Turning Jewelry into Cash—
Strategy in a Bad Economy
The economy is shaky these days. Retail business is down, consumers are worried about their jobs and have less to spend. Everyone’s looking for ways to cut costs and stay solvent.
How does this affect insurers? The short answer is: more fraud. When times are tough, more people tend to bend the rules.
A study by Accenture, the world’s largest business consulting management company, examined consumers’ attitudes toward insurance fraud. It found that 25% of the respondents thought a false insurance claim or overstating a claim was acceptable. That study was in 2003. In today’s economy, we could expect worse results.
People condone fraud either because they think insurance companies charge too much or simply because they think they can get away with it. With cars, for example, a person can drive the car to an airport parking lot and report it stolen. Weeks might pass before the car is found. In a state that has a constructive total loss law, burning down the house is an attractive deception. With jewelry, declaring a false loss is pretty easy.
A partner in Accenture’s Insurance practice said, “Fraud is a growing concern for insurers, whose aging technology and inefficient processes often prevent them from detecting fraudulent claims.”
It’s time to get our fraud-detecting tools and processes in order!
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Selling Price: $86,999.99 |
Inflated valuations are all too common.
Some jewelry retailers are finding that business is down 30% or more. An unethical jeweler may decide to do customers a favor by giving them insurance valuations well beyond the selling price. This is likely to result in return business from these customers, who feel they’re being taken care of.
There are also many jewelry outlets that regularly advertise “50% off!” the regular selling price, and they substantiate the bargain by accompanying each purchase with an inflated appraisal. Oddly enough, many customers readily take the seller’s word about the “real” value of the jewelry, despite the low price offered to them. Insurers should be more aware and more skeptical.
An inflated valuation creates a serious moral hazard, a false loss waiting to happen.
Your anti-fraud tool: Compare the appraisal’s valuation with the sales receipt. If the valuation is significantly higher than the sale price, that valuation is likely to be inflated. Ask for an appraisal from a Graduate Gemologist (GG), preferably one who is also a Certified Insurance Appraiser™ (CIA).
Who says it’s a certified diamond?
Not all labs issuing diamond reports are trustworthy. Some are known to write inflated appraisals, exaggerating both the quality of the jewelry and the valuation.
Your anti-fraud tool: The most reliable labs for certifying diamonds and colored gems are GIA (Gemological Institute of America), AGS Lab (American Gem Society Lab), and GCAL (Gem Certification & Assurance Lab) For high-value gems, insist on a report from one of these labs.
Watch those watches.
There is a huge trade in fake watches. A high-end watch not sold through an authorized dealer for that brand is considered second-hand at best, and may be just a knock-off. There’s also a huge market in counterfeit watch parts. All parts must be genuine for that brand, in order for the watch to be considered authentic (and to have the value of an authentic brand-name watch).
Appraising fine watches is not within the competence of all jewelers. One must be trained to judge the authenticity of the watch and all its parts, recognizing non-authorized “after market” add-ons as well as out-and-out fakes.
Your anti-fraud tool: Be sure the appraisal is done by a dealer trained to authenticate that brand, or by a Certified Insurance Appraiser™, who has the resources for obtaining proper authentication.
Red Flag: purchases from internet sites, on home shopping channels, or during travel abroad.
Such purchases are often impulse buys. The buyer has not comparison-shopped, and most likely has not had the jewelry independently appraised to verify its quality and value.
This merchandise is often low quality but advertised—and “certified”—as high quality. It may come with an appraisal or report carrying a high valuation. If you insure it at the falsely high valuation, and the consumer later finds out it is worth far less, he may be tempted to “lose” the jewelry.
Your anti-fraud tool: Ask for an appraisal from an disinterested jeweler/appraiser (i.e., not the seller).
Who is this appraiser?
Literally anyone can call himself a jeweler and write an appraisal. No training or credential is required. Jewelers can even run businesses for years and still be unable to tell real diamond from fake, as shown in this Dateline exposé. So why should you automatically trust whatever appraisal and valuation are in front of you?
Your anti-fraud tool: Ask for a detailed appraisal written by a Graduate Gemologist (GG), preferably one who is also a Certified Insurance Appraiser™ (CIA).
Red Flag: investment gems sold by mail.
Sometimes the insurer is an unintended victim of a scam—the buyer is the intended victim. In one mail order fraud, rubies were sold as investments, guaranteed to appreciate in value. The gems were securely wrapped in a transparent material to “protect the investment.” Keeping them wrapped also meant the gems couldn’t be inspected by an independent appraiser. The insurer (like the buyer) would be taking the word of the scam artist as to the gems’ value.
Often a tip-off that a mail-order deal is shady is that the merchandise is mailed from outside the U.S. It’s a good guess someone wants to avoid being charged with mail fraud.
Your anti-fraud tool: Be especially cautious about jewelry that has been bought sight-unseen or “for investment.” Insist that the quality of the gems be verified by a reliable, disinterested appraiser who is a GG and preferably also a CIA™.
Are you being set up for a loss?
The same scams are used over and over—only the characters and the settings change. One of these recycled scams involved almost worthless stones valued at $160 million, which the customer wanted to insure under a valued contract. If one of the stones went “missing,” the cost to the insurer would be tremendous. And that’s the likely intent.
We’ve been contacted regarding half a dozen versions of this scam in the past few months, always involving loose gems, stored in a vault, with values ranging from $12 million to $1.2 billion. The premiums would, of course, be very high.
An alternative explanation is that this is a money-laundrying scheme. The policyholder puts up the premium for a year, then cancels after the first month and gets back 90% of his payment in clean money. Whether the goal is a “missing” stone settlement or a refund from a cancelled contract, you want to avoid this fraud.
Your anti-fraud tool: For any high-value Agreed Amount contract, insist on a detailed appraisal on the insurance industry’s standard JISO 78/79 form, written by a Graduate Gemologist (GG) who is also a Certified Insurance Appraiser™ (CIA).
How good is the appraisal?
You’re probably not a gemologist so you can’t tell. Lots of appraisals that look impressive are not at all complete.
Your anti-fraud tool: JISO 18 Jewelry Appraisal and Claim Evaluation. This form lets you “unpack” an appraisal into a standardized format, so you can see if all the necessary details are given. There’s no assurance that the details are correct, but the layout allows you to see whether information has been left out—perhaps because the jeweler doesn’t know, or because he is deliberately concealing low quality. If too much info is missing, ask the client to get an appraisal on JISO 806.
Your Ultimate Best-Case Scenario Anti-Fraud Tool:
JISO 78/79 Jewelry Insurance Appraisal. You can protect yourself from most scams by getting a JISO appraisal, prepared by a GG who is also CIA.
COMING UP in our ANTI-FRAUD SERIES:
This newsletter dealt with a few general scams to guard against. Future newsletters will zero in on protecting yourself from fraud regarding Diamond Treatments, Lab Reports & Appraisals, and Colored Stones.
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