Dec 162010
 

Probably the most frequently occurring questions I am asked are those relating to the insurance of jewellery and why good valuation documentation is so important.

So here is some advice for you that I hope will help to ensure full protection of your most precious items.

Note – some of the amounts, definitions and terms relate to the New Zealand insurance environment and may not apply in other countries.

The Insurance Valuation

The most fundamental of all questions posed by clients are the ones asking why they should have their jewellery documented and valued in the first place.

There are three basic reasons:

  • In order to be fully insured, your jewellery items may need to be listed separately on your Contents Insurance Policy – valuations are usually needed to do this.
  • At claim time the valuations provide proof you had the item or items, and evidence of their value. Without them you may end up with an unfair settlement, and no way of proving it.
  • The valuation reports will increase your chances of successful recovery by the Police.

It is important to realise that not all insurance valuations are created equal.  An effective insurance valuation is a document that contains a good colour photo, a detailed enough description to allow a current value to be calculated without re-examination of your items, and a value or values for each that represent the amount the item should be covered for under the terms of the Policy. Photos alone are not enough to accurately establish the value of your jewellery in the case of burglary or loss.

There are two ways your jewellery may be covered by your insurance policy, which is why many valuations in New Zealand list two insurance values.

  • Replacement New Value – which is the amount necessary for you to purchase a brand new item of equivalent type and quality.
  • Indemnity Value – more recently referred to by insurance companies as “market value”, “present day value” and “current value”. This is the amount necessary to purchase an item of similar quality age and condition – ie the second-hand retail value.

Like most Independent Jewellery Valuers, I am sometimes asked by retailers to prepare a valuation for insurance for items of stock yet to be sold. This is an unethical practice as Insurance valuations should not be used to sell jewellery. They are misleading when used in a sales situation because they usually do not represent the amount similar items are actually selling for. Instead, the values are specifically calculated to ensure that you the owner are adequately covered. Because the values will usually be the limit of your Insurance Companies liability, they will tend to be on the high side.  If the item for sale is second-hand, the situation is even more misleading when the seller is using the replacement new value to advertise the “worth” of the item.

One of the hardest concepts consumers have understanding is that a single item of jewellery can have many different values applied, depending on the purpose and function of the valuation. Here are some of the more usual purposes, each returning a different value.

A Market Valuation is the one to ask for if you want to know whether the price of an item is fair. It should report the most common price similar quality, age and condition items are actually selling for, in the market they are most commonly sold. As few sales occur between private individuals, retail stores or internet sites that sell that age and type of jewellery form the most common market for most jewellery.

A Cash Realization Valuation should give you an idea of what your net return would be when selling the item by the most appropriate means available, and allowing a reasonable time period to effect a sale. This valuation is often used as the basis for estate division.

A Replication Valuation tells you what it would cost for an exact duplicate of the item to be made. Except for one-of-a-kind items this value is always higher than Replacement New Value. Many jewellers and jewellery owners mistakenly believe insurance companies should pay for replication, whereas most contents policies only allow for replacement with an equivalent quality item

The Jewellery Valuer

To receive an effective valuation it needs to be prepared by an effective jewellery valuer. Ideally the valuer should not be the seller, or have any other financial interest in the items. If the seller does provide a valuation it must disclose that they sold it, and the amount you paid for it. An independent jewellery valuer should be able to accurately identify the gems and metals and provide a good description of their dimensions, weights, and quality.

The valuer would ideally be a qualified gemologist and diamond grader but this is not essential as long as they have access to someone who is. Most importantly your jewellery valuer should have a good understanding of the valuation principles, methodologies, and ethics that apply to the valuation of any form of property.

The Insurance Policy

My clients are sometimes curious as to why some items of jewellery are listed separately on their insurance policy. Most policies have pay-out limits for jewellery items that are not listed, typically a figure between $1000 and $3000 for each, but some are as low as $500. There is also usually a total limit for each claim of between $3000 and $20,000 irrespective of the number of unlisted items in the claim. I strongly recommend that even your lower value items should be documented for you to be fully protected.

In the sad event of a claim on your policy being required the Insurance Company will require some proof of ownership, and evidence of the value of the item. Once the claim is accepted, the current value or values will be re-calculated from the item description in your valuation. This is why the description is the most important part of your jewellery valuation. If your cover is for Replacement, you will usually be issued with a voucher to purchase a new item. If your cover is for Indemnity the insurance company usually has the option of replacing as above, or paying you the Indemnity value in cash.

It is a popular misconception by policy holders that the Insurance Company will payout what ever value is stated on the valuation.
When you send your valuation copies in to your broker or insurance company, it represents the amount you want your jewellery covered for, and forms the basis for the premium calculation. By accepting the valuation the insurance company is not promising to pay the valued amount. This is because they are insuring the item, not the valuation. Claims are settled on the value of the item at the time of loss. All of which is why the accuracy and detail of the description in the valuation is so important.

To understand fully what your policy will cover under any given circumstance, it is important to read the fine print of your insurance policy or ask your insurance company. Many policies that offer replacement on your household contents exclude items such as cameras, sports equipment, and jewellery – paying only the second-hand (Indemnity) value. Most companies offer the option of upgrading to a full replacement policy for jewellery.

Paul Nilsson, GemLab Jewellery Valuers,
Auckland, New Zealand.  December 2010

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Photo credits – All photos are either Loyalty Paid stock images or copyright of Paul Nilsson

Disclaimer – The AIJV blog is authored by a selection of AIJV members and guests specifically to be able present many different viewpoints on a large variety of subjects. The opinons expressed by the authors are not necessarily those of the AIJV.

