Online art dealers face challenges with trust and authenticity

Christie’s, one of the oldest and most famous auction houses in the world, has followed this trend. In 2019, the London, UK-based firm announced that 64% of its global clients bought or bid for items online. The numbers have only inflated further in 2020 due to the COVID-19 pandemic. Since lockdowns began around the world, 27% of Christie’s online buyers have been existing clients – those who typically use traditional auctions – buying online for the first time.

For the auction house giants like Christie’s, Sotheby’s, and Heritage Auctions, selling art online is relatively straightforward. As William G. Fleischer (pictured), president of Bernard Fleischer and Sons, put it: “The power of the name is very strong in the auction house world”. Art collectors will typically trust that something presented via online auction through Christie’s is going to be authentic and appropriately managed. However, this isn’t always the case for the lower-tier auction houses and digital marketplaces.

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“When a collector buys a piece of art online, they’re then trusting that auction house or dealer to package it properly, deliver it safely, and then unpack it and install it appropriately. In fact, that’s the same whether they’ve bought the item through a traditional auction or online,” said Fleischer. “The difference with online purchases is that the client doesn’t see the original piece in person before they buy it. They have to trust if the caption says ‘scratch here’ or ‘dent there’ because it’s hard for pictures to truly capture that.

“One of our concerns from the insurance perspective is how these online auction houses operate. Obviously, when you buy art from certain auction houses [the Christie’s, Sotheby’s, and Heritage Auctions of the world], you know they have possession of the item, it’s going to be packed well, and they’re going to ship it to you safely. A lot of the smaller online auction houses don’t even have possession of the items. They will ask a dealer what they’ve got, they’ll get some pictures and put them on their website. When they sell the item, they’ll send the dealer a box and ask them to pack the item and ship it. That causes concern because most claims occur during transit. What if that dealer doesn’t package the item properly and it becomes a large exposure?”

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Some others big exposures in the online auction world include defective art, stolen art, and fakes. A collector simply cannot know the authenticity or the title of a piece of artwork when they’re buying it online. Again, this harks back to the power of the name and the knowledge that the big-name auction houses will do their due diligence to confirm items are authentic and the title/ownership is appropriately recorded. If a collector buys a piece of art that has been sold inappropriately – for example, if the seller did not own the title to the work – then the collector can run into all sorts of problems, which is why title insurance is an advisable purchase.

“As time goes on, history gets dissipated and the question of title can start to become an issue,” Fleischer told Insurance Business. “Let’s say a dealer is using an online auction to sell a small, inexpensive object that they inherited from their mom – that’s not going to be a big issue when it comes to title. But if it’s a very expensive piece of artwork, then it can become a situation. That’s why we write administrator and executor bonds. When someone passes away, it’s important to have an inventory of all of their assets. An administrator could take a painting worth $300,000 and decide to liquidate it via online auction for $150,000. The heiress knows the painting is worth $300,000, and so there’s a problem of dishonesty with the administrator. That’s what administrator bonds are for – to make sure assets and titles are dealt with properly.

“There’s always a moral threat that art collectors have to deal with, especially if they’re purchasing items online. We’ve been insuring online auction houses for a long time. Obviously, they have challenges surrounding title and authenticity of the artwork. They’re always going to have those exposures, and they’re a huge negative to buying and selling art online, but our industry is addressing these exposures as best we can.”

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