Almost $1.5 billion in jewelry is reported lost orstolen each year, and many of these claims turn out to befraudulent.

Unlike cars, furniture and other insured valuables thatdepreciate the minute they leave the store or car lot, fine jewelryoften becomes more valuable.

For that reason, underwriters should remind agents to obtainupdated appraisals every three to five years. Appraisals shouldinclude more than just a dollar amount. A picture is worth athousand words and detailed photos make the replacement processmore accurate.

Policyholders pay higher premiums with overinflated appraisalssince the insurer will base a settlement on the true replacementcost. And, happy policyholders are more likely to reinsure withyour 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 sendsa check, policyholders may not replace the jewelry. Withreplacement, they often put the new piece right back on theirpolicy.
• Replacement often costs less than the scheduled amount, savinginsurers money.
• When an adjuster is presented an out-of-date appraisal, thearticle cannot be replaced within the policy limits, forcing a cashout.

Replacement vs. stated valuepolicies

Since more than 95% of policies are replacement value policies,the current appraisal is key. Agreed or stated value policies mayend up paying more than the scheduled amount if the appraisal isoutdated.

With stated value policies, insurers must make a cashsettlement; however, if the replacement cost exceeds the scheduledamount, the policyholder will get a check for the full amount. Theappraisal often offers the deciding factor.

When the economy is weak, policyholders may demand cash. Manycompanies don't force the replacement issue, writing a check evenif it's less than the value of the piece. With a solid, currentappraisal, adjusters can stand firm on replacement.

Related: 4 Ways to Safeguard Jewelry

Some policyholders will add a piece of jewelry to a policyand then submit a claim several days later. (Photo:Shutterstock) 

When you suspect a fraudulent claim

The continuous updating of appraisals helps adjusters spotfraudulent claims, an unintentional mix-up, or fully legitimateclaims.

In one case a policyholder reported a chipped diamond in acovered ring. An inspection confirmed a chip; however, the adjusterfound it strange that the policyholder had owned the ring for manyyears but only insured it 30 days prior to submitting the claim.The appraiser had updated an earlier appraisal, but had never seenthe ring at the time of the update. It was determined that the ringwas chipped prior to it being insured. When confronted, thepolicyholder abruptly withdrew the claim.

If a policyholder reports a lost or damaged item, ask how, whenand where. If it is a reported theft, make sure a police report wasfiled. If the loss involves damage to a gemstone, ensure theappraisal does not mention any type of damage – be sure it happenedas a current event. In the case of a partial loss, such as onediamond earring, most of the time the remaining one can be matchedwith no need to replace the other.

Before submitting the claim to a replacement service for a pricequote, the following information should be in the appraisal orgathered from the policyholder:

1. The full scheduled description.
2. The detailed appraisal that was used for scheduling thearticle.
3. An independent lab report, if one was done.
4. Photographs, if they exist.

Possible claim issues

Any jewelry with a damage claim should be inspected to verifyactual damage and not a pre-existing imperfection or an easilyfixable blemish.

Other issues to watch for include:

• A high-value jewelry piece with a current appraisal and a claimsubmitted shortly after the item was scheduled on a policy.
• If the adjuster feels that an article has a grosslyoverinflated appraisal, insist on seeing a sales receipt. Alsoconsider calling the store where the article was purchased to makesure it wasn't returned. If the purchase was made online, insistupon seeing a credit card receipt and check to ensure it wasn'treturned.
• If a replacement service indicates that the item can bereplaced at significantly less than the appraisal shows; thatshould raise a red flag. In these cases, the claim should be turnedover to the insurance carrier's Special Investigative Unit(SIU).

Current appraisals keep costs for cashing out and replacementdown, and aid in detecting fraud — benefits to insurersand policyholders.

Alan H. Fisher ([email protected]) ispresident/CEO of Claimlink Jewelry Replacement. 

Related: Keys to improving jewelry claimoutcomes