I renewed my home and contents insurance recently. I like my house. It keeps me warm in winter, so I thought it would be a good idea to make sure it was insured properly.
While I was on the phone with the insurance company, I also asked about insuring some jewellery. When my “customer service consultant” inquired as to what it was, I told her that I had just bought a diamond ring for $5,000. She replied that she could arrange insurance for that item too.
I then explained that when I bought the ring I received a piece of paper that said it was worth $8,000. “Wow, you got a good deal!” she exclaimed.
I asked how much I should insure it for and she told me $8,000. “But I only paid $5,000 for it,” I replied.
The consultant then explained that if I'd negotiated a good deal on the ring that it was great for me, “but you need to insure it for the amount it would cost us to replace it in the future.”
“But I didn’t negotiate anything,” I explained, “they just gave me the piece of paper that said the ring I just paid $5,000 for was now, magically, worth $8,000!”
The lovely telemarketer said, “Yes sir. It’s worth $8,000 to replace in the future.”
I was confused. “So, tomorrow is in the future, right?” I asked. And after agreeing that it was, I asked my customer service consultant, “How can a $5,000 ring that I purchased today suddenly cost $8,000 to replace tomorrow? That’s some inflation!” I exclaimed.
I’m not sure she understood my sarcasm, so I asked, “Am I correct in stating that the cost to insure an $8,000 ring is more than the cost to insure a $5,000 ring?”- kinda like asking the Tax Office if I have to pay tax - and she replied, “Of course!”
I explained that I was no expert and that I couldn't tell the difference between a diamond and moissanite (!), nor could I see into the future. So, I asked, how would I know how much it costs an insurance company to do something in, say, five years time?
She didn’t answer.
“What if I insure the diamond ring for $5,000?” I asked. “You'd be under-insured, and you might not be covered if something happened,” she replied.
I was confused so I said, “But I am insuring it for the exact purchase cost, so presumably that's what the ring is worth.”
“Yes maybe,” she replied, “but we might not be able to replace it for that cost.”
Hmmm, I thought. According to my expert consultant, the value of the ring is the same as its replacement cost. That's an interesting slant on economics, I mused.
Lost for words
“Okay. What if I pay insurance premiums on $8,000 for five years, and then the ring is stolen? If you can replace the ring for $5,000, will I get a refund on the overcharge of the premiums for the previous five years?”
Have you ever had a telemarketer lost for words?
“Hello, are you still there?” I asked. “Ummm … yes, I am here,” she answered, after some time. “No, we would not refund any premiums.”
“But you just told me the value of the ring was the replacement cost and you replaced it for the same amount that I paid, but I have been paying higher premiums for five years based on the fact that you told me I might run the risk of being under-insured,” I said, rather tersely.
“Why shouldn't you refund me?” More silence! “Well?”, I mumbled.
“Sir, if we can replace if for $5,000, we would do it for $5,000. And that would be our good luck,” my consultant explained.
“And, presumably, all the extra money I have paid you over five years is my bad luck.” It was a rhetorical question but she answered anyway: “I guess so, sir”.
“Is all this legal?” I asked. “Yes sir.”
“How do you know that?”
“My boss told me,” was her retort.
I wondered if this is an insurance scam in reverse. This nonsense does not happen with any other consumer product – imagine buying a new car for $15,999 and then insuring it for $25,999! Would the insurance company allow that?
I don’t think so, but, who knows, if they allow me to buy a ring at $5,000 and insure for $8,000 (and they happily take my premiums) then perhaps they’ll let me buy a Ford Festiva and insure it as a Porsche Boxster!
The sooner the Australian Competition and Consumer Council investigates this bunkum the better!
More reading
Mythbusters: truth behind jewellery valuation myths
Ban jewellery valuations
Insurers not jewellers
Jeweller's prices too low, says customer
Concerns over valuations