An increasingly common occurrence during the last 12 to 18 months in the wholesale diamond industry has been the reporting of third party infidelity losses.
In a repeat of previous cycles it has become apparent once again that when economic pressures drive the market down, some individuals find themselves exposed to debts they cannot manage and try to trade themselves out of the situation they face by using goods on consignment to hedge their position.
Often the root cause lies outside the diamond industry - a property deal gone wrong, investments in currency markets that don't return. Unfortunately we have seen a number of scenarios that have resulted in losses to the consignors of diamonds when this occurs and on several occasions these have not been covered by insurance policies.
Whilst the overall numbers of those defaulting on their obligations to consignors is small in comparison to the world trade, the numbers involved can be significant enough to cause real damage to your company.
So what can you do to protect yourselves from these situations?
Increasingly insurers are hesitant to offer coverage against such risk unless they feel that their insured is conducting proper due diligence on those that they are consigning stock to and it is important that your company maintain or adopt rigorous procedures to ensure that you are able to purchase coverage for what has always been one of the riskier areas of your business.
The trade is based on trust, much as the insurance industry is, but this does not negate the need to make sure that payment issues are followed up quickly and in line with company procedure.
When you take on a new partner, obtain references from your trusted parties in the trade, look into their credit ratings if you are able and once you are happy to proceed, ensure that payment is received prior to consigning second and third packages of goods. Ask about the insurance that your consignee has in place - request that you are given loss payee status on their policy if possible.
Not all losses that we have seen recently have occurred because an individual or company has fallen on hard times - there are obviously those who set out with the intent of stealing and who take small amounts on consignment, pay promptly and then ask for more goods, of higher value, steadily increasing the value and then disappearing with the final and largest consignment.
These are the circumstances that are harder to protect yourselves from and those that abscond leave you without a party to negotiate debt payment with, as the intent was never to pay.
We can protect you from such situations, and working in conjunction with your company and expert surveyors to ensure that you have procedures in place to mitigate both types of risk as best you can will enable us to promote you in the insurance market and obtain the broadest coverage available to insure your assets against such fraudulent acts.
For more information please contact Jonathan Clark, Senior Partner, Fine Art, Jewellery and Specie on +44 (0)20 7466 6271 or email firstname.lastname@example.org