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Paul Nilsson

Paul Nilsson is the Principal of GemLab Jewellery Valuers Ltd in Auckland New Zealand. Paul heads a small team of valuers providing extensive appraisal and valuation services for private clients, jewellers and the insurance industry in the Greater Auckland area.

  13 Responses to “Jewellery Valuation for Insurance explained”

  1. What a good article Paul, only the other day I had a client who was disappointed with her claim following a burglary because her valuation was over 6 years old. It really is so important to make sure you are adequately insured AND you have a detailed report which will support your claim and help identify your articles if they are recovered. Thank you for your superb explanations. Best regards, Shirley

  2. Congratulations Paul – a really useful post for consumers.
    I was interested to see that you sometimes put two values on a valuation. Is this something unique to New Zealand? Never heard of that before.

    • Yes Adrian, I think it may be unique to NZ. In 1990 we were questioning whether jewellery valuers were preparing insurance valuations correctly. We saw that valuations were being done purely from a Jewellers viewpoint, ie what we thought items should be covered for, with total disregard for what the actual insurance contract between the insurance company and the owner said. Once we looked at it from the angle of satisfying the requirements of the policies and providing the clients with the best protection, we changed our reports completely – we provided colour photos for every item including costume jewellery, we provided more detail for the items that need to be specified on the policy, and a less detailed and less costly report for items that didn’t, and most importantly we provided the values for the type of cover that was defined in the policies.
      We found that most policies at that time provided only Indemnity cover but that the insurance company had the option of replacing the jewellery or paying out the Indemnity Value. Once we worked out that Indemnity Value was in most cases defined as the retail second-hand value, and that most people had no idea what the true nature of their cover was, we started putting both values on our reports.
      Today, most policies are for replacement but revert to indemnity if the client opts to cash settle the claim. We continue to provide both values up front in our reports.

      • That is interesting, I like the concept.
        When you say “we”, do you mean your business, New Zealand as a whole or were you representing a governing body at the time?

        The only fly in the ointment I can see (from a UK perspective) is getting the Insurance Industry to appreciate the difference between the two and actually writing these terms into the client’s contract. I have found several instances where the insurance company has failed to read the valuation completely and have not made a distinction between the various “Value Descriptors”, New Replacement Value, Secondhand Replacement Value, Facsimile Replacement Value etc.

        • We, meaning GemLab as a business, just decided to make the change. Many other valuers here followed, but I have not seen it done elsewhere.

          Re the UK, perhaps you have missed my point? The issue is not getting insurance companies to appreciate how you value jewellery, its finding out what their contracts require of your jewellery valuations. Once insurance companies see that you are better protecting their clients by tailoring your valuation reports to their policies they will recommend their clients to you. Simple and effective.

          • Point taken. Thank you for the clarification.
            I like this idea a lot. Let’s talk in more depth, off-blog.
            Thanks Paul, this is great stuff.
            Kind regards, Adrian

  3. A good article for consumers on what an Insurance valuation is, and a valuable resource for what consumers should look for in a valuation.

    As another Jewellery Valuer from New Zealand, I can offer a perspective on the `two values’ solution that Paul’s company offers. When Paul and I started the `two values’ insurance valuation in the early 1990’s it was as a response to the problems we saw when Insurance claims were made. The client had an item valued and specified for Replacement Value and their expectation was that, but when a claim was made the insurance company applied an indemnity or market value depreciated settlement. By putting two values on we felt that a) clients were alerted to the possibility of two types of cover for their jewellery and b) it was more likely the valuation and the type of cover were in agreement or aligned.

    However, some years down the track and in my opinion the `two values’ didn’t work for precisely the point Adrian made in his comments…. “I have found several instances where the insurance company has failed to read the valuation completely and have not made a distinction between the various “Value Descriptors”, New Replacement Value, Secondhand Replacement Value, Facsimile Replacement Value etc.”

    The fact is that Insurers (in New Zealand at least) rarely read a valuation before specifying the item on a clients insurance schedule. And most clients are not rigorous enough in seeking clarification from their Insurance Company or Broker as to exactly how any potential future claim would be settled. Is it my role as a Valuer to try and `fix’ the expectation gap between Insured and Insurer?

    My approach is now to report a single value with further descriptors highlighting the scope of work, the basis of value and my valuation approach. Keeping the valuation simple, but fully transparent to my client and any potential third party (Insurer). However, I don’t dismiss the `two values’ approach, even though I don’t use it. I just don’t think it assists my client any more than a single value does.

    • Thank you for your comment about a single quote on an item of jewellery. The other option is going to cost me for repeat valuations to be able to send to auction. So I take it that it is not law that you need to have an indemnity value on your Insurance Valuation as suggested to me.

  4. If I have something on which the insurance value is say $15,000 would the market value be considerably lower on it? Would it be worth about a third of the insurance value?

    • Hi HS, I am assuming you mean the $15k of your example is the Replacement New Value, ie the average price for a comparable new item. There is no single formula that can be applied. Firstly there are many “markets” that a second-hand item could be in. Secondly even if we used one market the Market Value could be anything from 10% of Replacement New (worn and out of fashion) to 50% (or more) higher than Replacement New (desirable period piece in excellent condition) Getting a professional appraisal/valuation, preferably from an independent such as an AIJV member, is your best bet. Thank you for your question, regards, Paul Nilsson

  5. Dear Paul;
    i had a queston about valuation. Are there variations the market place? if there are varying markets give examples and how you would measure them. if there is only one value where does it come from and how do you go about determining it? how do these issues apply to valuer’s of jewellery?

  6. I really appreciate the insight here in this post and confident it’s going to be helpful to me and many others.Thanks Paul.

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