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How to insure expensive jewellery

Personal Finance

This article was first published in the second quarter 2016 edition of Personal Finance magazine.

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Your jewellery is precious to you, not only because of its monetary value, but because such treasured items often have a story to tell – a story intimately connected with your life. An engagement ring tops the list of most valued possessions for many people, but you may own a number of other pieces to which you have a deep attachment.

Unfortunately, as demonstrated by the frequent robberies of jewellery stores in upmarket shopping malls, high-quality jewellery also tops the list of things criminals are keen to get their hands on. It is easily slipped into a pocket and hidden away, and it fetches good money, even at black-market prices. And anyone with experience of a home burglary will verify that thieves can be remarkably discerning in what they choose to steal, invariably leaving behind the cheap costume jewellery.

To make matters worse, the sentimental significance of a special ring, necklace, brooch or bracelet cannot realistically be quantified or covered by insurance. In fact, you cannot insure your jewellery for more than its replacement value, even if it is priceless in your eyes.

Insuring hand-me-down items may prove complicated. Unlike functional possessions, such as cellphones, cameras and laptops, for which you are likely to have receipts, it may be difficult to show proof of purchase, or establish the replacement value of each item. Take, for example, an antique silver necklace inherited from your late great-aunt. You may feel that it is not worth the price of valuation by a professional valuator. A photograph of the necklace may constitute proof of existence, but will not necessarily reflect its value.

So how does one go about insuring new and old jewellery – the things you wear regularly and those you hardly ever wear, which gather dust in the dark recesses of a bedroom cupboard? And how do you make sure that, in the event of loss, you receive a fair payout or replacement from your insurer?

Items you wear regularly

Going back to that engagement ring: let’s say it consists of a solitaire diamond set in 18 carat gold and that it was bought from a reputable Sandton jeweller 10 years ago for R15 000. It is worth about double that now, although you haven’t had it revalued. But you do still have the original receipt from the jeweller. You wear it every day, and at night you slip it off and put it in your bedside drawer.

Natasha Kawulesar, the head of client relations at Outsurance, says the ring would have to be insured under an all-risks policy, which is normally linked to your household contents policy. Under the all-risks section, your ring would be covered both while you are wearing it out and about and when it’s off your finger at home. In addition, it would have to be specified (listed as a separate insured item) under the policy, which means it would have a separate monthly premium, increasing your overall premium.

Kawulesar says that, because the ring has a high value, you would need to have a valuation certificate for it, and it would have be insured for its replacement value, which is what you would pay a jeweller for a similar item of the same quality (see “Having your jewellery valued”, below).

Different insurers set different thresholds for the value at which items need to be specified under the all-risks section, and the value that must be supported by a valuation certificate. For example, Kawulesar says Outsurance requires all-risks items worth more than R1 500 to be specified, and a valuation certificate is needed for items insured for more than R25 000. Santam requires a valuation certificate for items valued at more than R10 000, and the certificate must be provided before cover will be granted.

All insurers apply an excess (the upfront amount that you are liable for in the event of a claim) to specified items, which may be a fixed amount or an amount based on the insured value of the item.

It is important to update the insured value of your ring regularly, so that it reflects its current replacement value. If the cost of replacing the ring is higher than the insured amount, your insurer will pay out only the insured value, leaving you responsible for the difference. Some insurers require you to have jewellery revalued every few years; others, such as Outsurance, are satisfied with a single valuation certificate, as long as you revise the insured value regularly, or you allow the insurer to revise it upwards automatically each year.

Mandy Barrett, the manager of sales and marketing at Aon South Africa, says the valuation certificate must be dated prior to the loss to prove value and ownership, and she recommends that the certificate is updated at least every two years. The value of your ring is affected by inflation and other factors, such as the exchange rate of the rand against foreign currencies and the gold price.

On this point, Gari Dombo, the managing director of Alexander Forbes Insurance, says rand weakness drives up the cost of jewellery, which affects the replacement value, because prices of precious metals and gemstones are linked to the United States dollar.

“It is important to be aware of the impact that currency fluctuations have on the value of jewellery. The bottom line is that you should continually assess your jewellery values to make sure you have adequate insurance in place and to be able to provide proof of ownership, to assist the insurer in determining settlement,” Dombo says.

Barrett says any reputable jeweller is qualified to provide a valuation certificate. She also points out that, under an all-risks policy, your ring is covered anywhere in the world.

