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Jewelry restoration and replacement services have become an invaluable asset to insurers over the past quarter century, saving insurance companies millions. This is crucial considering that some $1.5 billion in jewelry is reported lost or stolen annually (Chubb); many of these claims turn out to be fraudulent.But, maximizing savings to insurers requires keeping appraisals up to date. As we know, unlike cars, furniture, and other insured valuables that depreciate the minute they leave the store or car lot, fine jewelry often becomes more valuable. As the adage says, “A chain is only as strong as its weakest link.” Likewise, savings for insurance companies is only as good as the efficiency of the appraisal.

For that reason, underwriters should regularly remind agents to get appraisals updated every three to five years. What should that appraisal include? Needless to say, the more information the better since claims settlements are based on full appraisals, not just a dollar amount. Most importantly, a picture IS worth a thousand words – detailed photos make the replacement process more accurate. Detailed appraisals and photos are the friend of both the policyholder and insurer. The better the appraisal, the better the replacement. Overinflated appraisals serve no purpose to the policyholder; they will pay more premiums than needed since the insurance company will probably base a settlement on the true replacement cost. And, happy replacement recipients are more likely to reinsure with your company.

Replace or Cash Out?
Replacement rather than cashing out has many benefits:

  • It discourages fraud.
  • It keeps the insurance premium cycle going. Often, when an insurer sends a check, policyholders don’t use it to replace the jewelry. With replacement, they often put the new piece right back on their policy.
  • Replacement often costs less than the scheduled amount, thus saving insurers money.

Many times, an adjuster is presented with an out-of-date appraisal meaning the article cannot be replaced within the policy limits, forcing a cash out. That’s why it’s imperative that the appraisal is current and contains all relevant information. When presented to a replacement service, there should be no question about the quality and look of the item.

Replacement vs. Stated Value Policies.
No matter which type of policy your company handles, your top priority should be keeping your policyholder informed about how their carrier settles jewelry claims. Since better than 95% of policies are replacement value policies, the current appraisal is key. For those few that provide agreed or stated value policies that pay the agreed value, some end up paying out above 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 yell and demand cash. Many companies cave and don’t force the replacement issue, instead writing a check even if it’s less than the value of the piece. Without a current, in-depth appraisal, this process is like a shot in the dark. With a solid, current appraisal, adjusters are less likely to take this path of least resistance and stand firm on replacement. The underwriting department should be demanding the appraisal updates and sending them to a third party for appraisal review.

When You Suspect A Fraudulent Claim
The continuous updating of appraisals is also a way to help spot whether a claim is fraudulent, an unintentional mix-up, or fully legitimate. You’ll remain smarter than the policyholder by making sure there is a timeline of events leading up to the claim submission by using that appraisal.

A Case In Point
A policyholder reported a chipped diamond in an insured ring. An inspection confirmed a chip; however, the adjuster found it strange that the policyholder had the ring for many years and yet only insured it 30 days prior to submitting the claim. The appraiser had updated an earlier appraisal, but had, in fact, 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.

Armed with current appraisals and a few other items, claims adjusters can be the first line of defense against fraud. If a policyholder reports a lost or damaged item, first gather information on the obvious – how, when and where. If it’s reported as a theft, make sure a police report was filed. If the loss involves damage to a gemstone, be sure 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 and keep the existing one for salvage.

Before submitting the claim to a replacement service for a price quote to replace the item, the following information should be in the appraisal or gathered from the policyholder:

  1. The full scheduled description.
  2. The detailed appraisal that was used for scheduling the article.
  3. An independent lab report, if one was done.
  4. Most importantly, photographs, if they exist.

Any type of jewelry with a damage claim should be inspected by the replacement service to verify actual damage and not a blatant imperfection in the stone that was always there or an easily fixable blemish. Sometimes the answer lies in the eye of the expert as in this true and humorous example:

A distraught policyholder submitted a claim for a badly damaged diamond in her engagement ring. Looking at the ring under a microscope, the replacement specialist could see a cloudy area. But, he also noticed the visibly upset policyholder’s beautifully polished fingernails. He asked her if she noticed the damage before or after she had her nails done. She said after. Using a razor blade, the specialist scraped off a blob of clear nail polish which had fogged the ring’s surface. They both laughed and she broke down in tears of joy that her ring was not, in fact, damaged. A happy ending for all involved.

More Red Flags

Two major claims issues that should immediately raise the adjuster’s eyebrows are:

  • 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, again, check with the store where it was purchased to ensure it wasn’t returned. And 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). Should the claim become more questionable have SIU do an Examination Under Oath.

The bottom line here is keep those appraisals up to date. It’s one of the most important facets of jewelry insurance and, in the long run, is key to keeping costs of both cashing out and replacement down, as well as an aid in detecting fraud. Keeping appraisals current also gives the policyholder peace of mind in knowing that their policy will contain accurate and up-to-date values at the time of a claim.