April 2015

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

Not just a pretty face - August

Moral Hazards on the rise - September

Hurricanes, fires, floods—and jewelry insurance - October

Inherent vice / wear-and-tear losses are rising - November

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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Apple's Smartwatch – The risk of a wrist computer

It's smart and it tells the time, but is it jewelry?

Apple's new smartwatch was creating a stir well before its release. For weeks potential consumers were ready to line up at the store as soon as the date was announced. No one thought of it as just a watch.

We don't think you should insure it as one.

 

Typically insurers don't schedule jewelry valued under $1,000, so most of the Apple watches people stand in line for are not an insurance issue. But those $10,000-$17,000 versions might be. Stop before you insure them as jewelry. They are "watches" only in the sense that they're worn on the wrist.

We don't think they qualify as jewelry, and insuring them as jewelry will create problems for the insurer down the line.

What is "jewelry"?

"Jewelry" is not defined in a jewelry policy. But according to the AAIS:

Property insurable under the Personal Articles Floater (PAF) form as personal jewelry is defined as articles of personal adornment composed in whole or in part of silver, gold, platinum or other precious metals or alloys. The insured article may or may not contain pearls, jewels, or precious or semi-precious stones.

(FC&S Bulletin, Misc.Personal, Afc-4, September 1979.)


In light of that definition, let's look at Apple's smartwatch.



Smartwatch prototype?

Personal adornment?

An adornment is something that decorates or lends beauty to the wearer. In all the praise of the smartwatch, beauty is rarely a consideration. Not to say the watch isn't stylish, but no one buys it for its decorative value.  Indeed, they don't even need it for telling time, since the wearer must be in close proximity to his iPhone for the smartwatch to do its smart things, and the phone already gives the time.

Precious metals?

The high-priced version of the smartwatch contains some gold, though it's unclear how much. Apple uses a proprietary mix of alloys to produce an extra-hard gold, so one can't guess what the melt value of the gold would be.

While complying with the karatage marking law, Apple is figuring gold content by a different formula. Apple's 18k gold is said to be 75% gold by volume rather than by weight. The patent makes it clear that saving gold is a goal, so we can assume this watch has less gold than a watchcase of conventional 18k gold.

Compared to traditional luxury watches

Analogue watches have been around for half a millennium and they are...In a different class [from] computers... People will pay $50,000 or $100,000 for a Patek Phillpe, Rolex or Cartier timepiece that does nothing more than tell the time.

Dan Matthews in Forbes

Water resistance?

People are generally very careful about exposing computers and other electronics to moisture. Not so with watches.

Conventional luxury watches have high water resistance. The wearer thinks nothing of getting such a watch splashed while washing his hands, washing the car, being out in the rain, sweating during a hard workout. He can even keep the watch on in the shower or while swimming.

Apple's smartwatch requires more awareness. So many actions one is accustomed to doing with a conventional watch would harm the smartwatch's technology. Would an insurer want to offer coverage on water damage of this watch?

Holding value?

The Apple watch is more like a wearable computer than like a luxury watch. The buyer's expectations are different, and what the buyer appreciates about each is different. The Rolex or Patek continues to be a classy adornment for generations, while the smartwatch rapidly becomes outdated when the next technology update comes along.

A Rolex President bought 30 years ago for $8,000 could be sold today for $4,000. What value would Apple's $17,000 watch with today's technology have even 10 years from now, let alone 30?

Today's high-end Apple watch priced at $17,000 might, with a fancy band and gems added, be valued at $30,000. Accessorized like this, it might be more like a piece of jewelry. Still, consider the moral hazard: If the technology becomes obsolete, the watch could be worth only the value of the gems and the melt value of the gold. In that case, the owner might be tempted to have an accidental/on purpose loss.

Repair & replace? 



An insurance settlement is based on the company's cost of replacing with like kind and quality. When it comes to damage, a jeweler can often service conventional watches. A watchmaker trained by Rolex, for example, can order and install replacement parts for its watches.

There's probably nothing in the Apple watch that a jeweler can repair, or even open. The insurer would have to go to Apple, and this could be an expensive remedy.

For total losses on conventional watches, insurers can look for and price replacements in the huge vintage watch market. Such a market does not exist for the Apple watch, so right now the insurer cannot look to the vintage market for settling claims. The company would have to replace with a new watch from Apple.

We know from experience that Apple constantly updates its products. In all electronics, eventually the old models become unserviceable, even by the manufacturer. If a smartwatch could not be repaired, the insurer would have to go to Apple—and get the latest model. With that as the terms of settlement, what a moral hazard the insurer would be creating!

Risk?

Worn on the wrist, this expensive bit of technology is vulnerable to damage. Conventional watches selling for just a few hundred dollars are usually water resistant to at least one atmosphere (32 feet), which is deeper than the typical pool or lake. The Apple watch is not. Like all electronics, it should be kept away from water. Apple's warrantee on the iPhone doesn't cover water damage, and such coverage is unlikely for the watch.

This watch is likely to be treated more casually that either technology or jewelry. Suppose the owner leaves it in his locker at the gym, while he showers? Or tucks it under his towel at the beach, while he goes in for a swim? As the latest Apple product, the watch is especially susceptible to theft.

 

So what is the Apple watch, and how should it be covered?

Business property?

The Apple watch syncs with your iPhone, letting you send & receive calls and emails. It gives internet access, shows driving routes, reminds you of appointments. On a typical homeowner's policy, the total limit for business property is $2500—well below the price of the high-end Apple watch.
 
Portable electronics?

The Apple watch is a wearable piece of electronics. It's been called a wrist-worn super-iPod. A typical homeowner's policy limit for portable electronics is $1500—well below the price of Apple's gold watch.



Jewelry rates on a $17,000 item vary between 1% and 3%, depending on location and value.  For comparison, the rate charged for cell phones by one major insurer is as high as 5%.

Medical device?

The Apple watch has apps for a number of health- and medical-related uses. It can track your blood pressure, check your heart rate, count your steps and calories burned. Perhaps this is more like a medical device, a hearing aid or insulin pump or prosthesis, than like a piece of jewelry.

Medical devices are much more hazardous than jewelry, and have much higher rates. For example, the hearing-aid rate used by a major insurer in Florida is 7%.

Be prepared!

It's important to determine in advance how your company would insure a smartwatch and how losses would be handled. It's essential that underwriting procedures be uniform within a company and not unduly discriminatory. All underwriters should follow the same procedures.

What kind of coverage should be offered?  Do you really want to provide special perils (all risk) coverage? Are there exclusions that should be added to the policy, such as for water damage, breakage, mysterious disappearance and unexplained loss? It is critical for insurers to collect a premium that is adequate for the exposure.

Be prepared. In the first quarter of 2015, Apple sold 74.5 million iPhones—that's 34,000 iPhones per hour! We don't know how big sales of the Apple smartwatch will be, but insurance companies should have procedures in place.

 

FOR AGENTS & UNDERWRITERS

This is new territory. Smartwatches are so different from traditional watches and are such a higher risk, that they should not be considered or covered as jewelry. Jewelry rates (and coverages provided) are inadequate for the exposure.

Decide what PAF class to use and what coverage to provide for smartwatches, and be sure all underwriters follow the same procedures.

Water damage is probably the #1 problem. If Apple won't fix the watch, the consumer is likely to just "lose" it and look to the insurer for a new one.

 

FOR ADJUSTERS

Adjusters, like underwriters,  should confer with senior management on how these watches will be classified and what  coverages will be afforded.

 

 

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