March 2008

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

Describing a gem's color - May

Why not just put jewelry on the Homeowner policy? - June

GIA Diamond Reports - July

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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Do your jewelry claim settlements
make you "look bad"?

Here's what one agent wrote to us:

"Why does the jewelry industry do appraisals for insurance at retail prices when everything is sold for a lot less?  Then the insurance company insures the item for the appraised value but pays the claim on the lower replacement price. Very confusing for the clients and for me, too. It also makes the insurance company look bad. . . ."

The agent suggested we do a newsletter on the topic. Good idea!

Jewelry claims may not involve a lot of money, from the insurer's standpoint, but how they are settled can have a huge impact. That is, how the insured feels about the settlement can affect the agent's total business with that client.

Insuring jewelry can be a confusing business. The causes lie in practices of the jewelry industry, expectations of buyers, market trends, world economics, profit margins, insurance principles and practices, and how they all work together—or interfere with each other. Let's untangle some of this.

Appraised Value

As the letter-writer points out, often an appraisal valuation comes out significantly higher than the jewelry's purchase price. What does this mean? Has the seller really sold the jewelry for less than its typical retail price? There are several possible answers.

When Appraised Value is Much Higher
than Purchase Price
Possible Reason
Explanation & What To Do
The "regular retail price" (given as the appraised value) is a concoction of the jewelry seller, to make the buyer feel good about the price actually being charged. We have covered the issue of the bogus "retail price" in other newsletters (May 2006 and  September 2006, for example). We generally suggest that, when there's a huge discrepancy between appraised value and purchase price, the purchase price is closer to the true value.
The seller deliberately inflates the appraisal for insurance as a "favor" to the buyer. This is an unfortunate practice by some jewelers. Again, we suggest getting a second appraisal from a Graduate Gemologist (GG), preferably a Certified Insurance Appraiser™ (CIA).
The appraiser is incompetent. Alas, most jewelry retailers are not GGs, with the training and equipment necessary to appraise even the jewelry they sell. This was dramatically illustrated in a TV investigation where NY jewelers mistook moissanite for quality diamond. Get a reliable appraisal on the insurance industry's standard JISO forms.
The seller has not kept up on metal and gem prices, and has sold a piece for less than he would need to profitably replace it. The market can be tricky. A number of jewelers have gone out of business because they neglected to take into account swiftly increasing prices. This issue can also affect insurers, as we discuss in the next section.
Replacement Price, ACV, and Bubbles

The agent wonders why insurance companies insure jewelry at the appraised value but base the claim payout "on the lower replacement price." Tread cautiously — the replacement price is not always lower.

Jewelry insurance settlements are based on the actual cash value (ACV) — that is, replacement cost at time of loss (less depreciation). The cost of manufacturing varies more or less with inflation, but the price of precious metals and gems can fluctuate dramatically.

For example, the price of gold almost tripled in price during the past five years.

  

Of course, prices can go down as well as up, as this longer-range graph shows.

Prices of silver, platinum and high-quality diamond also fluctuate. These changes would be reflected in the replacement cost.
 
Pricing can be affected by a variety of factors, including politics, major weather events, and the value of the U.S. dollar in the world market. Spikes and dips occur. If a client buys jewelry when gold is expensive, the bubble may burst next year and the jewelry will be worth less. Who can predict what prices will be when a jewelry loss occurs?

Premiums are based on valuation — that is, on the current selling price at the time of the appraisal.

Settlements are based on ACV (Actual Cash Value) at time of loss.

  

  

Errors & Omissions

With metal and gem prices so volatile, the insurer must be careful not to overinsure or underinsure jewelry.

Say an appraisal valuation is made when gold and diamond prices are high. Eventually the bubble bursts and prices drop. Then a loss occurs. The settlement is based on valuation at time of loss, and that turns out to be much less than the policyholder expected. The insurer — and the agent — "look bad" and may lose all that client's business.

Or:

Say the original valuation is made when metal and gem prices are low. Maybe ten years pass, and gold prices have climbed significantly. Suddenly a loss occurs, and the insurer pays out the limit of liability. But the ring can no longer be replaced for that amount. The policyholder, having paid premiums for 10 years, feels cheated. She sues the insurer for underinsuring her jewelry.

Is this a lose-lose scenario? It needn't be. The insurer must act responsibly, know his business — but that doesn't mean keeping an eye on gold and diamond markets. What you can do is urge clients to have their appraisal valuations updated regularly.

Because of marketplace fluctuations in metal and gem prices, we recommend, particularly for expensive jewelry, that appraisal valuations be updated every two years.

Getting What You Pay For

As the agent pointed out, the carrier often looks bad when the client "pays for one price of insurance and gets another when the claim is made."  The client may feel cheated if he doesn't understand how insurance works.

In most cases, the insurer contracts to pay the actual cash value (ACV) of the jewelry at time of loss. Replacing the jewelry, or paying what it would cost the insurer to replace it at time of loss, would make the insured whole.

It's the value of the jewelry at time of loss—not the premiums paid or the stated valuation—that determines the settlement.

Thus, it is not in the policyholder's interest to have an inflated valuation. This will only result in excessive premiums.

We encourage jewelry buyers to be suspicious of drastic price reductions ("50% OFF!" some stores advertise) and of appraisal documents, supplied by the seller, which "prove" the piece is worth more than the sale price. Usually such jewelry is worth about what it's selling for.

We encourage insurers to explain to policyholders how actual cash value is determined, and how the market for gems and metals varies, so clients are not surprised by their settlement.
  

FOR AGENTS & UNDERWRITERS

Especially for high-price jewelry, we also encourage insurers to require an appraisal on the insurance industry's standard JISO form (JISO 78/79, JISO 805 or JISO 806). Such an appraisal will include a sufficiently detailed description of the jewelry for the adjuster to accurately price a replacement.

Explain to policyholders how settlements are determined by the jewelry's value at time of loss. Urge clients to have high-priced jewelry reappraised for valuation every two years.

If there is a large discrepancy between the appraisal valuation and the sale price, have the client get an appraisal from a Graduate Gemologist, preferably one who is also a Certified Insurance Appraiser™. Explain that an inflated valuation may result in higher premiums, but that a settlement is based on value at time of loss.

FOR ADJUSTERS

If an appraisal is more than two years old, don't assume that the valuation is still current. Gem and metal prices may have changed dramatically.

Your job always is easier if you are dealing with a JISO 78/79 Jewelry Appraisal, or JISO 806 Jewelry Document for Insurance Purposes, or JISO 805 Sales Receipt, since they will give complete information in a standardized format. This information will be sufficient for you to have a qualified jeweler accurately price a replacement.

If one of the above is not available, use JISO 18 to analyze data from the documents you have. This is especially helpful if you're faced with a "narrative" appraisal. JISO 18 allows you to order the information from other documents in a useful way and see what details may be missing.

Use the appraisal's descriptive data, rather than its valuation, to price a replacement.

 

 

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