September 2006

JEWELRY INSURANCE ISSUES (formerly IM News), provides monthly insight and information for jewelry insurance agents, underwriters and claims adjusters.

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Jewelry Insurance Issues

Table of Contents

Click on article titles in red

2017

Moral Hazard, Documents and the Bottom Line - January

Ruby and Jade - February

How to mail a diamond - March

Jewelry Insurance Appraisal Standards: JISO - April

2016

Inflated appraisals—alive & well! Shady lab reports—alive & well! MORAL HAZARD—ALIVE & WELL! - January

Clarity Enhancements v. Inherent Vice - February

How green is my emerald? - March

Cruise Jewelry - What's the problem? - April

Crown of Light®- how special is it? - May

Diamonds at Auction — Big gems, big prices, and the trickle-down effect - June

Are you sure her wedding jewelry is covered? - July

What Affects Jewelry Valuation? - August

What to look for – on the jewelry appraisal, on the cert, and on other documents - September

Bigger & Bigger Diamonds - October

Scam season is always NOW - November

Ocean Diamonds - December

2015

Pair & Set Jewelry Claims and the Accidental Tourist - January

Is that brand-name diamond a cut above the others? - February

Vacation Jewelry – Insurer beware! - March

Apple's Smartwatch – The risk of a wrist computer - April

Why you should read that appraisal - May

Smoking Gun! - June

Color-Grading Diamond: the Master Stones - July

Padparadscha—a special term for a special stone - August

Jewelry Appraisal Fees - September

Insuring a Rolex - steps to take, things to consider - October

Diamond camouflage and how to see through it - November

GIA Hacked! - December

2014

Who Grades? - January

Sales, discounts, price reductions, bargains, specials, mark-downs . . . . and valuation - February

