Losing its shine the complexities of jewellery cover

Vol: 43 Issue: 3 | Oct 2020

While the ins and outs of jewellery insurance differ greatly across the Asia-Pacific region, there is one consistency: for many insurers, jewellery claims are a notoriously difficult category to manage. 

And they can easily result in a negative experience for claimants if handled poorly.

That’s the view of Matthew McHutchison, managing director of Independent Validation Advisory Australia (IVAA), the winner of ANZIIF’s Service Provider to the Insurance Industry award in both 2019 and 2018.

STARK DIFFERENCES

McHutchison says there are stark differences in how jewellery industries operate and are regulated from country to country, as well as regional variances in jewellery insurance policies and how claims are settled, each affecting client and industry outcomes.

‘Although there are some similarities, the Australian industry is very complex and uniquely different to that in New Zealand and therefore claim management must be applied differently,’ says McHutchison.

‘For example, in our experience, many insurers in New Zealand settle a jewellery claim on the second-hand value, which is uncommon in Australia. 

However, there are some overlapping trends, such as a growing number of New Zealand and Australian insurers focusing on reducing cash settlements and promoting “new for old” replacements.’

A COMPLEX AREA FOR CLAIMS

There are many reasons why jewellery claims are often considered more complex and challenging than other areas in general insurance.

‘One is that jewellery is often very customised. Another is that it’s kept for a long period of time,’ says Matt Williams, executive manager, claims services, at Vero New Zealand.

‘Also, a like-for-like product is not usually available on the market in the same way that you can generally replace a TV with a similar TV, for example.’

For Kevin Whelpton, a director of JAA Insurance Services, dealing with distraught customers is the biggest challenge when handling jewellery claims.

‘Sometimes their jewellery has been lost in horrible circumstances — a home burglary, a bag snatch or a house fire,’ he says.

MANY COMPLICATIONS AND PROCESSES

‘Thefts often occur on holiday in foreign countries and this adds complications with obtaining police reports or investigations by assessors. No two jewellery claims are alike and every client’s jewellery is uniquely important to them.

‘Jewellery has huge emotional and sentimental value to its owner in the way a TV or toaster does not.’

For L.F. Ong, a Malaysian loss adjuster who has specialised in jewellery block insurance claims for 25 years, the complexities are created by the obligatory procedures involved in a jewellery claim.

‘The step-by-step approach of the procedures are actually a trade secret of the claims practitioners,’ he says.

‘The most common problems arise when the claimant or claims practitioner do not adhere to the procedures.’

DIFFERENT TYPES OF JEWELLERY COVER

A great deal depends on what sort of policy the jewellery is covered by.

In Malaysia, for example, customers can obtain either a specialist policy that is marketed by specialist international brokers or a general policy covering home and contents direct from an insurer. 

Both are markedly different and Ong likens them to ‘apples and oranges’.

Whelpton notes that customers in Australia are increasingly able to purchase add-on insurance, which is underwritten by specialist jewellery insurers at the point of sale in jewellery stores. 

HOME AND CONTENTS

But in the majority of cases, personal jewellery is usually covered by customers’ home and contents insurance policies.

Unlike other items in these general insurance policies, he says there’s typically a specific limit of cover for jewellery, normally around A$3,000 per item.

‘Customers frequently don’t specify high-value items in their contents policies,’ he adds. 

‘This means that in the event of a claim, they are only entitled to a set value within their policy, which is often significantly lower than the value of the item they have lost.’

THE CUSTOMER'S JEWELLER?

Whelpton says that while there are plenty of homeowners’ insurers out there with policies that cater for special or valuable pieces, many don’t. This is particularly relevant for clients who have custom-designed and handmade pieces.

‘Many homeowners’ insurers, particularly those catering to the more “mass market” segment, use their own “panel jewellers” to replace lost or damaged items. 

But most customers want to return to their own jeweller for a replacement,’ he says.

‘Sometimes in frustration, the customer will ask the insurer to cash settle their loss. This is where things often turn sour. 

'Many homeowners’ insurers will refuse to cash settle or, if they do, they will only offer what their panel jeweller quoted to replace the item. This is often insufficient for a specialist jeweller to handmake a replacement piece.’

VALUATION CAUSES HEADACHES

Williams says one of the biggest challenges in handling a jewellery claim is that the value of an item can vary quite substantially.

‘A diamond ring in a photo could be worth $2,000 or $100,000,’ he says. ‘It depends on the characteristics and quality of the materials, and these need to be quantified by an expert.’

For this reason, he says it is vital that customers have up-to-date valuations so that the insurer can determine the details of the item, its value and the fact that it was in the customer’s possession. 

‘Without a recent valuation, it can be difficult to confirm these details and it’s harder to agree on a cash settlement outcome,’ says Williams.

