Money is slipping through the hands of players in the jewellers block insurance market at a fast and furious rate. Like many other sectors it has suffered from the damaging effects of a softening market. Those involved are hoping that they will soon reach the turning point to prosperity.
A combination of factors have contributed to the present situation. The fact that rates have been slashed at the same time as the cost of claims has risen is one of them. Meanwhile, hardly a month goes by without BBC's Crimewatch featuring a raid on a jewellers' store. There is not only the risk of direct robberies, but also the possibility that items will go “missing” in transit.
Jewellery is, and always will be, very attractive to thieves who are out to make a quick buck. This makes jewellers block, which provides all-risk insurance for retailers, wholesalers and manufacturers, a very high-risk area of business.
Robert Read, specie underwriter at Hiscox, says: “The main threat to jewellers is theft and burglary. The hot spot is when they are being carried, either with a carrier or by a person. They travel quite a lot, so that would be the main issue.”
Jewellery travels not only from manufacturer to shop but also to other destinations, including shows and demonstrations. And it is not hard to spot a jewellery shop and watch staff members leaving the premises carrying packages en-route to these exhibitions – making them a relatively easy target.
Security measures have been put in place to try and reduce the risks while jewellery is being carried. Disguising items via packaging is one example, but it appears that these measures do not put off expert fraudsters. One underwriter, who did not want to be named, claims that “parcels keep going missing”.
That same person believes that fraud is quite commonplace, suggesting that when burglaries occur, claims can be overly-inflated. Citing safes as an example, he says, there is no way of proving how many diamond rings were locked away at night, leaving claims open to abuse.
Mike McCord, deputy underwriter at Watkins syndicate at Lloyd's, adds: “This type of business is vulnerable to fraudulent claims. We do get worldwide dubious claims from time to time. We normally employ a specialist to investigate.”
As vigilance and detection of fraudsters increases, it is likely that the number of dubious claims will decrease, enabling the market to enjoy a period of recovery. But it can only recover properly if rates rise to a profitable level. McCord spoke of the clash of low rates with the increasing value of individual claims. He explains: “Rates have gone down. Between 1996 and 1999 in particular, they dropped dramatically. From our account there certainly has been an increase in the travel claims world-wide. My feeling is that there has probably been an increase in the value of those claims.”
In an ideal world the increase in the value of claims would go hand-in-hand with an increase in the premium to be paid. In this case this has failed to happen.
One reason why rates have failed to rise could be due to the competitive nature of this type of business. Most motor and household insurance providers are in direct competition, but many people choose to retain the same provider each year, for the sake of convenience. In this market the opposite is true.
Read says: “In the jewellers block market they will just go for the cheapest on the market. They are actively being canvassed by brokers – as soon as any underwriter comes on, if he is cheap enough, he will get market share.” So in order to retain market share, premiums need to remain low.
However, innovation may provide the key to success. Watkins syndicate, which is managed by Apollo Underwriting, an asso- ciate of Munich Re, has recently launched jewellersure.com
Working together with Wildnet New Media Group, the project brings the trade of jewellers block insurance to the desktop. It is a step into the 21st century, which other sectors, including motor, have found to be very prosperous.
Competitors are dubious as to whether this type of insurance can really be offered online, but so far the Watkins site, which was launched at the International Jewellery Show on September 4, has been very successful. McCord says: “We have had quite a lot of interest in the website and a number of brokers have signed up to the site. I think it has probably surprised some people.” He adds: “Some people may be under the misunderstanding that we are giving a firm quote but it is subject to additional information – it is subject to signing a data proposal form, as they would going through a professional broker, and it is subject to a survey.”
Casting the net wider
Despite this, according to Read, Hiscox has no plans to follow suit at present. He explains: “I wouldn't feel comfortable with it, we need to be incredibly selective about which jewellers one writes. With the smaller jewellers it would be attractive. The big problem would be selecting the right risk.”
Whether or not the internet will become a portal used by everyone offering jewellers block remains to be seen. The jewellers block sector is working to pull itself out of the poor situation it is in. Key players have identified major issues that need to be addressed and are actively putting measures in place to reduce risks.
Despite the hard times underwriters remain positive about the future. Nigel Paxman, from SVB syndicates, believes that changes are going to take place soon. He says: “I think with a hardening market the jewellery market is going to have to harden as well.” A spokesperson for Willis reiterated this, saying: “We have seen that [today's situation] before, back in the early 80's – we had a time when things were not good. It's like a pendulum. It's bad while it lasts but it will get better.”