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Insurance for Coin Collectors and Dealers

Andrew C. Kolbert, Ph.D., M.T.M (a) and Jolene Daniello (b) a) The First Dollar, LLC b) Arthur J. Gallagher Risk Management Services LLC 

 

As written in last quarter’s article Show Security, most people would not consider purchasing a $300,000 house without buying proper insurance coverage.  Although it seems counter-intuitive, many of those same people will take $300,000 in inventory to a coin show without coverage.  There is a long-held belief that insurance for private collections and coin dealers is cost-prohibitive.  In fact, neither of these is true and the purpose of this article is to introduce the reader to the available options, some of the players, and the benefits of an insurance policy for your collectibles as well as inventory.  Hugh Wood and Arthur J. Gallagher are two brokers who specialize in Coin Dealers Insurance and utilize insurance markets such as Chubb, AXA and Lloyds of London.  They have programs specifically designed for our hobby and industry’s needs.

 

Role of an Insurance Broker

An insurance broker such as Gallagher or Hugh Wood is the intermediary between you (the insured) and the insurance company such as Lloyds.  A specialist broker is able to access the appropriate insurance markets and put together a bespoke insurance contract that is geared towards your collection or business and risk profile.  The insurance product for the coin market is not a cookie cutter policy and requires a broker who truly understands the needs and requirements of this niche business.  Your broker will become your risk management consultant and advocate in the event of a claim.

 

Insurance for Collectors A substantial coin collection can represent a significant store of value, often exceeding the value of the home that houses it.  Homeowners insurance either does not cover collectibles or imposes a low limit for them and often has an improper valuation clause in the event of a loss.  Discussions with insurers that do not specialize in this niche business can often be frustrating as they do not understand the hobby.  The companies that serve the numismatic and bullion industry are specialists and understand the nuances of rare coins and bullion as well as the risk profile of coin collections. 

 

Coin collectors generally do not travel with high dollar collections, they seldom ship large amounts of product, and many have their collections stored in bank vaults.  Hugh Wood has a product for ANA members that can insure collections stored primarily in bank vaults for a few dollars per thousand in value per year. Home storage in a safe is available at a higher rate depending on safe rating and specifications and the presence of a home security system.  These policies can cover many things including, but not limited to storage, removal of limited amounts of product for study, shipping to and from grading services, as well as incoming purchases. Costs will increase with the value of the collection and whether it is stored in a bank vault or at home.  If at home, the type of safe is a driver of insurance cost, with insurers putting insurable limits for collections stored in gun safes as opposed to TL rated safes. The extent of home security systems is also a driver with high value collections requiring more extensive systems with backups and regular error checking.

 

Insurance for Dealers

Coin dealers have a much higher risk profile than a collector as the merchandise is not static and often travels which is why having proper insurance is crucial.  Coverage under a typical coin dealer policy includes transporting the merchandise to and from the exhibition (by car, air or common carrier) and whilst stored on the premises of the exhibition.  In addition, other movements of merchandise often include shipping high value packages, travel to shops with inventory and buying and selling coins on the road.  Coverage for transit of inventory is necessary. Cost drivers include value of inventory, number of shows traveling to, and method of travel.  Inventory coverage at shows whether single day or multi-day events where inventory is locked in the convention floor is also typical for dealer policies.  The Coin Dealer’s Policy covers all of the above exposures and more.  The cost of a policy is dependent on inventory value and exposures relating to travel, shipping and exhibition frequency and composition of inventory.  

  

As with collector insurance policies, costs of storage of inventory and limits depend on where inventory is stored, and the overall security of the facility.  Most coin dealers insurance programs require a TL rated safe and a central station alarm system equipped with cameras, motion detectors, as well as shock sensors on all windows.  Your broker can guide you on the required set-up and provide recommendations for companies to assist with building out your security infrastructure.  

 

In order to be paid in the event of a loss, a dealer must be able to substantiate their claim.  It is imperative for a dealer to have a system for managing inventory so that he or she is able to document the exact value on premises at any point in time. This can be as simple as a spreadsheet or as complex as a commercial inventory management program like Aureus.  Annual premiums on policies can be on the order of $4K to $10K and higher depending on the risk drivers above. 

 

Shipping Insurance

Many dealers ship a large amount of value by common carriers including USPS, UPS, and Fedex to customers, other dealers, wholesalers, and grading services. The carriers offer insurance on a package by package basis, but it is expensive and there is a conflict of interest when it comes to paying a claim. There are third party insurers such as Ship and Insure which takes care of the latter issue, but these are still expensive single package policies. Further, the common carriers will not honor an insurance claim of non-receipt if their own system has the package marked as delivered.  This is a problem as the services are playing fast and loose with delivery statuses. USPS has delivered damaged or empty boxes with no notes in their systems. UPS has marked packages delivered prior to the package even leaving the loading dock of the business, presumably to accelerate revenue recognition. Fedex marks delivered on truckloads of packages that are left at USPS loading docks without receiving signatures on individual packages. 

 

The answer is shipping insurance via a third party insurer who will insure the package if it actually does not arrive intact with contents.  This coverage is usually wrapped into the coin dealer’s policy.   The shipping coverage cost drivers are based on an estimate of the total merchandise value shipped annually, resulting in a very low cost per package.  There are limits on each common carrier service, and guidance which service will be acceptable for < $1000, $1000 - $10,000, $10K - $25K, and $25K and up.  Such policies often cover packages sent to the dealer from vendors, as well as packages that do not get delivered regardless of its status in the carrier’s tracking system. 

 

Other incidental risks that may be covered in a complete insurance policy include:

  • Employee theft

  • Returned checks and chargebacks

  • Bad title transfer

  • Mysterious Disappearance 

Partnership with Insurers

A good broker and insurer is a valued business partner as your interests are mutually aligned.  Whether collector or dealer, your broker will guide you on the type of safe to buy and how the security system in your home or office should be set up. Some insurers will send a security consultant to the facility where the inventory is stored to assess risk and make recommendations for improvements, a significant value added service.  The policy coverage on types of shipping services for different levels of value are based on data that they have over time for losses for each specific service.  Aligning with their requirement for a service is mutually beneficial and will minimize losses for both parties. When an insurer tells you signature is required above $1,000 per package or caps USPS Priority Mail above $10,000, there is data that supports their decision and it's prudent to comply and avail yourself of that valuable information.  Your broker can also provide invaluable guidance with respect to best practices for shipping high-value merchandise.  

An overarching insurance contact is an important part of a risk management and business continuity plan and every coin dealer should consider it. 

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