Credential Conundrum - March

Frankenwatches - April

Fakes, fakes, and more fakes - May

Marketing Confusion — What is this gem anyway? - June

12 Reasons Not to Insure a Rolex! - July

Why NOT to insure a Rolex: Reasons 5-7 - August

Why NOT to insure a Rolex: Reasons 8-10 - September

Why NOT to insure a Rolex: Reasons 11-12 - October

The Doublet Masquerade - November

Is the gem suitable for the jewelry? Is this a good insurance risk? - December

2013

Wedding Rings on HO? NO! - January

Silver: the new gold - February

Point Protection - March

Tiffany v. Costco - April

What counts in valuing a diamond? - May

Appraising Jewelry - What's a credential worth? - June

A Cutting Question concerning vintage diamonds - July

Synthesized Diamonds - Scam update - August

Pretty in Pink - Kunzite on parade... - September

Preventing jewelry losses - October

Scratch a diamond and you'll find . . .??? - November

Synthetics in the Mix - December

2012

Advanced Gem Lab - A deeper look at colored gems - January

Whose Diamond? - February

Appraisal Inflation - It Keeps On Keeping On - March

Big Emerald - April

Changing colors and making gems: Are we seeing "beautiful lies"? - May

Diamonds - Out of Africa. . . or out of a lab? - June

Appraiser's Dream Contest - July

GIA & the Magic of Certificates - August

Pricey when it's hot: What happens when it's not? - September

Fooling With Gold - October

Tanzanite – December's stone - November

Branding Diamonds - What do those names mean? - December

2011

Unappraisable Jewelry - January

Replicas - Are they the real thing? - February

Composite Rubies- From bad to worse - March

Jewelry Hallmark - A Well-Kept Secret - April

Non-Disclosure: Following a Trail of Deception - May

Preserving the Diamond Dream - June

Spinel in the Spotlight - July

Jewelry 24/7 - Electronic Shopping - August

Diamond Bubble? - September

Disclosure: HPHT - October

"Hearts & Arrows" Diamonds - November

How a Gem Lab Looks at Diamonds - December

2010

Emeralds - And What They Include - January

Pink Diamonds: From Astronomical to Affordable - February

Palladium-the Other Precious White Metal - March

Bridal Jewelry - April

The Corundum Spectrum - May

How Photos Cut Fraud - and help the insured - June

The Price of Fad - July

Old Cut, New Cut-It's All about Diamonds - August

EightStar Diamonds-Beyond Ideal - September

The Hazard of Fakes - October

Jewelry with a Story - November

Counterfeit Watches - December

2009

Blue Diamond-cool, rare and expensive-sometimes - January

Turning Jewelry into Cash—
Strategy in a Bad Economy
- February

Enhancing the Stone - March

Being Certain about the Cert - April

Every Picture Tells a Story - May

Color-Grading Diamonds - June

The Newest Diamond Substitute - July

What Happens to Stolen Jewelry - August

Jewelry As an Investment - September

Black Diamond: Paradox of a Gem - October

Protect Your Homeowners Market—Keep Jewelry OFF HO Policies! - November

What’s So Great about JISO Appraisal Forms & Standards? - December

2008

Garnet - and Its Many Incarnations - January

Organic Gems - February

Do Your Jewelry Insurance Settlements Make You Look Bad? - March

Don't Be Duped by Fake JISO Appraisal - April

Diamonds in the Rough - May

The Cultured Club - June

Sapphire-Gem Superstar - July

It's a Certified Diamond! 
- But who's saying so?
- August

FTC Decides: Culture Is In! - September

Paraiba Tourmaline – What's in a Name? - October

How Fancy is Brown? - November

CZ – The Great Pretender - December

2007

Moissanite's New Spin - January

Online Jewelry - Buying and Insuring - February

Blood Diamonds - March

Damaged Jewelry, Don't Assume!- April

Chocolate Pearls - May

Appraisal Puff-Up vs Useful Appraisal - June

It's Art, but is it Jewelry?
- July

Diamonds Wear Coats of Many Colors - August

DANGER! eBay Jewelry "Bargains" - September

TV Shopping for Jewelry - October

Enhanced Emerald: clever coverup - November

How do you like your rubies -
leaded or unleaded?
- December

2006

The New Platinum: A Story of Alloys - January

Ruby Ruse - February

How Big are Diamonds Anyway? - March

GIA Diamond Scandal
Has Silver Lining for Insurers
- April

Watch Out for Big-Box Retailers Insurance Appraisals - May

Mixing It Up: Natural and Synthetic Diamonds Together - June

Tanzanite - Warning: Fragile - July

Red Diamonds - August

Inflated Valuations & Questionable Certificates - September

Emeralds - October

Where Do Real Diamonds Come From? - November

Counterfeit Watches - The Mushroom War - December

2005

The Lure of Colored Diamonds - January

Synthetic Colored Diamonds - February

Watches: What to Watch for - March

When is a Pear not a Pair? - April

The Truth About Topaz - May

White Gold: How White is White? - June

One of a Kind - or Not - July

Jewelry in Disguise - August

Valued Contract for Jewelry? Proceed with Caution! - September

Antiques, Replicas and All Their Cousins
October

Grading the Color of Colored Diamonds
November

New GIA Cut Grade for Diamonds - December

2004

Synthetic Diamonds - and Insuring Tips - January

Bogus Appraisals and Fraud - February

A Picture is Worth Thousands of Dollars - March

Don't be Duped by Fracture Filling - April

Gem Scams Point to Need for Change - May

What is a Good Appraisal - June

4Cs of Color Gemstones - July

Gem Laser Drilling: The Next Generation - August

Why Update an Appraisal? - September

When to Recommend an Appraisal Update or a Second Appraisal - October

Secrets of Sapphire - November

Will the Real Ruby Please Stand Up - December

2003

Mysterious Orient:
A Tale of Loss
- January

Bogus Diamond Certificates and Appraisals - February

Can Valuations be Trusted? - March

Spotting a Bogus Appraisal or Certificate - April

Counterfeit Diamond Certificates - May

Case of the Mysterious "Rare" Sapphires - June

Politically Correct Diamonds - July

Name Brand Diamonds - September

Princess Cut: Black Sheep of Diamonds - October

Reincarnate as a Diamond - November

Synthetic Diamonds - December

2002

Irradiated Mail/Irradiated Gems - January

Fake Diamonds (Moissonite) - February

GIA Diamond Report - March

AGS and Other Diamond Certificates - April

Colored Stone Certificates - May

Damaged Jewelry: Don't Pay for Nature's Mistakes - June

The Case of the "Self-Healing" Emerald - July

Mysterious Disappearance: Case of the Missing Opals - August

The Discount Mirage - September

What Can You Learn from Salvage? - October

Gaining from Partial Loss - November

Year in Review - December

2001

Colored Diamonds - January

Good as Gold - February

Disclose Gem Treatments - March

FTC Jewelry Guidelines - April

Myths Part I: Each Piece is Unique - May

Myths Part II: Myths, Lies, & Half-Truths - June

New Trend: Old Cut Stones - October

The Appraisal Process - November

Year in Review - December

2000

Deceptive Pricing - January

Gems - Natural or Manmade - February

Jeweler/Appraisal Credentials - March

Fracture Filling - April

Salvage Jewelery - May

Gem Treatments - June

Don't Ask/Don't Tell - A Buying Nightmare - July

Laser Drilling of Diamonds - August

Jeweler Ethics or the Lack Thereof - September

Gem Scam - October

The Truth about Clarity Grading - November

Year in Review - December

 

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Inflated Valuations
& Questionable Certificates

Certified diamonds are all the rage in jewelry retailing. A certificate is a great selling tool for the retailer. But for consumers and insurers, the value of the cert depends on the lab that issues it.