Even under an all-risks policy, however, your jewellery is not covered under all circumstances. For instance, you are still required to act responsibly in taking care of your insured possessions, such as checking (and correcting) for wear and tear.

“It is important to check policy terms and conditions,” Barrett says. “[Some] policies have a safe warranty, where they require items (usually with a value of more than R50 000) to be kept in a locked safe when not worn. This means that if a ring worth R55 000 is left on a bedside table and lost or stolen, there will be no cover.” Under such a policy, the R30 000 engagement ring in our example would not be required to be locked in a safe, but you would need to check your policy, because the threshold value might be lower.

Marius Neethling, the manager of personal lines underwriting at Santam, says two further important conditions under which your ring would not be covered are:

* If it is stolen from a vehicle that is left unattended and the ring was not locked in the boot or was visible in the interior of the vehicle; and

* If it was subject to what is known as “gradual” damage: wear and tear, rust, mildew, corrosion or decay. For example, Neethling says, if you notice that a stone is loose, the responsibility lies with you to take the ring to a jeweller to have it fixed before the stone falls out. If it falls out and is lost because, for example, the claws holding it have corroded, you will not be compensated. On the other hand, if the stone is lost for reasons other than wear and tear – for example, you accidentally damage the ring – you are covered for the repair of the ring and the replacement of the stone.

Another stipulation of most policy schedules is that the insurer will not replace a full pair or set if only one item in the pair or set is damaged or lost. This applies particularly to earrings and engagement-wedding ring sets.

What if you go for a swim in the sea wearing your ring and it is lost in the water? All the insurers Personal Finance spoke to said the ring would be covered under an all-risks policy, unless negligence of this sort was clearly listed as an exclusion.

Compensation

You need to read the small print in your policy to find out how you will be compensated in the event of loss. In the past, many insurers, after doing an assessment, simply deducted your excess and paid you out in cash. Nowadays, policies often include a clause giving your insurer the choice to “repair, replace or pay cash”. Perhaps to be competitive in their pricing, most large general insurers prefer to replace a lost or stolen item, some using a supplier with whom they have a trade agreement.

So if you own an item from a well-known designer, such as Jenna Clifford or Charles Greig, will your insurer use that designer to replace it?

Neethling says Santam will “always endeavour to repair or replace with the original manufacturer or designer’s brand. If it is not possible to replace or repair, or if you insist on a replicated item by another manufacturer or designer, you will be indemnified by means of a cash settlement on the value quoted by the replicating manufacturer/designer.”

Outsurance will “generally replace the ring via a supplier on our panel”, Kawulesar says. “Then, if there are any workmanship issues, we would be able to address these with the supplier. We may also settle in cash in certain instances. Replacement remains the preferred manner of settlement, however.”

Rarely worn items and collections

Your collection of rarely worn jewellery might include heirlooms and antique jewellery for which you have no proof of ownership and no idea of value. Is it worth specifying these items under an all-risks policy, bearing in mind that unspecified personal items under a certain value (usually about R1 500) are automatically covered? And is it worth having each item valued by a professional valuator?

The insurers say that if the items are rarely worn, it is sufficient to have them covered under your home contents policy. But you will have to go the valuation route if you want to be secure in the knowledge that valuable items are covered for replacement value.

“It is necessary to have these items valued so that there is proof of value and ownership in the event of a loss, even if they are covered under household contents,” Barrett says. “It is important to ensure that the household contents sum insured is adequate to cover jewellery in addition to ordinary household contents. Certain valuators are prepared to do a house visit to value jewellery, and charge by the hour, as opposed to per item.”

For items of low value, it is probably sufficient to keep photographs as proof of ownership. At the other end of the spectrum, if you have a jewellery collection containing items of very high value – to the extent that the collection may be worth half-a-million rand or more – it may be worth approaching a specialist insurer to have your collection separately insured (see “Specialist insurers, below).

‘WHAT IS THE CORRECT VALUE OF MY WIFE’S RINGS?’

Mr LW is not alone in wondering whether he has appropriate insurance for items of jewellery. His wife has two rings valued at R65 000 and R95 000 and he is paying premiums accordingly. But he says he has not found a jeweller who will buy the rings for anything approaching these values – the most he has been offered is R14 000 for one of the rings.

