High Gold Prices Raise Risk in Jewelry Industry

The high price of gold and increases in jewelry crimes have put the jewelers block insurance segment in a tenuous position, and agents and brokers have to do their due diligence to make sure their clients are adequately insured, say underwriters.

While gold prices in late September 2011 were down from a high of nearly $1,900 per ounce in August, the cost of gold was still lofty compared to previous years.

“[The price of gold] has affected this class significantly because the asset value that the client has is much greater than it was before,” says Pat Low, president and chief executive officer of CED 1976 LLC in Fair Lawn, N.J., which specializes in insurance for the jewelry business. “A significant percentage of most jewelers’ stock is gold, so insureds have to look very carefully at what valuation clauses are in their policy and make sure they have adequate limits.”

Low says the balance sheet of jewelers may be healthier now because of the increase in value of their stock, but their insurance costs will also increase to protect that stock, especially since claims have gone up for this class.

Solomon Meskin, president of Jewelers Specialty Insurance Services in Los Angeles, says that an increase in the value of inventory and merchandise also means potential for more insurance claims and a decrease in sales since people have less discretionary income for expensive items.

“Underwriting has been extremely difficult ever since the last down cycle in the economic environment,” he says. “Historically when there is less income across the board, the incidence of crime increases. Incidents that are usually not an issue in this industry tend to increase. Crime is very sophisticated in this segment.”

The most common claims have come from “smash and grab” incidents; sales clerks’ claims; holdups; thefts from restaurants, cars and hotels; counterfeiting, and fraud.

Agent Assistance Needed

Jewelers block brokers say insureds appear to be on alert in the current environment. But even those that are sophisticated and run well-managed businesses may still need assistance from the agent community to understand their increased risk, according to Low.

“We will try to do things like determine what the aggregate price of gold is for their parent stock to make an appropriate recommendation of what their value should be and track their aggregate price of gold for them,” Low says.

She says most agents who work in this class understand what their clients need, and more agents than ever are interested in becoming experts.

“There are others that are terrific agents and want to increase revenue so this is an area they want to be involved in,” Low says.

Darren Lewin, vice president of programs for Abacus Insurance, says this is a time to be educating customers about jewelers block insurance.

“They need to be insured for what the value of their inventory is,” he says. “We have had to go to them and they are coming to us as well. These customers are generally aware of what the value of their inventory is.”

Increased Interest

This class has become riskier with the economic downturn and only a handful of players really specialize in it, but more companies are starting to show interest, Meskin says.

“Over the last couple of years, we have seen some companies that historically have not been doing business in this segment come to write business and penetrate the markets,” he says. “In terms of insurance companies that are active, we have seen an increase in numbers.”

CED 1976 entered this class this year with its new Jewelers unBLOCKed program and will be the exclusive provider of underwriting and policy servicing for Chubb. The program will target jewelry related businesses in manufacturing, wholesale, retail, custom design, remount events and refining. The company has specialized on the retail jewelry side for many years but this is the first jewelers block program it has offered.

Low says they decided to launch the program because they saw it is an underserved marketplace.

“We have significant capacity because of the size of Chubb and we are extremely selective in account underwriting and what accounts we will work with,” she says. “But we also offer large travel limits and flexibility to the broker and client, based on their operations. We are not entrenched in doing things the way they have always been done.”

The coverage also includes stock on premises, stock off premises, travel coverage, transit and cargo, as well as others. The coverage is available nationwide.

Low says CED is also planning some enhancements that will come out later this year.

Abacus recently launched an online jewelers block program, available on an admitted basis in all 50 states. The coverage includes office contents, inventory, tenant improvements, earthquake and flood, as well as many others. Premiums start at $1,000.

Lewin says the Abacus program was launched because his firm saw a need for an automated program in this marketplace.

“Jewelers block is a very complex product, there are a lot of moving parts,” he says. “It creates a lot of opportunity for us to streamline the process. We have done the same thing for around 30 other programs so thought we could do that with this one as well.”

Meskin says that despite some additional capacity, pricing has remained flat compared to the rest of the insurance market.

“Carriers are not that crazy about giving you additional discounts or negotiating hard on premium,” he says. “But on the other hand, because there are new companies entering the market, they have to compete. We have different forces at work and altogether we see prices as pretty stable.”

Meskin says JSIS is selective with the companies it writes because of the risk involved with this class. JSIS does about 90 percent of its jewelers block business in California and other locations where it can visit and underwrite the risk personally.

“Everything we have written so far is a known entity,” he says. “On the occasion we do entertain some brokered business, it is when we feel comfortable with the agents.”

Meskin says this approach helps protect the company and the insured in a challenging class, especially in this economic environment.

“To put it in perspective, if you want to hit a bank you have to go through security, a safe, and alarm systems to get to it,” he says. “But think about someone walking around with a half a million dollars [in jewelry] in their pocket. They are a moving bank with no protection whatsoever. That is how hard it is to underwrite this class of business.”

Low says they will be maintaining a disciplined approach to underwriting as well.

“The key to success is not to compete on price but understand what the client needs and to fill that need,” she says.