Getting the Insurance You Need: 12 Strategies That Work

With loaded handguns at the ready and the will to kill, five men tunneled a 3-ft. hole in a ninth-floor wall of a building in midtown Manhattan. They had come to steal $1 million in gold from Goldarama Gold Manufacturing Co. on West 45th Street. Thanks to an anonymous tip, the crooks emerged from the hole to find the NYPD-FBI Joint Bank Robbery Task Force waiting for them. The heavily armed law enforcement strike force captured all of the suspects.

It’s a story suited for a prime-time TV drama. Unfortunately, jewelers can’t count on such happy outcomes. “Law enforcement and jewelry retailers and manufacturers aren’t always so lucky,” says John J. Kennedy, president of the Jewelers’ Security Alliance (JSA). “Good security alone isn’t enough. Retail jewelers need insurance.”

While JSA’s statistics show crime against jewelers has decreased nationwide, its Manual of Jewelry Security nonetheless couches the issue in stark terms: “Crime against jewelers is so rampant, so widespread, and so unpredictable that in one minute, a lifetime’s work can be taken away. If you can’t afford insurance, you can’t afford to be a jeweler.”

Buying insurance in a sense is like buying a diamond. You have to know what to look for. Imagine selecting a gem without first inspecting it under a loupe or a microscope. It’s no less ill-advised to purchase insurance without finding the right agent and asking the appropriate questions. The challenge is to protect what you need without insuring what you don’t need. Here are 12 strategies to make shopping for insurance less daunting.

1. Make loss prevention a priority.

Insurance is most effective as a backup rather than a substitute for good security. The best way to keep premiums low and avoid losses is to prevent crimes before they happen.

Security technology today offers a wide range of options, including remote interactive video/audio, tracking transmitters, alarm-activated smokescreens, cellular/radio transmission alarms, “smart” locks, and safes and vaults made of super-high-density concrete (see “New Ways to Fight Crime,” p. 142). At a minimum, “Jewelers should have proper alarm systems, a quality safe to protect their valuables, CCTV with video recorders operating at all times, and a locked door buzzer,” explains Renee Merhige, an independent insurance agent affiliated with American Phoenix Corp. of New York.

“It always amazes me that clients who have good insurance buy the cheapest safes they can, and clients who don’t have any insurance at all get the best money can buy,” observes Karl Alizade, president of City Safe Inc. in Farmingdale, N.J. “It shows you something about their attitude toward loss prevention.”

2. Set a High deductible.

“Set your deductible as high as you can afford to handle on your own without insurance,” advises Howard Herzog, president of International Jewelers Block and Fine Arts Insurance Services in Newport Beach, Calif. “Your insurer will recognize your willingness to share some of the risk and will lower your premium in return.”

Retail jewelers are heeding Herzog’s advice. “Jewelers Mutual has seen a trend toward higher deductibles,” says Ron Harder, president of Jewelers Mutual Insurance Co. in Neenah, Wis. “Ten years ago, $1,000 was the normal figure. Today, $2,500 to $5,000 for small stores and $100,000 for the large chain stores is the norm.”

One potential problem is the fine print in the deductible clause of your policy, explains Robert G. Carroll, president of Robert G. Carroll & Associates Independent Agencies in Oklahoma City. “You must read the deductible clause,” he cautions. “Sometimes the deductible comes off the limit of loss coverage. For example, under some policies, if you have a $5,000 deductible on a $20,000 limit and your loss exceeds that—say, $30,000—you can collect no more than $15,000 for the loss [$20,000 less $5,000]. It is better to have a policy that takes the deductible from the loss and be able to collect the full $20,000 limit that you have been paying a premium for.”

But even a good thing can be carried too far. Carroll tells of a retail jeweler who made an appointment for insurance advice and showed up with $200,000 to $300,000 worth of insurance with a whopping

$1 million deductible. The plight of this retailer was resolved thanks to a routine insurance review (see below).

3. Get regular insurance checkups.

Have you ever read your insurance policy? Few jewelers take the time to do so.

