The Digital Ecosystem of Art - How to insure NFTs? 2021

Certainly, NFTs pose a challenge to the insurance world, which up until now has provided insurance coverages based on the notions of direct and material damage to physical artworks. The term “material” refers to the fact that the damage must affect the artwork’s materiality, while “direct” indicates that the damage is not consequential.

ARTE Generali’s fine art insurance policies cover accidental damages to artworks and upon the policy’s subscription, the market value of the art piece is established. In the case of damages or of loss (complete or partial) of the artwork’s value, the insurance company compensates the loss with its pecuniary equivalent, given the impossibility to replace the artwork with an identical one (given the concepts of uniqueness and originality). In the claim’s settlement phase, two aspects are taken into consideration: one tied to the artwork’s materiality, thus intervening on the piece by restoring it, while the other is associated with the art piece’s market value, based on which the depreciation resulting from the claim is calculated. “Depreciation” is this setting, refers to the loss of value as a consequence of a damage, which is computed in proportion to the loss of originality and authenticity.

While classical or traditional art (e.g. paintings, sculptures etc.) do not pose substantial challenges, contemporary art on the contrary often leads to face new challenges. Conceptual and immaterial art, amongst which NFTs can be included, certainly add a layer of complexity, also from an insurance standpoint, to the aforementioned concepts and processes. In the artwork’s dematerialization process, which frequently occurs in the contemporary art field, the concept of “hic and nunc” (here and now), proper of something original, authentic and non-repeatable, is no longer present. The insurance sector has worked so far with the concepts of uniqueness and authenticity, and thus in the context of objects that are non-substitutable and irreplaceable.

The challenge that contemporary art poses to the insurance world stems from the fact that in the former, the artist interrupts the creative process in the conceptual phase of the artwork’s ideation and consequently does not move the project forward until the realization of the tangible art piece. In these cases, the artistic creative process culminates with the production of documents, which allow to produce a tangible form of the artwork. It has taken decades for contemporary art to be understood and it is likely that the same will occur with digital art. In the case of Sol Lewitt’s artworks for instance, the artwork’s essence is to be found in the contract, in the certificate which establishes the relationship between the artist and the buyer. The certificate can be insured because it covers a double function: the first is that it is unique, just as in the case of an artwork, while the second is that certificates are usually tangible and most commonly under the form of a sheet of paper with original signatures.

In the case of files instead, can these be considered as objects? May one attribute to a file the same characteristics which can be found in a certificate tied to a conceptual art work? A token for instance, is numbered and this constitutes a permanent record of its authenticity and ownership. The system with which tokens are numbered may be compared to the approach applied to certificates, and thus lead to the possibility of insuring tokens. However, the latter do not align with the requirement of non-reproducibility and originality. Moreover, for what concerns the risk assessment practices that are usually applied in order to underwrite a fine art insurance policy (e.g. who manager the alarm system, safety measures in place in a museum etc.), it is complex to apply these to platforms dedicated to the trade of NFTs. At present, the necessary standards to insure these objects are not yet in place.

The fine art insurance sector has evolved over time to cover conceptual art pieces and probably the same will occur in the future for cryptoart when the insured items will be more defined and regulated from a market and legal standpoint. 

The art historian Cristina Resti works as an Art Expert and Art Network Manager at Arte Generali. She is also a lecturer in multiple master programs and universities, including for the “Economy and Art Market” course at Università Cattolica del Sacro Cuore in Milan. She is also a member of ICOM’s Security and Emergency commission in Italy.