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Museums, indemnities and the Government Obscurity Scheme

21 November 2017

Mendoza1When the Mendoza report on museums (covering some 2000 institutions in England, with an accompanying “strategic review” dealing with the top sixteen) was released on 14 November, there was limited reaction. An editorial in the Guardian the following day was justly critical of its whitewash of the level of arts funding in the UK (the figure above from Mendoza shows how this is declining from a pitiful level, less than the Tories paid the DUP to cling onto office), while Mendoza’s letter printed the day after indicated what seemed to me a shocking level of complacency about so fundamental an issue. (At the same time the Leonardo sold at auction for $450 million, close to half the UK government’s annual support for the entire museums sector.) The reports are both unreadable due in part to the forest of rebarbative acronyms (apparently quangos are now called ALBs – arm’s length bodies – but I’m not sure how many readers can tell their ALBs from their elbows). In any case I certainly didn’t get through them, but I did notice a few points of general interest and one which leads to another particular concern of mine.

In addition to the points made by the Guardian, I was struck by the absence of an international comparison on funding levels. Paragraph 23 of the strategic review is the only reference to this, but the source it links to is virtually useless. Within the UK the sources of funds it identifies are unimaginative; much of it comes from the lottery, a tax on stupidity. This paragraph is particularly alarming: it will nudge the philistines in government in the wrong direction, and seems to undermine the recent initiatives to make images more freely available:

Digitised collections offer new opportunities for both research and commercial purposes. … Museum trading arms are increasing their use of digitised collections to generate income, for example, by licensing images from the collection, while also allowing free use for educational and research purposes. Art UK, an online centralised platform for art museum collections, is exploring how it can offer a licensing service to generate income for its members.

Equally alarming is the idea of “dynamic collections management”: the sequence chosen in this list gives a clue to the priorities the author may have had in mind (and it probably wasn’t what Lady Wallace or other benefactors were thinking):

All museums should have robust and active collections management plans…covering object disposal, acquisition, accessibility and use, to maximise their effectiveness and purpose

Alarm bells start when evidence is cited in a survey in which 40% of respondents do NOT think that the purpose of a national museum is to preserve and display collections.

I was also worried by the almost total absence of references to scholarship in the two documents: the word occurs once as a heading, twice in adjectival form – but all three vacuously, rather than in the context of any profound analysis of how museums contribute to knowledge. (Instead they are seen in civil service terms as focuses for public engagement and tourism: the word “visitor” occurs 69 times in the main report alone, and “visitor experience” four times.) In particular there is nothing here to encourage funding for fundamental research as opposed to adjuncts to entertainment or tourism; nothing to ensure that museums can continue to employ senior researchers of international repute engaged in highly specialised investigations, or free institutions from the tyranny of blockbuster exhibitions to generate the funding Government refuses to provide.

The term “national museum” (while better than ALB) bespeaks a lack of ambition. The British Museum and National Gallery are by any measure world class institutions. They should be respected, trumpeted and funded accordingly. But it is clear from these reports that both political parties are equally uninterested in invigorating the UK’s place in the museum world, with increased funding, a serious acquisition budget and a commitment to world class scholarship.

There was also rather less about Brexit than I should have expected. People who work in or use our museums will in almost all cases have a positive view about Europe, but neither they nor the general public are likely to see this in terms of Article 151 of the EU treaty. Yet for Europeans this is the framework within which they view the international exchange of cultural knowledge arising from the freedom of movement of works of art to international loan exhibitions. They will cite (although few people in the UK have ever heard of it) the European Parliament resolution on cultural cooperation (2000/2323 (INI)).

But little of this is mentioned in the Mendoza reports, which are strikingly insular. Although the strategic review recognises that the 16 major institutions are more likely to be affected by Brexit than the rest of the sector, it refers us to the Mendoza review for the shortest and most useless imaginable discussion (a couple of paragraphs on p. 69). The strategic review summarises HMG’s current priorities as rather patronisingly “promoting Britain abroad through cultural diplomacy, especially post Brexit, and contributing to tourism, highlighting the UK as a special place to visit.” The emphasis is on tourism and revenue generation rather than any sense of a common European culture; and it is notable that of the twelve international cooperation initiatives cited in paragraph 41, all but one were with countries outside the EU. But Britain’s ties with Europe are far closer than with China or Latin America when it comes to eighteenth century painting: Liotard and Perronneau came to London, while most British painters went or wanted to go to Italy. Even Neil MacGregor, the arch-exponent of world culture, works in Germany, not Beijing.

