Insurance is usually a pretty cut and dried business, unless it involves insuring against the loss of fine art work; then a number of complicating factors enter the calculations, including the fact that many people passionately love the works of art they collect.

Those who can afford fine art work buy it for a number of reasons, including investment and its cultural and historic value. But most buy it because they love it.

"You cannot buy insurance for the passion you feel for a piece of art," warns LeConte Moore, fine arts specialist for the DeWitt Stern Group, insurance brokers in New York City. Moore deals with wealthy individuals who own substantial art collections.

Because you can't insure love or protect against its loss, Moore and other experts involved in the field say it is even more important than usual for a financial advisor with clients who collect fine art to know their clients and understand all their quirks.This rule of thumb has become even more important as art work, particularly Impressionist and contemporary paintings, as well as sculptures by well-known artists, continue to escalate dramatically in value.

In recent months record sales prices have been set for a number of artists, records that frequently last only until the next auction. Collectors from Asia and elsewhere around the globe are now competing for works, pushing prices up, says Theresa Lawless, director of art and collections for Fireman's Fund Insurance in Novato, Calif. "Theemerging wealth in China, Russia and India is fueling competition for art work. Major museums are being opened up around the world, plus there are museum-quality collections in the hands of individuals, and prices are being driven up exponentially."

The volatile market makes correctly insuring the works more important than ever-and more difficult, says Moore.

"A person could buy a piece of art at $10 million and three months later it is worth $15 million. You must make sure the insurance policy can respond to that turn in value," he says. "Because insuring art is very different from other types of insurance, you have to make sure the valuation clause is sufficient. If you have a loss of some other type of property you can find out what it is worth, even after the loss, if necessary. With art it is very different. There is a unique valuation to art that is not easily defined, and you can have three different opinions of that value. The value must be stated in the policy and the policy must be able to respond to the current market."

That can mean appraising works frequently and adjusting the policy to respond to that appraisal. Tam St. Armand, executive vice president of Ventura Insurance Brokerage Inc. in New York City, says most wealthy art collectors are aware of this requirement. "If by chance they aren't, they may be sadly surprised. For that reason, you need a financial advisor or risk manager who truly understands art."

Some new products that are being rolled out for insuring art include title insurance to guarantee the collector has clear ownership. This is becoming more important as ownership of World War II era works come under scrutiny. Another new product covers art conservators when they make mistakes while restoring a piece, something that was usually not covered in the past, St. Armand says. "There is a learning curve for the marketplace for some of these products," she says, "but we are working to educate the public."

In an unusual instance, Ventura was able to get a policy underwritten by Lloyds of London that covered war damage to some works, coverage that usually is not available. The unusual nature of the business makes it more important for collectors and their financial advisors to work with companies that know the art world, St. Armand advises.

Agreeing with that philosophy, Lawless of Fireman's Fund, says, "A wealth or trust advisor needs to understand what is happening in the market, and that includes properly insuring clients' collections. You have a range of people who collect art. Some will be very knowledgeable about insurance and appraisers, but you can have someone who is just coming into the field and they will not have established relationships with the needed people."

The two main methods of insuring art works are blanket coverage for an entire collection or individual coverage for each piece. "If it is a smaller collection, you probably want blanket coverage with a maximum value for each piece. If it is a more expensive work, you want individual coverage with the value and claims process spelled out in the policy. Most companies write policies that provide up to 150% of market value," Lawless says.

The art experts agree that insurance coverage is relatively inexpensive because companies aggressively compete to write policies and few claims are filed. Coverage can be obtained for anywhere from 5 cents to 12 cents for $100 of coverage. So insuring a $100 million collection, which is not uncommon, can cost $50,000 to $75,000. Even for individuals who can afford such a valuable collection, insurance costs may still be a consideration and measures can be taken to lower the insurance premium and to help assure that filing a claim is never necessary.

"It is one thing to acquire a work of art. It is another to invest in its surroundings," says Christiane Fischer, CEO of AXA Art Insurance's U.S. operation in New York City. "Has the person considered proper environmental controls, the proper glass and frame, how and where a work is hung? Education of the public is something westress. Last year we did a newsletter alerting collectors to consider hurricane damage. Now we are focusing on warehousing, because there is a huge amount of art workin warehouses now. We found 60% of the warehouse operators do not do background checks on their employees. You also have to be careful when transporting artwork. One shipper we know had a couple of million dollars worth of art work on a truck driven by a person without a driver's license," she warns. "It is important to ask the right questions."

