Wealthy holders of art collections devote inadequate time and effort to managing risks involved with such treasures, according ACE Private Risk Services, a high net worth personal insurance business.

The White Paper report has been issued at a time when investment in fine art continues to gain interest, due to the supposed low correlation of such items to mainstream equity and bond markets and art’s ability to act as a hedge against inflation.

The paper, "From Passion to Investment: Asset Protection Strategies for Collectors," sets out steps that investors and advisors can take to better protect art collections.

"Fine art, wine, and other collections have an advantage over traditional investment vehicles because they provide both financial and aesthetic value to their owners," said Gary Raphael, senior vice president, risk consulting, ACE Private Risk Services.

"But they have added risks too, such as theft and physical damage from an array of hazards, and too often collectors aren't systematically addressing these risks. You can't accidentally poke a hole in a corporate bond, but it's happened to a Picasso," he added.

According to the white paper, as affluent consumers expand their collections, it also becomes increasingly important to have a system for documenting and regularly updating the insured value of their prized possessions.

"Often, the individual works are not recorded for documentation purposes, and when they are, in some cases, it's on an antiquated legacy spreadsheet system that fails to account for rising values," Gerald Escobar, president of Asset Archives a global collections management firm based in Atlanta, Ga, was quoted as saying by ACE.

"Someone with multiple residences--each containing valuable collections on display or on loan--may be unaware of or accidentally under-representing the financial value of these items,” he said.

The steps outlined in the report are:

-- Assemble the correct team of experts to provide advice for protecting, preserving, and insuring the collection.

-- Establish a system for tracking and valuing the collection on a regular basis.

-- Protect the collection from theft through investment in both perimeter and external security systems and register it with the applicable registry.

-- Protect the collection from fire and smoke with detection systems and water sprinklers.

-- Choose the display location and method to guard against damage from water, sunlight, fireplace smoke, and other hazards.

-- Make sure art in storage is well-protected from the elements, and avoid storage in attics or basements, where heat and humidity levels can reach extremes.

-- Store wine in a properly constructed wine cellar; make sure any temperature control systems have a back-up power supply.

-- Use professional art shippers when putting collections in transit.

-- When loaning a valuable art piece or collection to a museum, make sure it has adequate safety measures and insurance in place.

-- Develop an evacuation plan for the collection in case of a disaster.

-- Maintain proper insurance by keeping scheduled values current and choosing an insurance company that specializes in serving affluent and high-net-worth clients.