Jewellers and policyholders are defrauding insurers by up to £60m through inflated valuations, according to Loss Management Group's (LMG) managing director Tony Le Fevre.

And the problem is so bad, he wants legislation introduced to address the problem.

"In the US, it is now a criminal offence for any appraisals to be done by the person who sold the goods. This is just common sense. I mentioned it to a number of jewellers here and received stern looks," said Le Fevre.

What commonly happens is jewellers, at the point of sale, will offer the customer a valuation for insurance purposes. So a Rolex watch which was bought for £1,000 could be sold with a bogus valuation document of £1,500.

"They regard valuations as a kind of sales tool," said Le Fevre.

According to LMG, which specialises in jewellery claims processing and repair work, roughly 300,000 jewellery claims are made per year, costing the insurance industry £250m, as fraudulent and exaggerated claims are rife.

Claims are inflated by at least 25%, according to the company.

Many insurers have tried to tackle the problem by creating a preferred panel of high street jewellers.

"Many of the insurers have created a panel made up of the high street multiples that offer a discount. However, once the inflated claim is added, this makes the discount virtually redundant.

"Much of the time, insurance work is a protection racket for jewellers. Insurers would convince the jewellers to take the work on the proviso all their claims will pass through the shop," Le Fevre said.

Many insurers are willing to pay claims quickly, without investigation, because they are worried their reputation will be damaged.

Norwich Union property and contents manager Rob Townend said: "We are always looking to improve the technical validation (pre-loss documentation or receipts) of jewellery and personal items to help process claims more efficiently."

A spokesman for the Association of British Insurers (ABI) said: "We are aware there are dishonest jewellers that work with the customer to exaggerate claims.

"We are keen to fight this problem and would welcome any moves to stop policyholders facing huge premium hikes because of unscrupulous jewellers."