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Paving the way for authenticity-related insurance products


The art market is facing a dilemma: as the finance industry and the art world continue to converge, concerns surrounding authenticity and attribution are increasing. According to Deloitte, in 2019, 83% of wealth managers believed attribution and authenticity issues were among the biggest threats to credibility and trust in the market, compared to 76% in 2016. This suggests the following:

a) Market participation will increase if solutions become available. 
b) The current protocols surrounding authenticity are not good enough.
c) Insurers could play a key role in offsetting the risk of market participants if suitable solutions exist.

There has been no shortage of forgery scandals in the art world involving museums, auction houses, scholars and galleries. The art market doesn’t like to admit it, but forgers have found ways of duping experts, falsifying provenance and passing scientific scrutiny. An arms race of sorts has emerged and despite the successful application of modern technologies in many fields, art authentication has been somewhat resistant to change. This may be self-damaging because it is likely the lack of authentication protocols and the lack of regulation in global art markets keeping many potential participants away. 

Aside from traditional lines of insurance business, securitisation in the art market may present opportunities for new insurance products. Why securitise art? For the same reason we securitise other assets: the ability to offer customized exposure to otherwise hard-to-reach asset classes. Art investments are a useful complement to portfolio diversification because many art investments have long price histories and lack correlation with other asset classes. Additionally, art lending is growing rapidly at major banks, and Citibank recently dedicated an entire department to generating these credits. Is it likely that demand for new insurance products from the approximately $60 billion global art market is far behind? 

Forgery threatens to interfere with the development of more robust art insurance products. In fact the ability of insurers, lenders and other financial services firms to underwrite new products may rest on the ability to confirm an artwork’s authenticity according to the highest evidentiary standards. 

So how might we tackle the forgery problem to enable insurers to offer new products? First, a clear authentication process must be devised that is inexpensive, reliable and scalable.  Second, achieving the highest evidentiary standards available will mean adopting a multi-disciplinary protocol. Applied sequentially, these tests must prove so challenging to a forgery that it would be easier to get through the eye of the proverbial needle, than pass the protocol. 

Forgers know what tests they’re up against, and these haven’t changed for decades -- pigment analysis and imaging are surmountable obstacles. At Hephaestus, our goal is to eliminate forgery from the market, so we have developed a series of advanced scientific and machine learning (artificial intelligence) tools. The latter extends the reach of connoisseurs by revealing an artist’s invariant characteristics, such as the distinctive pressure applied to a line or the habitual spacing of compositional elements, that are very difficult to imitate. The final effect of Hephaestus’ methodology is to narrow the range of false positives from which a connoisseur must judge, significantly lowering the bias effect and raising the accuracy of judgements. 

By incorporating twenty-first century technology into the time-honoured skills of connoisseurship, these new art authentication companies are especially useful in the detection of forgery of modern and contemporary art where the forger would have access to pigments and materials similar to what the original artist had used. And where machine learning tools are employed, there are no invasive procedures and the results are significantly less expensive and more rapid than unaided authentication methods.