Inflated appraisals—alive & well!
Shady lab reports—alive & well!
MORAL HAZARD—ALIVE & WELL!
Do you know when an inflated jewelry appraisal crosses your desk? It probably happens more frequently than you think. Here are a couple of recent examples from one insurer.
APPLICANT A sought insurance on a lady's engagement ring.
The valuation on the accompanying lab report was $55,000. Not all insurers ask for the sales receipt, but this one does. The sale price of the ring was $28,000—half its purported value.
That huge discrepancy between purchase price and valuation caused the insurer to look at the docs more carefully, and then to look beyond the docs.
The Seller
The jewelry was purchased from a TV shopping network, which also broadcasts its auctions live on the Internet. TV and online jewelry sellers are notorious for overvaluing their merchandise, hyping it energetically to urge buyers to bid quickly, and providing insufficient information for even a savvy gemologist to be able to judge, from the onscreen presentation, what the jewelry is worth.
It turned out that several complaint sites online carry customer grievances about this particular shopping show. One woman wrote that she paid almost $5,000 for what was purported to be a 2-carat paraiba tourmaline ring, but what she got was a .85-carat blue zircon stone. Returning merchandise for a refund is a whole separate area of complaint.
The Lab
The $55,000 valuation was on a lab's "Valuation Report," which came with the purchase. It was signed by a Graduate Gemologist (GG) of the GIA, so that looked good. However, the lab was not one of the reliable ones (see below), but had an unfamiliar name.
The "Valuation Report" was dated the same day as the sale, a strong indication that the lab was in service to the retailer, rather than providing an unbiased gemological opinion. The purpose of the document was to provide an inflated valuation, so the customer would feel he had gotten a bargain.
The fact that the document came from a "lab" and was called a "report" lent an aura of authority. An appraiser can, of course, call his business a lab, and can choose to call his appraisal a report, but these terms also have a psychological effect on the consumer. He's more likely to trust the lab report and, in this case, to trust that inflated valuation.
Agents and insurers should be more wary. Insuring the ring for twice the price paid would be a serious MORAL HAZARD! Independent assessment put the true valuation of that ring at about what the customer had paid, and that is what it was insured for.
APPLICANT B applied for insurance on two rings. One, purchased for $1000, had an appraised valuation of $3025; the other, purchased for $1280, had a valuation of $3,000. In both cases, the valuation document was supplied by the seller.
The Sellers
The rings were bought separately, on two different vacation trips, from two different sellers. Both purchases were "tourist jewelry."
Jewelry sellers on cruise ships, group excursions, and in popular tourist areas are notorious for inflating value (and quality) because they know their customers will be tourists. Vacationers are generally in a receptive mood, they tend to buy on impulse rather than comparison shop, and they will have no recourse if the quality turns out to be not what they were promised.
The Appraisals
One of the rings proved to be white gold, not rose gold as stated on the appraisal and by the seller. The appraisal was generally lacking in descriptive details. The appraiser had no credentials listed after his name. And valuations for the rings were 2.5 to 3 times their selling price.
If the insurer had not been attentive enough to ask for the sales receipts but had merely insured the rings for their inflated valuations: MORAL HAZARD!
FOR AGENTS & UNDERWRITERS
Make it a practice to always ask for a sales receipt. If there is a great difference between purchase price and valuation, the price paid is a better indication of the jewelry's value in the marketplace.
Inflated valuations are most likely for jewelry purchased:
- On cruises and at other tourist locations
- On Internet auction sites
- On TV shopping networks
- From big-box retailers
- Through private sales, craigslist, ebay, flea markets, etc.
Also be suspicious of
- Appraisals and lab reports supplied by the jewelry seller
- Lab reports that include a valuation
The best appraisals include the JISO 78/79 appraisal form, written by a trained gemologist (GG, FGA+, or equivalent) who has additional insurance appraisal training. One course offering such additional training is the Certified Insurance Appraiser™ (CIA) course of the Jewelry Insurance Appraisal Institute.
All high-value jewelry should also have a gem report from a reliable lab. Some labs are known to inflate gem qualities, and some supply bulk certificates to jewelry retailers without ever looking at the jewelry. Do not trust a report just because the business calls itself a lab.
These are the major trustworthy labs, and you can use these links to verify reports you receive.
GIA
AGL
Gübelin
AGS Report Verifcation
GCAL Certificate Search
FOR ADJUSTERS
Review all documents on file—appraisals, sales receipts, diamond reports. If some of these documents are lacking, ask the insured for them.
Comparing purchase price to the appraisal valuation is a useful way to avoid overpayment, as the price is a truer indication of market value than a possibly inflated valuation.
Be aware that appraisals and lab reports supplied by the seller are likely to have inflated valuations.
On a damage claim, ALWAYS have the jewelry examined in a gem lab that has appropriate equipment for the job and is operated by a trained gemologist (GG, FGA+ or equivalent), preferably one who has additional insurance appraisal training, such as a Certified Insurance Appraiser™.
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