Gem Scams Point to a Need for Change
How can insurers avoid being victimized by jewelry scams?
In our last issue we discussed a claim on a lost diamond stud earring. After paying out $48,000 as a total loss on the pair, the carrier found that the diamonds were low-quality fracture-filled stones. The insurer had overpaid by a whopping $39,286!
Overpayments on treated (fracture-filled) stones, though not always that huge, are commonplace. So are excessive payments for fake diamonds, or payouts based on bogus appraisals with grossly inflated valuations.
We’ve been reporting on these scams for years, and they are increasing. These are not the major scams that make headlines or TV news reports. These are the regular ones, that go unnoticed but steadily eat away at profits.
All these overpayments could have been avoided. It’s time for the insurance industry to take control of the process of insuring jewelry.
Change is always difficult — but often worthwhile. Adopting proper procedures makes the whole process of insuring jewelry easier, and it’s the most important step you can take to avoid costly overpayments.
FOR AGENTS & UNDERWRITING
Get a descriptive appraisal. A useful appraisal:
- describes both the gemstones and the mounting in detail.
- gives a reasonable valuation (based on selling price, rather than on some inflated price that has been “discounted” for this purchaser).
- states whether the gem is natural or synthetic.
- states any gem treatments, or explicitly states that the gem is untreated.
- includes a photo.
- is prepared by a Graduate Gemologist, preferably one who is a Certified Insurance Appraiser™ in Jewelry. (A GG has the expertise to recognize gem qualities, and a CIA™ knows how appraisals should be prepared and how they are used by insurers.)
ACORD 78/79 Jewelry Appraisal, or ACORD 805 Detailed Sales Receipt, meet all these requirements, and they present data in a standardized, easy-to-read format. We urge insurers to recommend these appraisals to policyholders.
For jewelry valued at $25,000 or more, get a second appraisal. This helps verify the quality of the jewelry. Most buyers of expensive jewelry get a second appraisal anyway. The agent can take advantage of the opportunity to explain that payouts are based on the Actual Cash Value at time of loss, not on valuation, so it is to the insured’s advantage to have appraisals describing the qualities of the jewelry in detail. The agent can also point out that an appraisal supplied by the seller of the jewelry—or by an appraiser recommended by the seller—is not necessarily reliable. The insured should seek out an appraiser independent of the seller.
Ask for, and keep on file, sales receipts, diamond certificates, and any other documentation.
Jewelry should be inspected every year or two to check for loose stones and such, as a means of preventing damage or loss. Remind policyholders that such inspections are usually performed free of charge by the selling jeweler.
Do insurance-to-value calculations annually, since values of diamonds and precious metals fluctuate. New software makes this a simple task, an easy way to keep premiums appropriate.
Carefully examine ALL documents on file. For example:
Be sure the appraisal on file describes the item being claimed.
Compare appraisals with other documents to be sure they are describing the same item.
Check the appraisal valuation against the sales receipt: if the valuation is substantially higher, you can suspect an inflated appraisal.
Be alert for the terms “fracture filled,” clarity enhanced,”
“laser drilled” and “Yehuda method” on appraisals,
certificates or sales receipts. These phrases all denote treatments done to
disguise a flaw in the gem.
These terms are important because: 1) certain treatments make a stone more vulnerable to damage, for which the insurer should not be held liable; and 2) stones with these treatments have a lower value than untreated gems of similar appearance.
Price a replacement based on descriptive information from the appraisal, not on valuation. If the jeweler knows your limit of liability, he may just aim for that.
Use the services of a jewelry expert, working on your behalf, for situations requiring jewelry expertise. By paying a nominal fee for such services, as you pay estimators in other fields, you eliminate any conflict of interest and save money in the long run. Your expert should be a Graduate Gemologist who is also a Certified Insurance AppraiserTM.
Always have damaged jewelry examined by your own jewelry expert before settling the claim. Examination may show that the jewelry can be repaired at minimal cost. Or the jeweler may recognize treatments or inherent vice that caused the damage, so the insurer would not be liable. In any case, the examining jeweler can give a description that you can use to check the accuracy of your documents on file.
If one of a pair of earrings is lost, or if one stone in a setting is lost, have your jewelry expert examine the remaining jewelry. It may well be possible to create a match for the earring, or to replace a stone, which would be much cheaper than paying for a total loss. Our files are full of instances of total payouts because the adjuster took the word of the policyholder (or the policyholder’s jeweler) that the jewelry was damaged beyond repair.
Rely on your own jewelry expert to estimate the cost of repair or replacement. Once your expert provides a baseline cost, show it to the insured and encourage him to use any jeweler of his choice. At a minimal cost to the insurer, this approach allows the adjuster to maintain control of the account.
For salvage, have your expert evaluate the jewelry and determine the minimum amount you should accept. Then get competitive bids.
Use a jewelry insurance expert to help with unusual problems. An expert is helpful with claims where the appraisal is inadequate or where circumstances are for some reason suspicious (a large discrepancy between purchase price and valuation, for example). In dealing with salvage, you may want the expert to shop around for your best price, or to suggest other solutions. It might be wise to consult an expert before paying any high claim, because he may catch something you’ve missed that would help avoid significant overpayment.
Get your SIU (Special Investigative Unit) involved sooner rather than later in any questionable cases. The best deterrent to fraud is fear of getting caught. This applies to both insured and jeweler. Fraudulent claims often miraculously disappear once word is out that they are being investigated.
How do you know whether you have a good appraisal? Here is a simple tool for scoring a jewelry appraisal for necessary and useful details.
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