A flustered jeweller contacted me recently because his customer hadn’t liked what he told her after he had quoted a cheaper price to replace a lost gold chain. But rather than being pleased with the outcome, she was furious and accused the jeweller of cheating her!
The customer had approached the jeweller after losing her gold chain and asked him to provide a quote to replace it so that she could make a claim on her insurance policy. Pretty straight-forward you might think?
That was until the price the jeweller quoted to replace the lost chain was lower than the original price the customer had paid and, subsequently, had insured the item for.
Yes, this is another story about jewellery valuations!
The jeweller had remembered that I had written a number of articles about jewellery valuations and decided to call me asking for “advice” on how to handle the customer.
Even though the jeweller explained to the customer that the price didn’t matter because he would be providing a new item on a like-for-like basis in accordance with the insurance policy, the customer was confused and upset.
The jeweller explained that because the price of gold had fallen and because his margins might be less than the original jeweller, the same item today was priced a little lower.
Normally that would be a good thing, right? Well no, not when it comes to valuations for insurance purposes!
Forget that the customer was not going to receive any money from the insurance company but would simply be receiving replacement jewellery for her lost item, the customer was unhappy that she had been paying insurance premiums for years based on a much higher valuation.
Worse, the jeweller found himself arguing over a problem that was not his doing.
Ban jewellery valuations
I first called for the banning of valuations for new jewellery in August 2009 and I’ve written on the topic a number of times and ever since I’ve received lots of feedback. I even receive emails from consumers who have found the story on the internet.
In fact, my “Ban jewellery valuations” article is not only one of the highest read on our website, it has since been republished and referenced on many other websites around the world.
The recent telephone call from the jeweller also reminded me of an online discussion (debate) last year about jewellery valuations and insurance companies. Since my original story I have asked continually why is it that jewellery is the only everyday consumer product that is sold with a valuation certificate?
After all, new televisions, cars or even watches aren’t sold with valuation certificates. And how can a new diamond ring purchased today for, say, $1,200 be valued tomorrow for $4,000?
I also find it interesting that I am yet to see a valuation certificate for a lesser amount than the customer paid. It’s always higher!
Don’t get me wrong, I believe there is a need for valuation certificates for insurance purposes and valuers therefore play a vital role in providing that service, so long as it’s independent and the certificate is not used as part of the selling process.
Regardless of your beliefs about how valuations certificates for new jewellery are used, the issue becomes even more complex when an insurance claim is lodged. What happens with a valuation certificate, assuming one exists, when an item needs to be replaced?
It doesn’t appear to matter who provided the certificate – the actual seller of the product or an independent third party – the “value” placed on the certificate is largely irrelevant.
In fact, the figure on the valuation certificate is entirely irrelevant to the insurance company.
For example, let’s say a customer purchases a ring for $3,000 and an independent third party provides a certificate stating it’s valued at $5,000, when it comes time to replace the lost item, if the insurance company can do it for $2,000, that’s what it will do.
Therefore the $5,000 “value” on the certificate is irrelevant.
Industry debate
And that’s where I get back to last year’s online debate. Although it was complicated, and sometimes heated, the debate was compelling and I lost track of the number of “camps” that formed.
It was largely “us versus them”, or more accurately a number of “us-es” versus “thems”.
Some retailers complained the customer was being cheated because the insurance company had collected premiums on the $5,000 “value” but was then replacing the item for $2,000.
However, if you think the matter through, it was the customer and the valuer who assessed the replacement value at $5,000, not the insurance company.
And even though the insurance company had no part in the original purchase or valuation, according to some retailers the insurance company was still the bad guy! Weird right?
Well, it gets more interesting!
Other participants in the debate thought the only person who should be able to replace the item was the original jeweller and the insurance company should not have the right to reduce its costs by replacing the item using someone another jeweller (a preferred supplier), even if the customer didn’t care who replaced the jewellery.
According to some people, it was okay for a retailer to have preferred suppliers to reduce costs but it was not okay for insurance companies to have preferred suppliers to reduce costs.
Some people want to have their cake and eat it too!
One manufacturing jeweller asked another manufacturing jeweller why the customer should be forced to get the jewellery replaced from the original jeweller if another jeweller could provide exactly the same item at a lower cost? No one could adequately answer that question.
Another participant argued that insurers had an obligation to reduce claim costs in order to remain competitive – higher replacement costs would equate to increased premiums. In addition, people were reminded that the whole concept of insurance was to only return the claimant to the position they were in prior to the loss and not to a better position.
This is an important point related to my story about the jeweller’s unhappy customer. She was receiving a like-for-like item for the one she had lost yet she was not happy!
Someone else said that most people didn’t have the correct insurance policy to cover the specific items on a like-for-like basis. That is, most insurance claims for jewellery were made under Home & Contents policies and often there was little or no information about the jewellery, let alone an accurate description.
Their point was that if there was no accurate record of the item in the first place how could an insurance company accurately assess the claim some time later?
Can of worms
Another issue raised was that insurers sometimes replaced more expensive custom-made jewellery with less expensive mass-produced jewellery or lower grade stones. Then there was the issue of intellectual property for custom-made jewellery. Surely, the only person who could replace it would be the creator, so insurers must be forced to deal with the original jeweller, right?
Well that one opened up a real can of worms!
Perhaps you can begin to understand why it’s so difficult for the average consumer to understand these things if there is little or no agreement within the industry itself.
And now back to the recent case … the caller had tried to explain to the customer that although she had paid a much higher price for the jewellery from another store, in part because the price of gold was much higher at the time, and in part because the original retailer worked on much higher margins, he could provide a new item for a lower price.
And even though the customer was receiving a new piece of jewellery and was not paying any money, she was still unhappy because she believed someone had cheated her!
Indeed, my poor caller felt he was being accused of “cheating” because his price was lower than someone else.
It’s a strange world, right?