But I want now to come to one of the tiny details in Mendoza which has escaped all commentary I have seen. It caught my eye only because of the attempts I’d made to gather information for my recent blog post on the hazards of moving pastels.

This is one of the main recommendations from the Mendoza review.

6. Work with ACE to promote the Government Indemnity Scheme to borrowers
and lenders, and ensure that it continues to deliver good value for money. This
also means boosting confidence in the scheme and making sure that commercial
insurance is reserved for exceptional cases. Where commercial insurance is
necessary, this means simplifying the process.

For anyone unfamiliar with the Government Indemnity Scheme (“GIS”), there is a good deal of information about the mechanics on the Arts Council’s website as well as a lengthy pdf including guidelines for national institutions. I shall assume you know these in what follows. So what was Mendoza getting at? Why does “confidence in the scheme” need to be “boosted”? What changes is he nudging government to make to improve its take up and why?

Although you will know from this blog that I no longer lend pastels, I have (since 1981) lent pastels, drawings and other works of art to international travelling exhibitions and have some limited experience of what lenders are interested in. Fundamentally their concern is that handling is of the highest standard, and that if there is an accident, agreed value claims will be met in full and without delay. One of the mysteries to me is that the values I’ve suggested to commercial insurers have never been challenged before the loan is agreed. I’d perhaps worry whether that meant a vigorous discussion after any claim.

Interestingly a useful (if a little old) international survey commissioned by the EU, Study No. 2003-4879 (easily available online) reinforces this need for transparency and clarity for the acceptability of such schemes. It also highlights some of the quirks of international insurance terms (e.g. owners of portraits need to be aware that German insurance contracts explicitly exclude the “fictitious” value attached to family portraiture). Of these the most important technical point concerns the so-called waiver of subrogation. Currently the GIS, if it does pay out, retains the right to sue the negligent carrier or museum who caused the damage. Many foreign borrowers won’t accept this. I very much hope that the government will stick to its position on this: the moment you exonerate carriers from responsibility, damage becomes far more likely. I hope that relaxing it was not what Mendoza meant.

But I want to discuss more generally the climate of secrecy surrounding this scheme, and indeed other aspects of the museum world and of the art world generally. Private collectors have reasons (good and bad) for wanting to hide their wealth. Dealers understandably want to conceal their sources (many clients baulk at paying a dealer three times what he paid last month), leading to the absence of provenance information which can bedevil Nazi era restitution claims. But shouldn’t museums think differently?

In preparation for the talk I gave on accidental damage to pastels, last August I sought information from several major galleries, from parliament, from DCMS and from the Arts Council concerning transportation protocols, accidental damage, the GIS and claims history. My experience was uniformly uninformative, despite all these bodies being covered by the Freedom of Information Act. Three months later, after reviews and appeals and references to the Information Commissioner (with whom several cases are still under investigation), I have very little information to provide the comfort that a foreigner would want about the operation of the GIS and the reliance that can be placed on its undertakings.

Based largely on published information (although this can be very hard to find: DCMS’s accounts are worth starting with) and the unpublished statements available in the House of Lords library, one can extract a picture of a scheme that is heavily used and with apparently extraordinarily low claims rates. They are hard to square with anecdotal accounts of handling damage (do museums take so much better care of GIS covered objects than of their own permanent collections?), which of course was why I wanted the hard facts.

