Deceptive Pricing
The sign in the jewelry store window says "60% OFF!" Can such a bargain be true? What is a piece of jewelry worth?
The unfortunate truth is that many jewelry retailers artificially inflate prices so they can lure customers with spectacular discounts. This is especially true around the holidays, when consumers are very much in a spending mode.
In one highly publicized legal case, the state of North Carolina charged J.C. Penny Co. with deceptive advertising for grossly marking up prices prior to advertising sales. The state law requires that a bona fide original price be offered to the public "for a reasonably substantial period of time." The attorney general's office presented evidence that, for one jewelry item in question, only 3% of sales were at the so-called regular price, the remaining 97% being made at the discounted price.
The three-week trial in North Carolina Superior Court examined not only J.C. Penny's practices, but also practices of other multi-unit jewelry chains.
In a surprising--and quite disheartening--decision, the court ruled that J.C. Penny was not guilty because the deceptive practice was so widespread. The judge said the defendant was only trying to be competitive "in an industry where very few businesses make any effort to comply with the letter or the spirit of the law". He added that to single out one merchant for prosecution "in an industry that appears dominated by many violators" could be viewed as unfair.
Representatives of the jewelry industry say that the laws governing advertising are extremely vague. In the absence of specific legal definitions, it is a matter of interpretation what constitutes an honest price compared with an inflated price, or for what period of time a sale price may be in effect.
Meanwhile, as the judge in the above case asked, where are the consumer complaints? The case against J.C. Penny was brought by its competitors. The customers, who bought their jewelry at "60% off regular price," presumably walked away quite pleased with their bargain and never looked back. So who's the victim?
It might be you, the insurer. A retailer selling jewelry at an artificially inflated price may offer to write an insurance appraisal with a valuation based on the "regular selling price." To the consumer, this seems only fair. This practice significantly increases moral hazard and, if an insurance settlement is based on such an inflated price, the insurer is paying out too much.
FOR AGENTS & UNDERWRITING
How can you be sure that jewelry you're insuring has a fair valuation? The valuation should be part of an ACORD 78/79 appraisal. This appraisal includes a detailed description of the piece. Jewelry valuation is based on many qualities. With a diamond ring, for example, not just the number of carats is important, but also the gem's color, clarity and cut, as well as other attributes. If all the relevant details are given, as specified in the ACORD 78/79 appraisal, any trained jeweler/appraiser can verify the value of the jewelry.
You don't have to verify that the valuation is fair. Since an ACORD appraisal is prepared by a Certified Insurance Appraiser™, the stated valuation is guaranteed to reflect the current replacement cost at the appraiser's store. Unlike most appraisals, which contain a disclaimer saying that the appraiser is not responsible for the content of the appraisal, ACORD 78/79 carries a warrantee that the jewelry was inspected in a gem lab and that all qualities are as described.
ACORD 78/79 also assigns first party rights to the insurer as well as to the owner of the jewelry. This means if you think there is an error, you can question it, you can even examine the appraiser's records. If you have overpaid a claim because of a false valuation, you can go after the jeweler to be reimbursed.
(Future newsletters will go into more detail about how jewelry is valued and how even a small error or falsehood can dramatically affect valuation.)
FOR CLAIMS
Suppose you are settling a claim and you suspect the valuation is inflated (and, no, the jewelry doesn't have an ACORD appraisal signed by a CIA™). Try using ACORD 18, Jewelry Underwriting and Claim Evaluation. This form helps adjusters analyze jewelry appraisals for key descriptive content. You can easily see what details are needed for valuation and whether the appraisal you have is sufficient.
If important information is missing, ask the policyholder if there is a sales receipt (which may contain more information). Ask where the jewelry was purchased (retailers are known for the quality of their merchandise). Ask if she has a photograph of the jewelry or of herself wearing the jewelry. If there is no photo, and if the appraisal really lacks descriptive information, ask her to make a drawing (even a very rough drawing can be useful).
Finally, use the information you have to get competitive bids for a replacement. There's no need to disclose the customer's name, the policy, the original valuation or sales price, the original place of purchase, or the agent. Tell the jeweler only the information from the ACORD 18 form (do not give the jeweler the ACORD 18 form, or he will see what information is missing and may be tempted to embellish the qualities of the jewelry he offers you). Competitive bidding insures that you get the best price available.
CIA™ Corner
From Carl Saenger, CIA™:
The Jewelry Mart in Los Angeles is the sales location for as many as four dozen jewelry vendors. Customers will drive from two hours away because they think the sellers are offering gems and jewelry at wholesale prices. They're not. Jewelry Mart is regularly open to the public, and these are retail prices.
I've never seen a price at the Jewelry Mart that couldn't be beaten if the sellers told the truth about the jewelry they were selling. Usually they fudge the gem's color grade and clarity grade, presenting the stone as higher quality than it really is. The sellers get away with this by saying "Diamond grading is subjective." (Of course, they never err in the other direction.) The cut of the diamond, so crucial to its value, isn't even discussed.
These businesses thrive because, in this environment, customers think they are getting a bargain. They perceive the Jewelry Mart as a discount house. They never realize that, for an apparently low price, they have gotten lower quality than they were led to believe.
Carl Saenger
American Jewelry Company
3200 21st Street, Suite 500
Bakersfield
CA 93301
661.325-5023
The American Jewelry Company, in business since 1898, has a full manufacturing facility and complete custom design department.
NEWSFLASH UPDATE
Fake Jewelry and Fake Appraisals
This story centers in Florida, but it will no doubt impact insurers in other parts of the country, particularly in the Midwest and Northeast.
Florida jeweler Jack Hasson and his employee Clifford Sloan are currently on trial for fraud and money laundering. Hasson is accused of substituting imitation stones in jewelry that he sold and appraised for customers in elite Palm Beach County. Prosecutors estimate that he robbed customers of at least $80 million in a complex scam involving fake, flawed, filled and painted jewelry.
Many of Hasson's customers were vacationing in Florida or have seasonal residences
there, but are insuring their jewelry elsewhere. Insurers should be aware
that this fake jewelry could turn up anywhere. It would be worthwhile to check
your files for appraisals written by these two jewelers.
©2000, JCRS Inland Marine Solutions, Inc. All Rights Reserved. www.jcrs.com
©2010, JCRS Inland Marine Solutions, Inc. All Rights Reserved. www.jcrs.com
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For Insurance professionals: Jewelry Insurance: The Underwriting and Claims Reference Manual is the essential reference tool enabling insurance professionals to better understand jewelry and jewelry insurance.
This valuable resource will help insurers at every level to more thoroughly and accurately submit, underwrite, and process jewelry insurance business. The information provided is especially helpful for identifying potential underwriting and claims issues as well as mitigating overpayment of claims settlements.