Along with whatever movie is showing on major U.S. airlines, there’s often a film clip advertising the International Gemological Institute. “Insist on IGI before you buy” is the theme.  IGI’s million-dollar ad campaign aims at building recognition of its name and promoting customer awareness of “certified diamonds.”

IGI is already a chief source for point-of-sale diamond documents. This lab turns out an estimated 200,000 to 300,000 such documents a year, supplying many of the nation’s jewelry stores. Zales — the largest jewelry outlet in the country, big-box retailers like Costco and Wal-Mart, as well as some smaller jewelry chains, all use IGI diamond documents.

How important is a diamond certificate?
Does it replace an appraisal?

An appraisal describes (grades) the diamond, and describes the setting (metal type, mounting, etc.), and gives a valuation.

A diamond certificate (also called a diamond report) grades the stone. A certificate does not describe the setting and it does not give valuation, so it’s not a substitute for an appraisal. However, a certificate from a reliable laboratory serves as authoritative verification of the qualities of the gem, and it is a highly recommended document for insuring high-value jewelry.

So what’s the problem with certificates?

In popular usage, “certified” sounds like a stamp of approval. The current buzz over “certified diamonds” grows out of this association.

In the current market, a variety of documents are being referred to as “diamond certificates.” The document may be headed Identification Report, Appraisal Report, Certificate of Authenticity, or other such terms; it may come from an unreliable lab; and it may include a valuation (which a diamond report from a disinterested lab would not); but sellers and buyers generally call it a diamond certificate.

The retailer can point to the valuation on this document to show that the selling price is a bargain, and the “certificate” becomes a persuasive sales tool. The dangers for buyer and insurer are that 1) the grading on the document may be very liberal or inaccurate and 2) the valuation is probably inflated. In short:

A diamond certificate
is no better than the lab that issues it!

The Valuation

NBC’s Dateline recently exposed some inflated “certificate” valuations. In the Dateline report (this link takes you to their Web site, where you can view the actual video), two staffers posed as a couple looking for an engagement ring at various stores. Most of the diamonds came with documents (which Dateline refers to as “certificates”) carrying valuations.

In almost all cases, the document’s valuation was well above the selling price. The sales clerk often cited the high valuation on the official-looking paper as evidence of a bargain. For instance, a diamond ring sold at Zales for $4,000 came with an appraised value of more than $5,000.

The Dateline piece deals with fairly low-priced jewelry, but bogus valuations cover the spectrum.


The Web site for Sam’s Club, a division of Wal-Mart, advertised this ring for $260,000. To prove the price was a bargain, the site also showed an appraisal valuing the ring at $450,000 — almost twice the selling price.

pink diamond

Selling Price: $260,000
“Certificate” Valuation: $450,000

Selling Price: $86,999.99
“Certificate” Valuation: $183,995

Costco is currently selling this ring for $86,999.99, while its IGI “Summation of Appraisal” values it at $183,995 — a pretty steep overvaluation!

Screenshots of Webpage and IGI Document for the Princess-cut ring (click for enlargement):      

Costco Webpage
IGI Document

Here’s an extra slight-of-hand: The “Summation of Appraisal” for the Costco ring states that its contents are based on a GIA (Gemological Institute of America) Report. This suggests that no gemologist at IGI examined the stone; the information was merely copied from the GIA Diamond Report.

GIA is the premier gem grading organization, and the GIA report also comes with the purchase. However, the IGI document doesn’t even serve to corroborate information on the GIA report, since IGI’s information was taken from the GIA report. One might ask what purpose the IGI document serves, other than to publish an inflated valuation.

Jewelry items with 6-figure sales tags, accompanied by their inflated valuations, are indeed selling at big-box retailers. Sam’s Club closed out 2005 with a bang by selling a $250,000 necklace (marked down from $300,000). The necklace came with an IGI Diamond Report valuing it at more than $575,950. The appraised value was inflated by $325,950.

Screenshots of Webpage and IGI Document for the necklace (click for enlargement):      

Sam's Club Webpage
Diamond Report

Documents as Imaginative Marketing

Appraisal documents often carry lines like “these values are not for investment purposes, nor are they an endorsement of the price you should pay.” Such statements may mean that the valuations have no real-world basis.

