Disclosure! Disclosure!
New FTC Guides say all treatments that have a significant effect on a gemstone's value should be disclosed.
We've been saying this for a long time. Now the government is backing us up.
The new FTC guides say it is unfair or deceptive to fail to disclose a gem treatment if:
(a) The treatment is not, or may not be, permanent.
One such treatment is fracture filling, in which some foreign material is injected into a gemstone to conceal fractures. The treated gem looks much better to the unaided eye, and fetches a higher price. But under certain conditions, such as heat during remounting or shock from a fall, the treatment can break down, revealing the originally damaged stone. (For a more detailed discussion of fracture filling, and its importance to insurers, see the April 2000 IM News.)
(b) The treatment creates special care requirements for the gemstone.
In this case, the seller should disclose the treatment and also disclose the special care requirements to the purchaser. For example, recutting or even cleaning a fracture-filled gem could damage the treatment.
(c) The treatment has a significant effect on the stone's value.
The purpose of gem treatments is to make a stone look better and therefore increase its selling price. The FTC particularly singled out laser drilling, which many in the jewelry industry have argued need not be disclosed.
In this treatment, a microscopic channel is drilled into the gem to make a channel toward an inclusion. Acid is then sent down the channel to bleach the inclusion and make it less evident. "Consumers are at a disadvantage due to the imbalance of information that currently exists," said the FTC in its comments. "Failure to disclose laser-drilling may lead consumers to believe a laser-drilled stone is as valuable as an untreated stone of the same clarity rating [and] may have created an avenue for unscrupulous marketers to overcharge consumers for laser-drilled stones." All the sellers of the treated stone—distributor, wholesaler, and retailer—should disclose the nature of the treatment.
All treatments are done to make a stone look better. But the value of a treated gem is not as high as that of an untreated gem of the same appearance. Some retailers may display signs that include disclosures about gem treatments and direct customers to ask a salesperson for more information. Such signs may go unnoticed or the verbal information about treatments may be forgotten. It is in the interest of both the purchaser and the insurer that all treatments be disclosed on the appraisal.
In our next issue: What is the weight of FTC guidelines? Are they enforceable?
FOR AGENTS & UNDERWRITING
It's worth remembering that disclosure requires a jeweler/appraiser who is knowledgeable enough to recognize a gem treatment and honest enough to disclose it. As discussed in earlier issues of IM News (especially March, July, and September of last year), not all retailers and appraisers have these qualities. An appraisal that makes no mention of a treatment doesn't guarantee that the stone wasn't treated. The best way to be sure treatments are disclosed is to have an ACORD >78/79 appraisal, prepared by a trained and reputable jeweler, such as a Certified Insurance Appraiser™. The ACORD appraisal warrants that all relevant gem treatments are disclosed.
FOR CLAIMS
Even though gem treatments are very common, many appraisals and sales receipts neglect to mention them. On a claim for a damaged stone, have the stone inspected in a gem lab by a CIA™. The inspection may reveal that the stone was originally flawed and then treated to conceal the flaw. If the treatment breaks down, for example under heat or impact, the original flaw will become visible. This is not damage, and the insurer is not responsible.
NEWSFLASH!
Gold Prices Falling
Gold prices are about the lowest they've been in 20 years. From an all-time high of $850 an ounce in 1980, the price had dropped to $257 in late February of this year. Jewelry may be overinsured if the policy is based on an appraisal that is several years old. This dramatic shift in gold's market value points out the importance of performing insurance-to-value (ITV) calculations on a regular basis to avoid inflated valuations.
See the charts for gold prices, historic and recent.
©2001, JCRS Inland Marine Solutions, Inc. All Rights Reserved. www.jcrs.com
Subscribe to Jewelry Insurance Isssues
For Insurance professionals: 8 hours CE credit. Jewelry insurance is the key to cross-selling opportunities to commercial insurance. Learn how to improve loss ratios and take advantage of value-add services for your agency.