Then there are the apparent anomalies in the data. For example, under the scheme museums have to tell Arts Council what indemnity limits they need. The latest Government Main Supply Estimates (2016–17, p. 269) list “indemnities in force” totalling £13,761,415,000 (of which the two largest are Tate, £3.2 bn, and the National Gallery, £2.6 bn). Yet despite this the “amount reported to Parliament by Departmental Minute”, according to the DCMS annual report and accounts to 31 March 2017, is only £6,253,500,000. No, I can’t either; and no one at DCMS or Arts Council seems willing to do so. [PS see the very helpful comment posted below]

What makes this all the more confusing is whether the Secretary of State has in fact laid this information before parliament as he is required to do under s.16A National Heritage Act 1980. These statements used in the past to be read to the Commons and recorded in Hansard. But the latest discussion you can find online is in 2006. Since then the statements have been treated as “unpublished papers”. You can read them in the library of the House of Lords, but it seems that no one does. And the librarian tells me that the last statement they have is to 31 March 2015. After much discussion with DCMS (I can say no more at this stage), one further unsigned draft statement to 30 September 2015 was produced, but they claim to have no later statement nor the signed version of that – despite the column in the DCMS accounts detailing amounts to 31 March 2017. Arts Council claim to hold only the 31 March 2015 certificate as the sole example of a document issued twice a year since 1980 for a scheme they are supposed to administer. Indeed one of the emerging issues from my enquiries was who if anyone has a complete picture of how this scheme is operating. It’s impossible to assign responsibility for what may be incompetence or intentional neglect, or merely confusions (perhaps even mine) that could be dispelled by a simple policy of open discussion and disclosure.

Let me turn now to the data on claims. The numbers (extracted like teeth from Arts Council) are astonishingly low: since 2012, a total of less than £300,000 with no payments at all in some years. Without a breakdown (into for example cost of repairs for minor accidental damage versus market value of works stolen) it is hard to say much more about these numbers. Further the numbers seem to bear no relation whatever to those “liabilities crystallised” (i.e. payment or provision for actual claims) in DCMS’s accounts: I have asked for a reconciliation, but do not expect it any time soon.

Low claims for government indemnity schemes are not that unusual on an international basis: for example, this from a lecture by Frank Bergevoet at the International Exhibitions Organisers conference April 2010:

It can be seen from our research that in the past five years more than 5600 indemnity requests have been accepted within 18 member states of the EU. Out of these 5600 applications only 7 damage claims were reported with a total amount of about 80,000 euro’s [sic] being paid out.

Why have there been so few claims under GIS? Can one infer that moving objects is very low risk? Does a low payout mean low loss (our museums and handlers doing a brilliant job) or just tough loss adjusting (the scheme so restrictive that lenders can’t rely on it)? One reason may be that the excess is so high, particularly since it is estimated that 80% of commercial insurance payouts for art transport are for compensation for damage rather than total loss, and much of this will be in the low thousands – below the level at which a claim can be made. And as I’ve mentioned in my pastel transport talk, insurers don’t pay for losses due to inherent vice: I have no data for how often that objection has been made. So what lenders really want to see openly discussed is actual claims processed.

That is what is so difficult to find. For example in a case in 1992, a canvas by Robyn Denny was damaged by a water leak while waiting to be exhibited at the Barbican. A year later proceedings were issued in the High Court over a disputed claim, but I can find no account of the final outcome, which I assume must have been settled before the court reached a decision.

Zoffany

Rather more interesting is the case of the Zoffany painting (The Mathew Family, above) destroyed in the fire at Clandon several years ago. Neither DCMS nor Arts Council provided any information on this, despite the claim and payout (of £4.2 million) being widely reported in the press (as a payout by the GIS). But you can, if you know what you are looking for, piece together what seems to have happened from DCMS accounts. It appears that (and I invite DCMS and Arts Council to correct me if I am wrong) a claim was made by the owners; the amount of £4.2 million was provided for in DCMS accounts. The claim was then found to be invalid (perhaps because Clandon did not meet the GIS indemnity standards, but I am speculating). Nevertheless the claim was paid by the Government on an ex gratia basis. In other words the lender found that he had not been legally covered at all. And Arts Council can claim that this wasn’t a claim under the GIS. I can see why that is not something the government would want to publicise, although as a lender I would want to know both parts of that story, and when I could rely on the whim of the government minister.

We should also note that the £4.2m Zoffany claim was dwarfed by the non-GIS items in the same fire, or the 2004 fire of the Saatchi and Tate collections in a storage warehouse. Or even the evidence Nicholas Penny is reported to have given to the Burrell enquiry: the Herald Scotland on 6 September 2013 said that he “has had knowledge of 10 major accidents during his career in museums and galleries in Britain and the US.”

