Blockchain can help insurers manage the shift in specie and jewellery exposures

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12/07/2018

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The press has been awash with stories of gangs on mopeds smashing their way through windows of high-end luxury jewellery stores. Only two months ago did a gang on mopeds smash its way through a designer watch shop branding machetes on Oxford Street, London. The gang in question managed to make off with tens of thousands of pounds worth of watches. In recent years, this has been a common problem with jewellers and designer fashion brands being the target.

When did the trusty scooter become such a menace?

The Metropolitan Police received 22,025 crime reports linked to mopeds in the period May 2017 to May 2018. This is an incredible figure and one that requires insurers to take stock as to whether insurance policies are fit for purpose.

There has been a significant change from the traditional moped theft of mobile phones to the much higher profile smash and grab of high-end jewellers.

What type of cover is available?

It is questionable whether standard fine art and specie policies are sufficient to protect both the insured’s and the insurer’s position. On the one hand, the insured needs to make sure such smash and grab crimes are covered, however, from an insurer’s point of view, insurer’s need to be specific in stipulating explicit security requirements.

It is clear that insurers need to consider the security requirements necessary when providing insurance for high-end retailers and jewellery shops. For example, is it now, perhaps, reasonable to demand that all premises have in position security guards? 

With the consolidation of the insurance market it is certainly hardening and insurers are becoming more demanding in respect of loss prevention. For example, recently, the security company, StoneHawk has rolled out ‘smash and grab’ training for jewellery, watch, pawnbroking and high end retail sectors, such as Westfield and Hatton Garden jewellers. The course not only includes security training in terms of reducing the loss of stock, but also how to preserve evidence for the police investigation. 

Perhaps in the future such training requirements will be written into policies.

Insurers are proactively considering risk management issues to ensure that the insured carries out sufficient risk and loss management assessments. Underwriters will be looking for particular and increased security measures such as:

  • Security guards: perhaps even 24 hour guards depending on the inventory
  • 24 hour monitored security cameras
  • Reinforced exterior to the premises
  • Bollards preventing vehicles from reaching the premises windows.

Insurers must also bear in mind the changes brought about by the Insurance Act 2015. If security requirements are going to be written into policies, and insurers wish the insured to fully comply with such requirements, then insurers should make the requirements warranties. 

The now, not so new, Insurance Act 2015 provides that warranties are “suspensive conditions” which means that cover will be suspended until the breach is rectified.  Therefore, if the policy stipulates a warranty that the premises will have a particular alarm system in place, and that alarm system has a period where it is not working, cover will be suspended until the alarm system is back up and running. Insurers must, however, remember that the Insurance Act 2015 makes it clear that where a breach of warranty is irrelevant to the loss in question, insurers can no longer decline cover. 

Is Blockchain the answer?

In recent months, “Blockchain” has been portrayed as the saviour of everything that is wrong in the insurance market. Blockchain may, however, have the answer when it comes to risk prevention.

Companies such as Everledger, TrustChain and Tracr are leading the way when it comes to Blockchain in the diamond industry. One senior vice president for a leading diamond retailer commented that Blockchain has the potential to revolutionise the diamond industry by providing a system to record when diamonds move along the chain. This not only provides a platform for sellers to validate the source of the diamonds they are selling, it also provides a buyer with the assurance that the diamond is conflict free.

In a recent discussion with the creators of a leading Blockchain startup it was suggested that the use of technology in the diamond industry will be more of a necessity than simply a choice.

It is, therefore, conceivable that the market will develop as such that insurers may start to place a requirement within the policy that diamonds must be uploaded onto the Blockchain platform. In turn, this may deter thieves from targeting certain retailers that advertise that the retailer uses such a registration system. Resale of the stolen diamonds would of course be much more difficult.

Therefore, Blockchain provides a form of loss prevention that can be written into policies.

What is next?

Insurers are becoming increasingly aware of the risk of underwriting fine art and specie policies. Policies will need to be adapted to cater for changing risks, such as moped crimes, and resort to loss prevention methods, such as Blockchain, that would have previously never have even been a consideration.

Insureds can certainly expect to have more demanded of them when it comes to placing such risks. This article was first published by Insurance Day on 6 July 2018.

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