“Every year, jewelers should meet with their agent to review the amount of insurance and the policy to make sure they’re adequately protected,” says Harder. “A qualified insurance agent will make sure they have peak-season coverage when they start building inventory in October.” Carroll, who specializes in insurance for the jewelry trade, cautions, “If you get in a lot of memo merchandise, call your agent and make sure you have enough coverage.” Jewelers with large operations ($20 million or more in sales, $5 million to $7 million in inventory) should have their insurance assessed every six months, recommends Roger Messier, president of insurance broker Butler & Messier in Pawtucket, R.I.

Delores Agliata, an insurance broker with Buffalo, N.Y.-based Lawley Service Inc., suggests that you “utilize the loss-control department of your insurance carrier. Your insurer can help prevent losses by giving you free advice and suggestions.”

4. Choose the right agent.

The Yellow Pages are filled with people who will sell you insurance. Finding the agent who’s right for you takes research.

“A good agent is going to ask a lot of questions, not carry over mistakes made by a previous agent or broker,” says Russell Dann, chairman and CEO of Dann Brothers Insurance Co. in Northbrook, Ill. “You also want an independent agent who can handle many insurance companies.”

Shopping for an agent means more than just calling a variety of companies, adds Michael Wexler, an insurance agent in Coral Gables, Fla. “You should choose an agent who specializes in jewelry and is backed by a company that pays claims promptly,” he says. Ask for a recommendation by someone else in the jewelry trade.

Carroll cites three basic qualifications for a good agent: knowledge of the jewelry industry, experience insuring retailers in general and jewelers in particular, and knowledge of the security devices that can prevent losses.

5. Know what to look for in an insurance company

To determine whether an insurance company is worthy of your business, consider these questions:

  • Does it have experience insuring jewelers? Trade associations such as Jewelers of America and the Manufacturing Jewelers & Suppliers of America are helpful sources of information on insurance. Going to trade shows is also a good way to pick up literature from companies and stay informed.

Choose insurers dedicated to the jewelry industry and not those that jump in and out of the field. Dozens of companies pulled out of the jewelry market in the early 1980s, taking their short-term profits and leaving the industry in their dust. “Many companies go in and out of jewelry insurance based on business cycles,” says Harder. “Ask how long a company has been actively insuring jewelers before you make a decision.” Today’s highly competitive market, say experts, includes many transient insurers of jewelry stores on the prowl for easy money. Pick the long-term players, says Harder.

  • Is the company highly rated? A.M. Best of Oldwick, N.J., is a respected rating organization for insurance companies. You can make sure your carrier is legitimate and in good financial condition by asking your agent for a Best rating. The reference desk at your local library may have the information as well. Look for a rating of “A” or “A+.”

  • Is the firm an “admitted company”? Such a company has met certain requirements in your state. In return for this compliance, the company’s financial obligations to you receive some protection under the state insurance department’s insolvency fund. There are many restrictions, and this is not an FDIC-type guarantee. Nor is your insurance money completely protected. The limits vary from state to state.

  • What’s the company’s track record on handling claims? Ask other jewelers what their experience has been with the company. Have losses been paid fairly and promptly? Have policyholders been dropped once they report a claim?

You can also call your state insurance department and see if it has a record of complaints against the company. After all, if an insurer can’t be counted on when you have a claim, what good is your coverage?

  • How strong are the company’s finances? “Premiums are not the only way to determine which company to buy insurance from,” says Wexler. “The retailer needs to strongly consider whether the insurer has the financial strength and the commitment to pay a claim.” A company cannot be evaluated on a rating alone. Adds Herzog, “A well-rated company is not necessarily a well-capitalized one.”

Look for a company with an assets-to-liabilities ratio of at least two to one, says Harder. “There should be an adequate surplus [the amount of reserves a company has available to pay claims],” he says. “And find out, for every dollar of premium, how much is paid in losses and expenses.” That’s a key measure of solvency, as losses and expenses should not exceed premium income.

