People are increasingly fond of collectables but few realise the true value of their items or that general household insurance policies are unlikely to cover them in case of loss. Tony Le Fevre says there are many opportunities for insurers in this hugely neglected area of claims management
Collectables have never been so popular. TV programmes such as the Antiques Roadshow, Bargain Hunt, Flog it! and Cash in the Attic are fuelling interest as never before and, as a result, insurers are facing an increasing number of claims. From samurai swords and film memorabilia to bisque dolls and dinner services; clocks and paintings to Swarovski crystal and tinplate toys, the variety of items claimed for is as diverse as the values put on them (see box).
Not surprisingly, it is a hugely neglected area of claims management.
Most insurers have little idea whether the amount claimed is realistic or not and few have the skills in-house to validate such a huge diversity of items. The problem is exacerbated by the fact policyholders are not sure what to claim, and that claimants are not sure of the true value of their collectables.
Most items are insured under general household insurance, with a maximum limit of £1000 on any one item, yet statistics compiled by the Loss Management Group show that more than 20,000 claims each year contain items worth more than this. The bad news for collectors is that few find this out until a claim is made, which inevitably leads to conflict.
For insurers, collectables remain a difficult area. Policyholders may have been caught up in an armed robbery or been attacked by an intruder in their own home. They may have lost an item that has been in the family for years, or accidentally broken a piece of much-loved china that had great sentimental value. These types of claims need sensitive handling.
Collectables are also prone to fraud. In some cases it is accidental, occurring largely because people have false perceptions of what their collectables are really worth; however, in many cases it is deliberate.
A typical scam is to claim for an item that was broken long before an insurance policy was taken out or report that an item is definitely a Lladro when it is, in fact, a copy.
Fake makers' marks are common. For example, many items appear to be in circulation with forged Crown Derby and Clarice Cliff factory marks. So what should insurers do to make sure collectables claims are handled fairly and effectively? Post-loss validation is a critical first step. In the past, the rule of thumb was more or less to pay out whatever the policyholder asked for to avoid confrontation. While this lack of scrutiny might have led to an average inflation of 25% to 30%, the real difficulty for underwriters is that it encouraged dishonest and fraudulent claims while penalising honest customers.
One way of weeding out fraudulent claims is to insist on seeing the damaged items. This not only allows claims-handlers to establish whether a collectable is a fake or has been damaged in antiquity, it also prevents the item from becoming the subject of a future fraudulent claim.
In one case handled recently, a policyholder claimed for an antique punch bowl. The customer submitted a pre-breakage valuation from 1984 at £1800 and a post-breakage valuation for £2750. At first glance this seems a reasonable sum, yet when the bowl was examined as part of the validation process it became clear it had previously been restored and repainted to hide the damage, rendering it virtually worthless.
One settlement option that is becoming increasingly popular with policyholders is replacement. Here the widespread use of the worldwide web and e-mail has revolutionised the way insurers settle claims. With thousands of dealers advertising their wares on the internet, specialist claims-handlers can use their knowledge and expertise to search the world for replacement goods, using digital imagery to show policyholders, via e-mail, what is available.
Perhaps not surprisingly, replacement goods are popular with claimants and insurers alike - recent research shows that some 50% of policyholders are happy to have their items replaced. This settlement method also benefits insurers, allowing them to take advantage of substantial purchase discounts.
If a collectable has particular sentimental value, however, having it repaired or restored by a specialist might be the most appropriate option.
Items typically repaired include ceramics, silver, bronze sculpture and paintings.
It is even possible to recreate items - a rare lattice-work creamware bowl dropped by an elderly policyholder was recently remade by Wedgwood.
Hearing that the bowl - a present from her late husband - had been irreparably damaged, Wedgwood made an exact replica, a process that took four months.
Not surprisingly, the policyholder was delighted. In a case like this, no amount of money would have compensated for the loss.
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