aside, art owners may choose not to purchase insurance for other, more personal, reasons. ARIS protects client confidentiality, but some owners, who don't want anyone to know about their collections, will even refuse to buy risk insurance—insurance on damage and theft. Art dealers also worry that purchasing title insurance will make clients think they are not doing their job in vetting the works. Others are simply used to doing things the old-fashioned way—on good faith and a handshake.

"The art industry is large and unregulated," says Charles Dupplin, chairman of Hiscox's Art & Private Client Div., which reinsures ARIS. Dupplin says he is surprised by the amount of attention ARIS has already managed to attract, but he predicts that art title insurance will become a more commonly used tool "in an industry, that like any good industry, consists of both gentlemen and of knaves."

Tatyana Gershkovich is an intern at BusinessWeek.com.