Myths, Lies and Half-Truths, Part 2*
Retail Price, List Price, Discount Price and Valuation
"It is a well-recognized fact...that many retail jewelers include the full retail price on their jewelry appraisals, even though their every day selling price is 25 to 70 percent less than this alleged retail price. Of course, every insurer's duty to 'replace with like kind and quality' is based on the scheduled, and marked up, retail price listed."
This admission that deceptive pricing is common practice for jewelry retailers came from a professional jeweler.
The prevalence of such artificially high "list prices" cannot be exaggerated. In a suit brought against J.C. Penny for grossly marking up prices prior to advertising "sales," the court ruled that the chain was not guilty because the deceptive practice was so widespread. The judge said that to single out one merchant for prosecution "in an industry that appears dominated by many violators" could be viewed as unfair.
Therefore, let the buyer and the insurer beware. Price alone should never be the basis for scheduling jewelry, since you have no way of knowing whether the price is inflated. Even a sales receipt showing the price paid is not sufficient. An appraisal or sales receipt should have complete descriptive information, in enough detail that a jeweler can use it to determine the quality and price of the jewelry described and the insurer can perform ITV calculations.
The market value of jewelry may go up or down over time. A replacement of "like kind and quality" is properly based on a description of the piece (on the appraisal or sales slip), rather than on the selling jeweler's purported list price or even on the price the policyholder actually paid.
"There are highly competitive markets in different areas of the country for replacement jewelry, which drive the costs down. Large cities such as New York, Los Angeles and Chicago tend to have lower replacement costs due to the higher concentration of jeweler retailers and replacement services."
This is not really true. There is, indeed, more competition in large cities. But cities have greater overhead costs, such as rent, to balance out any major price differences. The replacement jeweler who said this may be attempting to lure business from insurers in less populated areas.
Wherever they are located, replacement services play the same game with insurers that retail stores play with customers: they artificially inflate prices, then claim to be offering insurers special terms. One replacement service, for example, marks up its merchandise three times, then offers a 50% discount "as a service to our insurance customers."
Insurers cannot usually buy directly from manufacturers, so their costs are somewhat inflated, but they should not be persuaded by hype about discounts. Like consumers, insurers should shop around. Once you get competitive bids, you can decide which jeweler or replacement service to use.
* Claims, a magazine published by National Underwriter, recently carried an article discussing the importance of appraisals in jewelry loss investigation http://www.claimsmag.com/ Issues/archives/ feature.asp. This issue is part of a series in which we use the Claims article as a jumping-off place for discussing some common misunderstandings about jewelry and jewelry insurance.
FOR AGENTS & UNDERWRITING
Encourage policyholders to submit an appraisal giving a detailed description of the jewelry, as well as a valuation. ACORD 78/79 is the best jewelry appraisal form, since it lays out what information is needed and has an easy-to-read format. This descriptive information, rather than the selling price, is the basis for pricing a replacement.
In seeking replacement jewelry, be sure to get competitive bids or use cost-estimating software. Don't be misled by advertised "specials to insurers" or theories about where replacement service costs are lowest. The only way to know you are getting a good price is by comparing prices.
SPECIAL OFFER FOR AGENTS
Help your policyholders learn how to shop for jewelry. JCRS's Consumer Jewelry Information can be incorporated into your own web site and function as a service to your customers.
Explore the Consumer Jewelry Information web site yourself, to see the wealth of jewelry information and shopping advice. Then contact JCRS about having this valuable resource linked to your agency's site.
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