Asked by Dateline to comment on these “certified” inflated valuations, independent appraiser Don Palmieri said they seem to have come from “the market imagination…of the retailer and the laboratory.”

Buyers will, of course, submit to the insurer certificates and any other documents they received from the seller. If an inflated appraisal is the only statement of valuation, the insured may wind up paying too high a premium. In the event of a loss, they may be shocked to learn their jewelry is worth much less than they thought.

When IGI’s president, Jerry Ehrenwald, was asked about the discrepancy between selling price and valuation, he did not explain or defend it. Instead, he volunteered that customers shouldn’t rely on the certificate’s valuation when they insure the jewelry. “If the client pays less money than the appraised value, they should submit the sales receipt to the insurance company.” We think so, too!!

For more discussion of the moral hazard involved in inflated valuations, see Bogus Appraisals & Fraud in the February 2004 issue and Valued Contract for Jewelry? – Proceed with Caution! in the September 2005 issue.

The Grading

Unlike an appraisal, a certificate’s primary purpose is to grade the quality of the stone.

To check the grading accuracy for diamonds it purchased, Dateline submitted the stones to four different labs. The grades on the same stones varied significantly from lab to lab. Some diamonds, sent back to the lab that issued the original document, got different grades the second time around.

One diamond had a much lower clarity grade than reported on the document that came with the sale. The difference in grade dropped its appraised value from $1275 to $638.

Insurers and buyers should find this fluctuation worrisome, since a difference of a single grade one way or the other could mean thousands of dollars. The diamond grading system is quite precise. Its accuracy depends on the expertise — and the standards — of the lab or appraiser examining the stone.

How Reliable Is the Lab?

IGI is not the only lab that produces questionable valuations, it’s just the largest. It is a worldwide company, with lots of irons in the fire. Among its many products and services are little jewelry display boxes like those you can see in the Dateline video, with an official document neatly fitted to the size of the box.

There are many other labs providing many versions of diamond documents. They may have names like Identification Report, Appraisal Report, Appraisal summary, Certificate of Authenticity, etc., and will look official. Be especially wary if something posing as a “certificate” or “report” carries a valuation, for it’s likely to be inflated.

Reliable Labs for Certificates

Though certificates are often considered appraisals, and may even be called appraisals, they should not be. The primary purpose of a diamond certificate is to describe the diamond accurately and in detail. It is an impartial professional opinion issued by an independent lab that is a recognized authority in gemology.

A diamond certificate should not assign value — that is the appraiser’s job. IGI and other labs are taking on that role, but these are not truly independent labs. They are providing sales aids to the seller. Their valuations, and often their gem grades, are not reliable.

The most reliable diamond certificates (also called diamond reports) come from the Gemological Institute of America (GIA) and the American Gem Society (AGS). These are the most respected labs, known for their accuracy and professionalism. These reports are not appraisals and do not carry valuations. Certificates from any other sources are often questionable and should not be relied upon by insurers.

Reliable Appraisals

The most reliable and complete appraisal for insurers is one submitted on JISO 78/79 (formerly ACORD 78/79). It is prepared by a graduate gemologist who is also a Certified Insurance Appraiser™.

FOR AGENTS & UNDERWRITERS

These days, even diamond jewelry selling for less than $1,000 typically comes with a “certificate.” Do not be lulled into thinking this is a reliable diamond report unless it comes from the Gemological Institute of America (GIA) or the American Gem Society (AGS).

Do not rely upon certificates that

A diamond certificate (even from GIA or AGS) is not a substitute for an appraisal. Always secure an appraisal, preferably on JISO 78/79, which meets the insurance industry’s standards.

Whenever possible, also obtain for your files the sales receipt. If there is a large discrepancy between sale price and valuation, the receipt will give a more reliable indication of value.

FOR ADJUSTERS

Certificates from labs other than GIA and AGS may not be accurate. Do not rely on them.

GIA Diamond Reports are so highly regarded that they are sometimes forged. You can quickly check a report’s authenticity either online or by phone (760-603-4500 ext.7590).

Diamond certificates describe the gem but do not carry valuation. Valuations found on diamond certificates are likely to be inflated. Do not rely on them.

A valuation (whether on a certificate or an appraisal) that is well above the selling price is probably inflated. Base the settlement on the description of the jewelry, not its valuation.

 

©2000-2017, JCRS Inland Marine Solutions, Inc. All Rights Reserved. www.jcrs.com

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