So it is not that there is no risk that catastrophic losses will (equally rarely) occur: it is that the public find it very difficult to understand the value (and price) of risk. There is here a neat confusion of risk and premiums saved which mean we can miss the fact that Government is subsidising the museums. The figure of £15m per annum saved (as repeated in Mendoza) is an old estimate which does not seem to be sourced or revised. Voters readily think that that £15m is public value added by the Scheme; the same logic would leave you smug in the years when you don’t insure your home, and disappointed in the year when it burns down. The real public saving is at best the profit element in an insurance premium (by way of illustration, a leading art insurer’s most recent accounts disclose a 10% underwriting profit on gross premiums written in the relevant division); the rest is a concealed transfer of value from taxpayers to museums that doesn’t normally get seen as such. Sssh! I can hear some of you say – don’t let those nasty élite-hating leave voters hear of this (don’t worry – they don’t read my blog).

And then there is the real question: if your £500 million Leonardo is destroyed in an air crash, what is the point of paying yourself a cheque for that amount?

Postscript (23 November)

When I wrote the post above, I had completely forgotten that the GIS had been discussed in blogposts at Art History News and The Grumpy Art Historian some five years ago. The Art Newspaper article to which they refer is no longer online, and I long ago archived (i.e. lost) my copy. It’s somehow reassuring that many of the same points are made, and I also note that the  estimate of savings to museums of avoiding commercial insurance discussed in those posts is the same £15 million claim that currently appears on Arts Council’s website and in Mendoza. But is it right? In Gerry McQuillan’s very helpful comments below he alludes to the Van Gogh exhibition which the previous articles also discussed, where the commercial premium saved was estimated at £6 million in relation to total sum assured of £2 billion. That would seem to suggest that the total “value” of the GIS, where the “indemnities in force” amount to £13.8 billion, might be substantially higher than £15 million – perhaps closer to £40 million. (Of course you can’t simply multiply £6m x 13.8/2…)

 

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From → Art history, Politics

5 Comments
  1. Gerry McQuillan permalink

    With regard to your paragraph on the apparent anomalies in the GIS data, you are not comparing like for like. The figures in the Supply Estimates for each museum is the maximum value for Government Indemnity given on any one day to that museum during the whole of the year. This figure can be about double what the GIS cover is on the two dates each years when reports are made to Parliament (31 March and 30 September). These exceptional highs as the result of a day or two of crossover when the Government Indemnity is in place for one exhibition as the objects return to their owners while simultaneously objects for the subsequent show are being collected and coming into the UK.

    The figure for 31 March 2017 is the total value of indemnities in place at midnight on that day. It would be unusual to have indemnities in place for both ‘outgoing’ and ‘incoming’ exhibitions in late March. From many years experience with GIS, I came to expect the high use dates to be around January, with winter shows closing soon after New Year and the next exhibition opening in February and also in mid-September.

    One positive aspect of the Mendoza report is its acknowledgment of the significance of GIS. Without it most UK public museums would find it all but impossible to mount exhibitions on the scale that has become commonplace in recent years. In 2010 the Royal Academy’s Van Gogh exhibition has loans valued in excess of £2bn. Commercial insurance would have cost c. £6m which given the 400,000 visitors who same the show, would have meant an supplementary cost to each and every person of £15 in addition to the normal cost of entry.

    • I’m very grateful for that clear explanation (I thought it was probably along those lines, although the factor of 2 surprised me). I just wish someone at DCMS or Arts Council had thought it worth providing in response to months of correspondence. But I also wonder how many MPs have a clear idea of what the real risk is, in the event that a museum burns down during handover period (it is the higher number). There is some suggestions that the GIS, while unlimited for individual claims, is subject to an overall limit approved by parliament, and I’m not sure how that fits in. I wonder too (although I am of course very much in favour of the Government subsidising the arts) how many voters and politicians clearly understand how the Royal Academy and its visitors benefit.

