Almost $1.5 billion in jewelry is reported lost or stolen each year, and many of these claims turn out to be fraudulent. Unlike cars, furniture and other insured valuables that depreciate the minute they leave the store or car lot, fine jewelry often becomes more valuable.
For that reason, underwriters should remind agents to obtain updated appraisals every three to five years. Appraisals should include more than just a dollar amount. A picture is worth a thousand words and detailed photos make the replacement process more accurate.
Policyholders pay higher premiums with overinflated appraisals since the insurer will base a settlement on the true replacement cost. And, happy policyholders are more likely to reinsure with your company.
Replace or cash out?
Replacement rather than cashing out offers several benefits:
- It discourages fraud.
- It maintains the insurance premium cycle. When an insurer sends a check, policyholders may not replace the jewelry. With replacement, they often put the new piece right back on their policy.
- Replacement often costs less than the scheduled amount, saving insurers money.
- When an adjuster is presented an out-of-date appraisal, the article cannot be replaced within the policy limits, forcing a cash out.
Replacement vs. stated value policies
Since more than 95% of policies are replacement value policies, the current appraisal is key. Agreed or stated value policies may end up paying more than the scheduled amount if the appraisal is outdated.
With stated value policies, insurers must make a cash settlement; however, if the replacement cost exceeds the scheduled amount, the policyholder will get a check for the full amount. The appraisal often offers the deciding factor.
When the economy is weak, policyholders may demand cash. Many companies don’t force the replacement issue, writing a check even if it’s less than the value of the piece. With a solid, current appraisal, adjusters can stand firm on replacement.
Related: 4 Ways to Safeguard Jewelry
Some policyholders will add a piece of jewelry to a policy and then submit a claim several days later. (Photo: Shutterstock)
When you suspect a fraudulent claim
The continuous updating of appraisals helps adjusters spot fraudulent claims, an unintentional mix-up, or fully legitimate claims.
In one case a policyholder reported a chipped diamond in a covered ring. An inspection confirmed a chip; however, the adjuster found it strange that the policyholder had owned the ring for many years but only insured it 30 days prior to submitting the claim. The appraiser had updated an earlier appraisal, but had never seen the ring at the time of the update. It was determined that the ring was chipped prior to it being insured. When confronted, the policyholder abruptly withdrew the claim.
If a policyholder reports a lost or damaged item, ask how, when and where. If it is a reported theft, make sure a police report was filed. If the loss involves damage to a gemstone, ensure the appraisal does not mention any type of damage – be sure it happened as a current event. In the case of a partial loss, such as one diamond earring, most of the time the remaining one can be matched with no need to replace the other.
Before submitting the claim to a replacement service for a price quote, the following information should be in the appraisal or gathered from the policyholder:
- The full scheduled description.
- The detailed appraisal that was used for scheduling the article.
- An independent lab report, if one was done.
- Photographs, if they exist.
Possible claim issues
Any jewelry with a damage claim should be inspected to verify actual damage and not a pre-existing imperfection or an easily fixable blemish.
Other issues to watch for include:
- A high-value jewelry piece with a current appraisal and a claim submitted shortly after the item was scheduled on a policy.
- If the adjuster feels that an article has a grossly overinflated appraisal, insist on seeing a sales receipt. Also consider calling the store where the article was purchased to make sure it wasn’t returned. If the purchase was made online, insist upon seeing a credit card receipt and check to ensure it wasn’t returned.
- If a replacement service indicates that the item can be replaced at significantly less than the appraisal shows; that should raise a red flag. In these cases, the claim should be turned over to the insurance carrier’s Special Investigative Unit (SIU).
Current appraisals keep costs for cashing out and replacement down, and aid in detecting fraud – benefits to insurers and policyholders.
Alan H. Fisher (Alan@Claimlink.com) is president/CEO of Claimlink Jewelry Replacement.