Jewelry restoration and replacement services have become an invaluable asset to insurers over the past quarter of a century, saving insurance companies millions in payouts. Some $1.5 billion in jewelry is reported lost or stolen annually according to U.S. Department of Justice data, but unfortunately, a substantial portion of those claims may be fraudulent. The questions for insurers then revolve around when they should question a claim, when they should cash out, and whether they should stick to their guns on replacement or restoration. Let’s take a look at a few fraudulent scenarios in order to help claims professionals know what to be on the lookout for.
A Gem of a Hoax
Scams can come about from not-so-reputable policyholders. One classic incident came to light when a jeweler who does a large volume of replacement services for insurers around the country was contacted by a claims professional to review an appraisal of what was purported to be a one-of-a-kind ring setting. With the claims professional’s permission, the replacement authority contacted the appraiser, who remembered the ring, the policyholder, and the jeweler who had accompanied the policyholder at the time of the sale. The appraiser refused to discuss the ring, a move that raised suspicions that proved correct. The ring’s seller offered a money-back guarantee; the buyer had purchased the ring on a credit card and then went to the appraiser in the diamond district. The buyer then canceled the sale on his credit card, got a refund, but kept the appraisal document. Several months later, the buyer/policyholder made a claim. With the information provided by the replacement specialist, the claim was denied.
Replace or Cash Out?
As we all know, insurance replacement policies state that insurers owe the policyholder any dollar amount it costs to replace the lost article as long as it doesn’t exceed the scheduled limit. Insurers have the option to force replacement rather than a cash settlement. If the cost of replacement exceeds the scheduled amount, the policyholder receives a check for the full amount.
In a weak economy, policyholders often demand cash, and most insurers don’t force the issue. They write a check even if it’s less than the jewelry’s value. Many policyholders accept, for example, $8,000 cash for an article scheduled for $10,000 rather than receive a replacement article. While the majority of policies are replacement policies, there also are stated value or agreed value policies. With these, if a policyholder lost an article scheduled for $10,000, they should receive a settlement check for the full amount. The bottom line is that many claims professionals take the path of least resistance and will cut a check to the policyholder for what it can be replaced for and close the file.
In both types of these policies, however, insurers may not realize that the company loses out in a variety of ways. If the jewelry is not replaced, the insurer no longer collects premiums, thus increasing the loss to the insurer. It also encourages crooks to file fraudulent claims because they think they are getting cash. This is where seeking the services of a replacement professional may be helpful, since often they can replace items for less than the scheduled amount. It also helps discourage fraud, and the premium cycle isn’t broken.
Chipping Away at Deception
Insurers can take some measures internally to help them spot fraud or unintentional mix-ups. For example, be sure that your underwriting department has current, updated appraisals. A questionable claim should be handled that way. Show that you are smarter than the policyholder by making sure there is a timeline of events leading up to the submission of a claim, as seen in the following example.
A policyholder reported that an insured ring had a chipped diamond. Inspection proved that it was indeed chipped. The claims professional, however, thought it strange that the policyholder had the ring for many years but only insured it 30 days prior to submitting the claim. The appraiser indicated that his work was done as an update to an earlier appraisal and that he never saw the diamond at the time of the update. It was found that the ring was, in fact, chipped prior to it being insured. When confronted, the policyholder abruptly withdrew the claim.
All That Sparkles Doesn’t Shine
Because jewelry replacement and restoration specialists are just that—specialists and jewelry professionals—their expertise can be invaluable to insurers in spotting questionable claims, fake stones, or finding quick and inexpensive fixes. Here are a few examples of situations in which it may be beneficial to engage their opinions.
Spotting fake gems is a simple task for the jewelry experts. Sometimes, however, a mix-up is inadvertent instead of unethical. For instance, in one case, a replacement specialist was contacted by a major insurance carrier’s special investigations unit to inspect an insured ring. The policyholder said that she took her ring to a local jeweler with whom she had a long-standing relationship for cleaning. The jeweler told her that the stone was a cubic zirconia, not a real diamond. She was shocked and submitted a claim. The inspector and replacement specialist created a timeline of locations in which she may have left the ring in the past, and noted that the policyholder had reset the stone five years earlier.
The policyholder contacted the jeweler, explained the issue, and, in an unbelievable twist, discovered that her real diamond was still in its setting in the jeweler’s display tray five years later. As it turns out, the jeweler had sent the setting with the cubic zirconia to the designer, who then returned both the cubic zirconia version and the diamond version to the store. At that point, the wrong version was placed into the display. It was found to be an error on the part of the jeweler, who not only apologized profusely, but also reimbursed the policyholder for her insurance premiums paid for the five years that the ring sat in the display.
In some cases, a little common sense goes a long way. For instance, 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, to which she indicated it was after. Using a razor blade, the specialist scraped off a blob of clear nail polish that 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.
Difference Between “Real” and “Natural”
In this age of technology, insurers and claims professionals should know that a new type of diamond has been created that is raising eyebrows in the gem industry and, without expert help, may not be properly appraised. Here’s an example of how this could cause problems during the claims process.
A client brought a new diamond ring into the gem lab of a New Jersey jeweler and replacement expert for a detailed appraisal so he could insure it. Upon inspection of the diamond, however, things just didn’t match. The diamond had a laser inscription etched on its edge, but this was not noted on the Gemological Institute of America’s (GIA) report. The diamond was sent to the GIA, which concluded in a report that the stone was, in fact, a man-made, lab-grown diamond worth approximately 50 percent less than a natural diamond. In this case, the ring holder was the victim of a scam. Lab grown diamonds are real, but they are not natural and, thus, are not as valuable.