Over the jewellery counter insight on underinsurance

Underinsurance of jewellery and other valuables is a major problem, but it’s also a hidden problem, one that catches many people unawares.

By our estimates, upwards of 70 per cent of people do not have insurance policies on their jewellery, watches and other valuables that contain adequate coverage and would grant them a like-for-like replacement. With such a huge number of people not properly covered, those of us involved in the insurance industry have to ask ourselves ‘why?’

I have been in the insurance and jewellery industry for more than 35 years, and I unfortunately come across underinsurance on an almost daily basis.Gold, diamonds, other precious gems and metals and designer watches are more than just pretty trinkets – when properly cared for, they are serious investments that appreciate in value.

Yet, unlike other expensive possessions that need insuring, like cars and houses, most people are oblivious to the current value of their jewellery and watches. When clients initially take out an insurance policy on their jewellery, they generally know how much it’s worth, as they are likely to either have just purchased it, or, as in the case of an inheritance, they have had a recent valuation because they were bequeathed the items.

And that’s great. We advise everybody to insure their valuables, not just so they are protected against being stolen, but also loss and damage. But when it comes time for renewal, 12 months later, generally people will just reinsure their items at the same rate. A £15,000 diamond ring can’t have gone up in price that much in a year, can it?

And that, in most circumstances, is fine. But the unwelcome problem of underinsurance rears its head when the customer is least expecting it, years down the line and most likely at a time of extreme stress – when making a claim. That same diamond ring bought years ago for £15,000, and insured for that amount every year since, may well be worth upwards of £30,000 now – but if it were to be lost or stolen while covered by the initial policy, a like-for-like replacement will, sadly, be impossible.

And while the cost of precious gems and metals has risen at a pretty steady rate, the actual value of an item of jewellery or that luxury watch is far more complicated than the sum of its parts. Certain cuts of diamonds are worth more than others of the same size and clarity, and conversely, some diamond sizes are more sought after than others, so their prices are disproportionally higher.

The same goes for gold as well. While an intricately engraved gold bracelet might contain the same amount of material as a gold bar, the bracelet needs to be insured for more than the bar, because the reproduction costs of the jewellery are far higher.

And, put simply, that’s what valuables insurance is – ensuring a customer is able to get an exact copy of their lost or stolen item. What might be priceless to a client in sentimental terms still needs to be covered by an adequate insurance policy.

It is well known that the replacement cost of certain designer watches has sky-rocketed. Good news for those fortunate enough to own such precious timepieces, but without proper insurance cover, problems can arise that may come back to rest on the brokers shoulders.

But how do we stop underinsurance? Insurance brokers aren’t jewellery valuers, and because the precious items appreciate rather than depreciate year-on-year, brokers can’t just guess how much the jewellery is worth now.

If the broker estimates the jewellery is worth more than it is, then excessive coverage will lead to unnecessarily high premiums and the potential for insurance fraud. And if the broker underestimates the value of the necessary policy, then the customer will still be underinsured.

Communication is the key to reducing risk, by letting clients know that they could be at risk of underinsurance. The obvious solution might be to request customers have their jewellery and watches revalued every year, but that comes with an additional set of problems.

Who would cover the cost? Jewellers charge upwards of £65, or even a percentage of the total worth, and can take several weeks, to properly value items. And not only is that cost potentially prohibitive, many simply do not want to be without their jewellery – especially if it’s an engagement ring.

My team and I have spent the last ten years developing Jewellery And Diamond Evaluator – J@DE. In essence, it is a ‘pocket jeweller’ that enables brokers to access a database of historic and current prices for jewellery, precious gems, gold and luxury watches.

A broker can make numerous searches, based on customers’ existing policies and valuation records, and ascertain how much those items are worth at today’s prices. To know what value to put on an item is very difficult, as there are a lot of mitigating factors, like the size, or grade, of an item or gem. But by creating an algorithm, containing historic market rates, we can ascertain to a high degree of accuracy how much something is worth now.

A broker can give a customer a guide immediately on how much they need to insure their valuables for, as it works from the commercial price. And so it enables the claims team to put a benchmark on virtually all diamonds, and gold claims, and watches.

Proper coverage can stop insurers from having to make settlements that wouldn’t cover the retail cost of the lost or stolen item, because the customer has had up-to-date information about their valuables before the policy is signed.

When underinsurance comes to light, it’s almost always at the point of claim. And the additional friction, delays and disappointment often results in lost business for insurers and brokers alike.

At best, it leaves a bitter taste. And while a customer might not appreciate their renewals being higher, I’m sure there isn’t a person in the land who wouldn’t want to know their valuables are worth more than they were – and that they are completely covered in the event of the worst case.

I have been in this industry a long time, and valuables underinsurance is an issue that brokers, insurance companies, customers and jewellers have always been faced with. A solution has never really been available until now.