Agreed value

Agreed value is the central mechanism for insuring assets whose value cannot be objectively established, foremost among them artworks and collectibles. Classical indemnity insurance defers valuation to the day of the loss. Here, the parties agree in advance on an amount payable in the event of a total loss, without appraisal or dispute. Market wordings specify that this value is settled for the purposes of the contract only, with no representation as to the price the asset would attain if sold. It is a convention: a number the parties choose to hold as true in order to be able to contract. It knowingly departs from the indemnity principle, since the insurer undertakes to pay the agreed amount even if the market value has fallen between inception and the loss. Some contracts even pay beyond the stated amount to track market appreciation. In return, underwriting becomes more demanding: the insurer must make sure the declared value is plausible, documented and regularly revalued. Without that, the convention would become an instrument of over-insurance or moral hazard.