Commodity prices and cyber are key risks for 2017

24 January 2017

Fine Art, jewellery and specie risks are likely to be led by a growing focus on cyber exposures and increased commodity price volatility in 2017.

Price volatility

Political uncertainty is often linked to higher commodity prices as investors seek safe havens in assets like gold, jewellery and fine art. And we certainly live in uncertain times. 

Yet commodity prices are proving hard to predict in 2017, so it might be prudent to prepare for a period of volatility. Just look at the price of gold in recent months. 

The election of Donald Trump in November triggered a surprising fall in the price of gold at the end of 2016, as investors anticipated a period of economic growth under the new President. In contrast, the UK’s Brexit referendum in June caused an upwards spike in the price of gold while concerns for a so-called ‘Hard Brexit’ boosted the price of gold again in January. 

Flexible cover

Potential volatility in the price of precious metals and jewellery has implications for insured values. 

Insureds will need to make sure that they are adequately covered for potential movements in commodity prices. They should also work with their brokers to ensure that their programme structures are flexible and that they have access to additional capacity to cover significantly higher values, should the need arise.

Building relationships

Whilst the Specie and Fine Art market is likely to remain competitive throughout 2017, these conditions cannot be guaranteed to last forever. 

The market continues to suffer from over capacity. Should there be a series of significant claims or a natural catastrophe in an area of condensed wealth this could well be the tipping point and we could start to see a change in the markets appetite for Fine Art, Jewellery and Specie classes of business.

Creating long term plans and developing relationships with insurers will remain key. If the market is, as it appears to be, nearing the bottom, then this is the time for risk managers to capitalise on favourable conditions.

Changing risk profiles

Technology is another key driver that will continue to shape risks for our clients in 2017, creating new exposures and changing others. 

For example, advancements in security for armoured vehicles and cash in transit facilities have helped mitigate risk. But they have also heightened the risk for security personnel, who are increasingly at risk of kidnap and ransom as criminals look for softer targets.

The increased use of one man vehicles in the US, due to labour shortages and costs, while not a cause for concern is being monitored closely

Recent years have also seen a spate of cyber-based thefts from automated teller machine (ATMs) in Europe and Asiaand now the US. 

Criminals are thought to be targeting ATM networks to control of multiple ATMs in a practice that has been known as “jackpotting”. Where criminals would previously have used trucks to physically remove cash point machines, they are now able to manipulate ATMs and trick them into dispensing their cash contents.

Market response

Cyber risks are blurring the lines between traditional coverages like crime and specie and standalone cyber insurance. However, insurers are developing cover to allow for changes in technology.

For example, the market has adapted cover for cyber-crime thefts of cash from ATMs. But if this cover is to prove sustainable, financial institutions and ATM service providers will need to demonstrate their on-going commitment to investing in cyber security and risk management going forward.

The market is also developing cover in another area of technological innovation, that of virtual currencies - insurance is now available for Bitcoin in cold storage. A secure insurance solution for Bitcoin is widely seen as needed to create certainty around the greater use of virtual currencies. 

For further information, please contact Barry Vickery, Deputy CEO of Specie Fine Art and Jewellery on +44 (0)20 7528 4598 or email barry_vickery@jltgroup.com

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contact Barry Vickery
Senior Partner, Specie Fine Art and Jewellery