Insurance companies can make stipulations for specific circumstances, and each policy and situation canbe different.

"We did some surveying, and advisors seem to be familiar with the generalists, but many are not familiar with specialists for insuring high-end individuals," warns Dorit Straus, worldwide manager for fine arts at the Chubb Group of Insurance Companies based in Warren, N.J. "You need an insurance company that is experienced in fine art. I went to a potential client's home and saw a work on his wall that he had recently lent to a museum. He was pleased that I recognized it. It made him know his showing of the work was appreciated."

The unique nature of high-end art makes insurance an absolute necessity, in part because the works are liable to be moved frequently and exposed to many types of dangers or damages, like Straus' client. Avid collectors often want to share their beloved works with the public.

"I am always impressed by collectors' understanding of the legacy they have to protect," Straus adds."Art patrons are the most generous people in the world, and they welcome a chance to show works. So, they need someone who is always looking out for their interests.

"We had a client who lent works to a major retrospective in Washington, D.C., and the museum did not feel it was necessary to have a follow car for the truck when the pieces were transported. We felt it was important and we stipulated a follow car," she says. "In another instance, works were lent to an art museum overseas and they were vandalized. The next time, we stipulated there be barriers between the public and the art works, and we can require the museum to postguards. Sometimes we will recommend a piece not be lent because it is too fragile to travel. The collector's advisor needs to know he or she is dealing with an insurer who is from the art world and knows all the nitty-gritty details to think of."

In addition, "the advisor needs to understand the buying habits of the client and outline those habits to the insurance broker," advises Norman Newman, first vice president and head of the fine art and special risks division based in the New York office of Hub International, a leading North American insurance brokerage headquartered in Chicago. "If the client is an active collector, he may have collections in more than one location. If you have someone who buys 300 pieces a year, he may not get around to telling you about his latest purchase till eight months later. Ifa client is dealing with a foreign borrower, you want to make sure you canbring action in a United States court if necessary.

"In the end, you need an open line of communication between the financial advisor and the insurance broker," he says. "When there is a loss, the insurance company is not your adversary and the collector is going to want some hand-holding."

The financial advisor maybe the one doing the handholding, at least at first, says James P. Kane, president of Hub International Personal Insurance, a Chicago-based brokerage of Hub International that serves high-net-worth individuals. "People buy insurance like they eat spinach, because they know it is good for them, but they will do everything to avoid it. It takes work to inventory everything and maintain theinventory.

If it is an active collector, the advisor or carrier will want to negotiate the number of days a piece has blanket coverage after it is acquired and the amount that will be covered (which is usually limited to a percentage of the value of the entire collection), until it can be added to the itemized inventory."

Losses are usually caused by damage to a piece rather than complete destruction or thefts, which are rare, says Newman, so you must consider insurance coverage for restoration costs. Modern works, which are often acrylic, are more difficult to restore than the oils used by old masters. Modern works also lose more of their value when damaged because there are usually numerous examples of work by the same artist available in pristine condition.

Advisors will want to take into account where the client lives. In California, fire and earthquake damage has to be included, in Florida it's hurricane damage, and in New York City terrorism damage can now be covered, says Katja Zigerlig, fine arts underwriting manager for AIG Private Client Group. "The advisor needs to know if the client has a $50 million collection, and maybe he only wants to insure for $10 million and assume the rest of the risk himself. You need to know your client and the options."

Other considerations include creating strategies to avoid excess tax burdens when works are bought and sold, notes Stewart R. Massey, founding partner of Massey, Quick & Co. LLC, financial advisors of Morristown, N.J. "A charitable remainder trust is one way to shield a client from taxes. The question arises because many collectors are now considering selling works. They acquire them because they love them, and then the work appreciates significantly in value and the question becomes how much do you like it? Because of the appreciation in value many collections are underinsured. This is especially true for people who inherited works or have owned them for a long time. They may be severely underestimating their value."

The rapid escalation in value has created some unusual circumstances, including the creation of hedgefunds for art investment, notes Ken McKenna, Executive Vice President and Chief Financial Officer for Doyle Galleries in New York City, but increases in values are not guaranteed.

"Tastes in art are purely subjective. So an investor should buy works he likes," McKenna advises. "Then, if it does not go up in value, at least he can enjoy the work."