The recent, tragic burning of the Notre Dame Cathedral in central Paris highlights the question of how to insure that which is priceless and irreplaceable. The design and construction of historic buildings makes them more vulnerable to damage, especially by fire and particularly during construction. Traditional actuarial valuation methods such as market or acquisition value, replacement cost based on square footage, assembly costs or unit costs usually don’t work. Full Reinstatement insurance is a level of coverage that should enable the building to be completely rebuilt to the same design quality and style but has a correspondingly high premium. So high that the protection isn’t feasible for most non-profits or governments. What is a Non-profit or a Country to do to protect their most valuable historic property?
Since Notre-Dame was in the midst of renovations the contractor should have their own liability policy. “Typically that would be for tens of millions of euros. But effectively that is going to be a drop in the ocean compared to what the actual cost of restoring the cathedral is,“ said Robert Read, Head of Art and Private clients at Lloyd’s of London insurer Hiscox. The cost of repairs and upgrades for Notre Dame is considered similar to what the upgrades are predicted to cost for the neo-Gothic fronted parliament buildings on the banks of the Thames, $8 billion.
David Mistick, President of Cirucumspex, LLC, a Pittsburgh-based firm that helps organizations plan for and recover from disasters, addressed strategies for insuring historic buildings at the 2010 American Association of Insurance Services (AAIS) main event. Mistick said total losses are quite rare. The vast majority of historic building losses are partial making full reinstatement coverage not necessary. He recommended owners taking lesser coverage with correspondingly lower premiums, if the insurance company agrees, but the risk assumed because of the reduced coverage must be considered carefully.
Mistick also recommended other coverages including: contents, engineering, liability, consequential loss coverage for loss of business income, terrorism and green building issues. Historic buildings can mitigate risk by incorporating a design that limits the spread of fire and smoke damage, recognizing and preparing for loss that is more likely to happen during construction and doing regular testing of any heat producing equipment. It was shocking and amazing to watch the magnitude of the Notre Dame fire, and yet realize a large portion of the building survived.
The contents of Notre Dame are easier to value than the building itself. Art and artifacts are valued based on like kind and quality items that are for sale or have recently sold. The condition and provenance of the items and comparison to other similar works factors into any valuation.
Think the Notre Dame fire at a cost of potentially $8 billion is the highest claim ever? Not even close. The 2008 financial collapse was responsible for the most expensive insurance payout of all time as the worldwide implosion of the financial sector saw countless business, financial institutions and economies suddenly fall requiring a staggering payout of over $20 trillion.