A CONTENTIOUS TOPIC

But insurance valuations are a contentious topic, according to McHutchison. ‘Not everyone in the jewellery industry understands or agrees with the purpose of valuations,’ he says.

‘In the majority of cases, what we see is jewellery insured for its “replacement value”, yet the valuations on which this is based are set at the higher “retail value” and this can cause the claimant confusion and disappointment during procurement.’

He explains that jewellers sometimes give inflated valuations so customers believe they have secured a significant discount with their purchase.

‘IVAA recommends customers obtain independent valuations for insurance purposes to ensure realistic protection against theft, loss and damage,’ he says.

Complicating things further is that the value of jewellery is relatively elastic.

‘The price of gold changes all the time and diamonds are bought in US dollars, so commodity and exchange rates have a big impact on the shifting value of jewellery,’ says McHutchison.

‘The cost of labour can also vary, and throughout South-East Asia, jewellery prices are unregulated so retail prices can be whatever the jeweller wants.’

RISKY BUSINESS

McHutchison says jewellery is considered a high-risk item. ‘That’s mainly because it’s a target for theft. It’s also high-value, portable and often subject to fraud,’ he says.

‘The most common insurance fraud is believed to be padding of the claim. 

'At IVAA, we have a team member who specifically focuses on high-risk assessments. There are also a lot of advancements happening in the jewellery claims space because of fraud and our increased awareness of its prevalence.’

Whelpton agrees that fraudulent claims are not uncommon. ‘Jewellery is easy to “lose” and claim for,’ he says. 

‘Rightly, there is a very high standard of proof required for an insurer to deny a claim on grounds of fraud, as enshrined in Briginshaw v Briginshaw.

PROVING FRAUD

However, proving fraud is often almost impossible for jewellery insurers. It is almost impossible to prove a loss did not happen when a covered claim can be as simple as “my ring fell off in the ocean when I was swimming”.’

McHutchison adds that insurers often have to rely on the customer’s word when it comes to claims, but proof of ownership is also important to reduce fraud and achieve accurate validations. 

‘A challenge is that a lot of jewellery is handed down,’ he says. 

‘Proof of ownership traditionally involved photos and receipts, but our focus has expanded to cross-referencing these with original suppliers, thereby increasing the accuracy and reducing the guesswork.’

A POSITIVE CHANGE

Whelpton says a rise in electronic claims lodgement helps to speed up and streamline the claims handling process. 

But he adds: ‘Unlike general household contents claims, jewellery claims revolve around the customer working with their jeweller to replace their special item. This will always remain a very personal and human claims process — and we hope it remains that way.’

Despite all the complexities, McHutchison stresses that the jewellery claim sector is undergoing positive change. ‘It has a positive future as it continues to focus on its traditionally challenging components,’ he says.

A ROCK AND A HARD PLACE

The COVID-19 pandemic has introduced huge challenges for jewellery insurers, says JAA Insurance Services director Kevin Whelpton.

Firstly, it has had a massive impact on the jewellery industry. According to the World Gold Council (WGC), the pandemic slashed jewellery demand as governments across the globe imposed lockdown measures.

Precious metal mining was halted, tourism came to a standstill, customers went into lockdown and many retailers shut their doors. 

In March, jeweller Michael Hill became the first major Australian retailer to close its stores. The company’s outlets in New Zealand suffered the same fate.

The WGC says demand fell to the lowest on record in the first quarter of 2020, led by a 65 per cent decline in China — the largest jewellery consumer and the first market to succumb to the outbreak.

FALLING SALES 

In India, jewellery sales are expected to drop 25 per cent in the financial year 2021 as a result of the COVID-19 restrictions and overall reduction in disposable income.

According to India Ratings and Research, the lockdowns dented jewellery demand, which is primarily driven by the marriage season and festivals in the first quarter.

Like other currencies, the Australian dollar dropped significantly against the US dollar and the price of gold has risen significantly over the past few months, notes Whelpton.

‘Gold and diamond prices are set in US dollars, and this is going to make jewellery replacement within sums insured ever more difficult,’ he says.

‘Some policies allow a margin for increases in value, but even these may not be sufficient in the current climate. 

SUPPORT SERVICE FOR JEWELLERS

Further, [with economic conditions deteriorating] many people will see jewellery insurance as a non-essential item in the household budget and we expect to see a large number of policies cancelled or non-renewed.’

The challenges imposed by the COVID-19 pandemic prompted Independent Validation Advisory Australia (IVAA) to initiate a support service for jewellers.

‘As we were entering the COVID-19 lockdown, we were seriously concerned about the impact on the jewellery industry,’ says IVAA managing director Matthew McHutchison. 

‘We built a platform — the Remote Concierge Service — to help promote jewellers to claimants and insurers during this period.

‘This helped customers identify which jewellers were able to provide a virtual consult service and delivery option for their claim. The results exceeded our expectations and we saw most customers still opt to fulfil their claim with jewellers.’