  • What is the company’s attitude toward loss prevention? “If it focuses on loss prevention, then it means it’s interested in keeping jewelers’ premiums low,” says Carroll. “For example, one insurance company pays each jeweler’s dues in the Jewelers’ Security Alliance in an effort to keep jewelers informed about jewelry-related crime. The same company produces several videos on loss prevention and makes them available to jewelers. At the other end of this spectrum are companies that do little to help jewelers prevent losses, and then seek profitability by finding ways to decline covering losses whenever they can.”

Top 10 Types of Theft in the United States

  1. Motor vehicles

  2. Jewelry and precious metals

  3. TVs, radios, and stereos

  4. Currency, notes

  5. Clothing and furs

  6. Office equipment

  7. Household goods

  8. Firearms

  9. Consumable goods

  10. Livestock

Source: “The Top Ten of Everything,” by Russell Ash, Dorling Kindersley, 1998.

6. Select the best policy.

Most retailers rely on their agent’s advice when it comes to selecting the best policy. “Ninety-nine percent of jewelers don’t read their policies,” says Wexler. “Some jewelers wind up with business-owner policies that have a limit of only $1,000 in coverage.” Carroll says he has seen cases in which jewelers sustained substantial losses but had insurance policies with a maximum of only $2,500 in coverage.

The most common policy is a Jewelers Block. According to Jewelers Mutual’s Web site, it covers your “inventory of stock for sale; primary coverage of customers’ property that has been entrusted to you; property of others in the jewelry business for the amount you have paid on the property or for which you are legally responsible because of loss or damage.” This policy covers the risk of losses typical in the jewelry industry, including burglary, robbery, sneak theft, fire, and water damage.

“Jewelers Block is the policy that will provide the broadest possible coverage for retailers,” says Harder. “Jewelers Block is an experience-rated policy. That means, over the long term, the lower your losses, the lower your premiums.”

“Retailers need primary coverage, not secondary coverage, for customer goods,” says Herzog. “A retailer must be sure that the loss-settlement clause in the Jewelers Block covers customer goods.” Carroll agrees: “You don’t want customer goods insured on an ‘excess basis,’ where your insurance only pays if the customer’s insurance runs out. That’s just not good business.”

Everything is negotiable. While insurance companies aren’t eager to lock in multiyear policies, low premiums make this a good time for jewelers to consider long-term policies, Herzog suggests.

7. Beware of exclusions in the jewelers block.

“Jewelers need to spend some time looking over their coverage and beware of a coinsurance clause,” explains Herzog. “If your insurance limit is not insured to value, you are a partner with the insurance company and will pay for many claims yourself.” Ask your agent to explain the exclusions of the Jewelers Block and to outline buy-back options. A retailer can purchase insurance on some noncovered risks with an additional premium.

“There are more and more trunk shows, and jewelers don’t have the proper coverage in the standard Jewelers Block policy,” says Herzog. “Check with your agent to see that this exposure is dealt with properly.”

Other exclusions include losses of customer goods, jewelry that you wear, and items kept in unattended cars or show window displays as well as losses incurred through employee dishonesty and mysterious disappearance. Check with your agent to see what exclusions pose a risk to your business operations.

Shipping Thefts on the Rise

Jewelers and their insurance agents are noticing a sharp increase in the number of shipments being stolen by private express carriers. “I’m finding that certain companies aren’t willing to insure shipping for jewelers in certain areas,” says Robert G. Carroll, president of Robert G. Carroll & Associates Independent Agencies in Oklahoma City. “More losses are occurring in the ZIP code areas where jewelry is produced.”

One of those ZIP codes is 10036, New York’s diamond district on 47th Street. To workers at shipping centers for overnight delivery services, that ZIP code apparently means, “Open me, I’m jewelry.”

Believe it or not, sending a package by registered mail via the U.S. Postal Service is the safest way to go, says Mike Wexler, chairman and CEO of Wexler Insurance Agency in Coral Gables, Fla. Who ever thought “it’s in the mail” could be a good thing?

How to File a Claim

  1. When a fire, an accident, or a theft occurs, call your agent and company immediately. Report any burglary or theft to the police.

  2. Take steps to protect your property from further damage. For example, if a strong wind damaged the roof of your building, have temporary repairs made to the roof to prevent rain damage.