      • Gerry McQuillan permalink

        Dear Niall,

        If the UK museum burned down during the rare days of ‘double’ indemnity, I would think it most unlikely that the cost would be the total of the indemnities for all the objects in both exhibitions as objects for the two shows are not likely to be on the museum premises. Indeed, for the ‘double’ indemnity days the museum is likely to have the least number of borrowed objects on the premises as most will be on their travels, half going home and the other half coming in. There is still a high value risk but because the loans are dispersed this is the time when the likelihood of the total indemnity being called upon is at its smallest.

        The figures for GIS are staggering but the likelihood of the risk crystallising into actual payouts is so small that it can be shouldered by the UK Government and has been since the scheme came into full operation 33 years ago. Since 1984 there have been very modest payouts. That is what makes the ‘subsidy’ to the RA and the other museum and gallery venues so worthwhile. It is a real subsidy in the sense that the UK museum would have a sizeable extra expenditure if it was not available but if the risk is properly managed and proper care taken of objects on loan, the cost is quite disproportionately small relative to the value of the benefit.

        The premise upon which Government Indemnity is based is that it is more cost-effective to spend museum funds on first-rate security and properly trained staff who will handle objects with minimum risk to their safety than to pay commercial insurance premiums.

        I have read your piecing together of the evidence on the Clandon Zoffany claim. If you are correct and there was some technical error which led to the Government Indemnity claim being invalid, surely it is comforting to owners to know that the spirit of system will prevail and where appropriate, an ex-gratia payment will be made. If there was no legal requirement to meet the claim, in a less enlightened and fair system, there might have been a temptation to refuse the owner’s claim absolutely. There would have been a short-term saving but overall a long-term loss in confidence in the validity of the GIS system which would have been increasingly costly to museums and galleries as they were faced with the refusal of lenders to accept the UK Government’s indemnity system with the concomitant increasing spend on commercial insurance.

  2. Thank you once again for these excellent points. The starting point for my piece remains the somewhat obscure suggestion in Mendoza that confidence in the scheme needs to be refreshed, and I think we agree that an open debate should help that. I have no idea if I have guessed correctly what happened with the Zoffany, but if so wouldn’t you agree that the confidence the ex gratia payment might instill would be better served by explaining why to the world (including other lenders) rather than trying to bury the circumstances? I still feel as a lender that I’d prefer an enforceable claim that relying on some kind of brand integrity when the matter remains shrouded in secrecy.
    There is a point to be made about savings from avoiding commercial insurance, but it is I think rather more subtle than the savings of the total premium. By far the largest part of the commercial premium represents the true price of risk, which should not be ignored; there is nothing to suggest that governments are better at pricing risk than financial markets (and lots to suggest the opposite). There are two further parts: one is profit to the insurer’s shareholders, and the other (I’ll try to avoid technicalities in this blog) represents what in the industry is known as the capital cost of writing the line. The latter is worth understanding as it explains why commercial insurance for very remote risks can seem usurious. HMG has a lower cost of capital, so ignoring it altogether is indeed a proper benefit of the scheme. These are all good points to air.
    But the point of the blog is different: if the scheme is to be used to best effect, it should be debated openly and clearly. It should certainly be managed in a more coordinated way, with whichever organization is charged with doing so retaining all relevant documents, and with politicians demonstrating that they understand the issues fully. And when people with a reasonable interest in it ask questions about it, they should be answered immediately, openly, fully and frankly, not obstructed repeatedly. Government departments and ALBs will find their information teams have much easier lives when they adopt different tactics. And just maybe the overall effect will help meet Mendoza’s recommendation.

  3. Diana Kostyrko permalink

    Interesting, Neil, thanks. I see what you mean about the acronyms — very off-putting. I wonder what goes on here in Australia, but I don’t have the knowledge or skill to find out. On another point, I’m also kind of over having to pay for images from museums when I don’t receive royalties from my book (which is still not out, but has been printed apparently), or a forthcoming book chapter. Sometimes they ask for gratis copies of my book as well!

    Diana

    Dr Diana J. Kostyrko Cultural historian

    School of Literature, Languages & Linguistics The Australian National University Canberra ACT 2601 AUSTRALIA

    https://harveymillerpublishers.com/

    Literature hasn’t yet been strangled,

    but the cinema, which is more directly tied to the forces of capitalism,

    has already learned to hold its tongue

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