He is concerned about what his insurer would do if one of the rings were stolen: would it pay out the amount offered by the jeweller – about R14 000 – despite the high premiums he has been paying, or would it replace a ring with one made to the specifications of the original? He has considered taking the rings off his insurance policy, but is worried that he could then be accused of under-insuring his household contents.

According to the insurers Personal Finance approached, Mr LW should have each ring insured under his all-risks policy. Each should be specified on the policy and have its own valuation certificate, which should be updated every two years. The valuation certificate would reflect the ring’s replacement value – that is, the amount needed to buy a similar, new item of the same quality, taking into account price escalation due to inflation and exchange rate fluctuations (see “Having your jewellery valued”, below).

As mentioned in the main article, many insurers prefer to replace rather than pay out in cash. This means the insurer will independently assess the loss and, depending on its policy, replace the ring using either a jeweller of Mr LW’s choice or one of its own choice.

What a ring fetches from a jeweller on the second-hand market is likely to be less than 50 percent of what it is insured for, because the dealer will add his or her mark-up to bring it up to retail value. This “second-hand” value has no bearing on the item’s replacement value.

Mr LW also needs to check whether his policy has what is known as a safe warranty. This would require him to lock the rings in a safe at home when they were not being worn.

Depending on the insurer, Mr LW may be able to take the rings off his policy. As long as it is stipulated in the policy that the rings are not covered, their value would not affect the valuation of the rest of the household contents.

HAVING YOUR JEWELLERY VALUED

According to Michel Nunes of the D’Amato Group, a retail jeweller in George, and a board member of the Jewellery Council of South Africa, any jeweller can provide a valuation certificate, but he recommends that the person you choose has plenty of experience and internationally recognised qualifications.

He says a valuation certificate, or appraisal, is “an official document containing an unbiased opinion describing the identity, composition, quality and value of an article. This is determined through basic principles and stated procedure, using recognised terminology and grading systems.”

He explains that an insurance appraisal represents the top value for settlement of a claim. This might be about 15 percent higher than the “retail value” of the article, because the certificate has to be valid for two years in a normal, stable economy.

The value must take into account both price increases and mild exchange rate fluctuations, Nunes says. However, if the rand-United States dollar exchange rate undergoes more drastic fluctuations, as it did at the end of 2015, it may be necessary to obtain a reappraisal before the end of the two-year period.

When it comes to valuing antique jewellery for insurance purposes, an appraiser would probably use a “cost approach” method, Nunes says. This would be based on the total cost of replacement or reproduction, including materials and labour. An alternative would be a “market data approach”, which determines fair market value based on actual sales of comparable articles. This approach may more accurately reflect the item’s historical or rarity value, he says.

The Jewellery Council says its member jewellers are encouraged to have a pricing structure in place for valuations and to have a “rate per article” system, rather than a “percentage of total value”, because the latter is open to abuse – for example, providing a higher valuation in order to charge more.

When Personal Finance phoned three well-known Cape Town jewellers, each quoted a fixed-rand valuation charge per item. One charged a flat fee of R70 per item; the second said it charged between R150 and R250, depending on the complexity of the valuation (for example, a ring with many stones is more difficult to value than a solitaire) and whether or not the ring has been valued before; and the third said the charge would range from R200 to R650, depending on both complexity and value.

SPECIALIST INSURERS

For substantial or high-value jewellery collections, it may be well worth considering having your collection insured separately by an insurance company specialising in art and antiques or one that deals exclusively with high-net-worth individuals. There is often a high minimum value, either for your collection or your total assets, to qualify for cover, but you can obtain a more personalised policy, and one that may be more cost-efficient than those offered by the mass-market insurers. You will also have the assurance that you are dealing with people with specialist expertise who share your appreciation of your collection.

For example, Artinsure, a subsidiary of Hollard, covers commercial and private art, antique and jewellery collections. It does not specify a minimum amount for the overall insured value of a collection, but does have a minimum premium.

Gordon Massie, the managing director of Artinsure, says that, with his product, you don’t have to add your jewellery items to an all-risks schedule, and you have the choice either to be paid out the agreed value as a total loss or for Artinsure to replace the item from the jeweller of origin.

“This is an important consideration, particularly for high-net-worth clients who place great emphasis on provenance and would fully expect to replace a high-value piece from, say, Charles Greig, with another piece from the same jeweller, rather than from any other source,” Massie says.

To value your items, he says Artinsure uses a panel of independent appraisers “covering a comprehensive and extensive range of collectables”.

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