  3. If you need immediate repair to your equipment, save the damaged parts. The claims adjuster may want to examine them. If saving them isn’t practical, call the claims manager at your company’s nearest regional office. Together, you should work out an alternative solution.

  4. Get at least two bids for repairs. This will speed the processing of your claim. Get estimates on the cost of repair vs. the cost of replacement of the damaged property. The bid should include regular labor costs, overtime labor costs, and a list of parts that have to be replaced along with the reason for replacing them.

  5. If you are filing a business-interruption claim, you will have to show the income from your business both before and after the loss. Keep detailed records of business activity and extra expenses that continue while your business is closed, such as advertising contracts. Consult your accountant.

  6. Throughout the claims process, keep your agent informed so that he or she can be ready to help you in the event of a delay or disagreement.

Source: Insuring Your Business, Sean Mooney, Insurance Information Institute Press, 1997.

8. Ask your agent about special forms of insurance.

The cyclical nature of the jewelry industry creates seasonal crests in the value of the goods you stock. “Peak-season endorsement for Oct. 15 to Dec. 31 makes sense for a lot of jewelers to accommodate the increased inventory for the holiday season,” says Wexler. “At least 50% of my clients take advantage of this.”

Among the other special types of coverage are ear-piercing liability, appraisal liability, and monies and securities.

9. Don’t forget your umbrella.

Ask your agent about your exposure to liability and product-liability claims and determine if you need an umbrella as added protection against a sizable claim against your store. “Retailers have large liability exposures because of armed robberies in which employees or customers can be shot or killed,” says Herzog. “Having armed guards raises your liability, too. You need to protect your business from these exposures.”

10. Keep thorough and accurate records.

“Jewelers sometimes think that they should report as inventory the amount of coverage they want to purchase,” says Carroll. “For example, a jeweler has around $250,000 in inventory, but he thinks he would never have a loss of more than $100,000. So he tells the insurance company his inventory is just $100,000. This can void his coverage entirely because the jeweler has in effect falsified the application.”

Courts will uphold cancellation of coverage in such instances. Says Carroll, “An insurance company relies on the jewelers’ accurately reported inventory for decisions relating to security, ratings, etc. A jeweler also needs to remember that, as any businessperson, he needs to keep good records. If a jeweler wants to buy less coverage—false economy in my opinion—address that issue openly and don’t mislead the company. You may be getting a lot less than you think.”

Adds Dann, “You need to keep duplicate copies of all your records off premises, so if everything burns down, you can prove what you had in inventory and what things were worth.”

Sean Mooney, an economist for the Insurance Information Institute in New York, recommends that you “compile lists of equipment you own and lease by type, model, and serial number. Under several federal laws, if you fail to maintain accurate business records and to safeguard those records, you may be liable.”

11. Absorb the small loss.

“The most common mistake among retailers is not stepping forward to

handle the small disputes and claims themselves,” says John Lennes, vice president of the Alliance of American Insurers in Schaumberg, Ill. “If it’s a small amount, keep it small, settle in-house, and fix what you can without involving your insurance.”

Insurance isn’t for the nickel-and-dime claims, advises Dann. “Whatever you can do to keep the frequency of loss down is to your benefit.” That way, you’ll keep your premium from escalating.

12. Invest in security while premiums are low.

The dangers of crime are all too real for the retail jeweler. “In a recent robbery, an armed man smashed the head of a pregnant sales clerk against the safe because she wasn’t opening it fast enough,” says Herzog.

“With low premiums, it’s a wonderful time to start thinking about good security,” Messier advises. “Take the time to upgrade your security so you can eliminate every conceivable risk.”

Improving your security systems is well worth the effort. Says Messier, “If you don’t have good security and can’t prove an effort to prevent losses, you—and not the insurer—are going to pay.”

“Ninety-nine percent of jewelers don’t read their policies”. — Michael Wexler, an insurance agent in Coral Gables, Fla.

Miles Z. Epstein, a freelance writer in Park Ridge, N.J., is a regular contributor to JCK.

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