Tucked into Michelle Falkenstein’s ARTnews story on the changes in art flood insurance provoked by the massive losses of Hurricane Sandy in New York City’s gallery district, there’s this commentary on the financial conundrum surrounding the art market.

Insurance companies are not making any money on the investments they make with premiums to create reserves against losses because of the low interest rate environment. But that same low-return climate is driving more money into the art market seeking profits.

Norman Newman, first vice president of the fine-art division of HUB International Northeast, notes that it’s been a buyer’s market for the past seven or eight years. “That’s changing,” he says. “No one has been making money insuring art. Unfortunately, these companies haven’t made money on their investments either, with interest rates so low.”

Falkenstein also spoke to Huntington Block’s CEO, Joe Dunn about this:

Dunn explains that the industry has been hit hard in a very-low-interest-rate environment. “What’s been protecting the primary and secondary market up until now has been fresh capital that keeps flooding into the market as investors look for return,” he says.

Superstorm Sandy Creates Paradigm Shift for Insurers (ARTnews)