Insurance Fraud and Replica Watches

It is one of the cleanest, easiest, and most difficult to detect insurance fraud schemes I have seen since my days working with the Special Investigations Unit (SIU) at USAA insurance. And at the United States Gemological Institute, we consider it part of our Commitment to Cause to investigate and report on jewelry industry related fraud that negatively impacts the jewelry and insurance industries as a whole. Today, rather than offer a long rhetorical description of this thing, I am just going to let the pictures speak for themselves. I urge all insurance underwriters, adjusters, and claim managers to pay close attention because it is highly probable that you have had one of these cross your desk without your knowledge. Here is the story in pictures.

I have owned the Rolex Submariner you see here for 43 years. I am told it is now considered a Vintage Rolex. I got it on my 30^th birthday so based on that scale it appears that I am now an antique, but the watch and I are both working fine so what are numbers really worth? Right? For now, suffice to say that between having worked for one of the highest volume Rolex dealers in the United States, and wearing one for 43 years, I know Rolex Submariners pretty well.

This is why I was quite surprised to see these “replica” watches being advertised on Facebook. Particularly at a time when Facebook was supposedly cracking down on the wrongful use of trademarked names, such as watches. I noticed that the Rolex Submariners for sale looked extremely authentic. I also knew that what they were doing was directly violating the intellectual property rights of the luxury watch brands. Sure, they were being openly disclosed as “replica” or “clone” watches, but they are still violating the trademarks and designs of the watch companies.  However, it was a very sinister side that  was lurking beneath the surface that insurers need to know about. So, I purchased one of these watches…

When I received the box it was very impressive with Rolex names, logos, and styles on all packaging. This is the problem. If I had purchased this to sell to someone who did not know Rolex that well, it would be a very convincing, but very fraudulent, sales presentation.

The Watch: The watch inside was, for all practical purposes, a perfect replica when viewed from the face. Comparing it to my Submariner and other confirmation images from Rolex, to the undiscerning eye this was indeed a Rolex Submariner.

The Clasp: It is amazing to see the detail that someone went to in order to replicate this fake Rolex Submariner. While the operation of the clasp was an easy “tell” a true Rolex owner, it was still a very, very convincing replica.

The Movement: The manufacturers of this watch went as far as to put a Japanese Miyota 21 jeweled, self-winding watch movement inside, as seen below.

The Receipt: Here is where the insurance fraud comes in. With this watch I got a very official paid receipt from the Switzerland Jewellery Watch Company on Kings Road, Hong Kong for HK$88,000.00. In current U.S. dollars that is US$11,323.94 at today’s exchange rate. This receipt says I paid US$11,323.94 dollars for this Rolex Submariner despite having only paid $225.00 for the watch. I can take pictures of this watch, along with the sales receipt, get a Personal Article Floater policy for $11,323.94 and wait a few weeks, report a mysterious disappearance, and get myself a hefty $11,100.00 profit from the insurance company on a watch that actually cost me $225.00. Doing this 4 or 5 times a year I can make a fairly decent living off  of insurance fraud that is very, very difficult to investigate by SIU.

Below: “Replica” Audemars Piguet Royal Oak easily available on the internet. Most all luxury watch brands are the victims of this fraud. 

What the insurance underwriters and adjusters can do:

1. Be suspicious of any major watch purchase originating out of China for high value watch policy applications. Based on my investigations this is the major source of this chicanery. Verify watch models, serial numbers, and brand designs.
2. Deny coverage unless and until the insured can provide verification of authentic origin of the watch, whether purchased new or used. The burden of proof of authenticity is on the insured regarding this issue. Require an authentic dealer inspection to verify the origin before binding a high 5 or 6 figure coverage policy.
3. Ask for independent verification on high dollar watch policy applications. After all, you do not insure expensive cars without proper documentation. Many times, these watches are as expensive a luxury cars.
4. Claims adjusters should require the insured to file a Loss Report with the local police department on all high value watch claims. Filing a fraudulent loss report with the police department is a felony in most jurisdictions. (as is filing a false insurance claim) An insured trying to pull a fast one on you will be hesitant to fulfill this requirement. Stick to your guns on this one. I have seen it stopping many false claims over the years.
5. Do not be afraid to issue a denial of claim based on additional information requirement. If you find that one of these replica watches got through underwriting, be proactive in investigating if you find receipts like the one above in the file. Had this been an Audemars Piquet Royal Oak, for instance, we would be talking about US$60,000.00 and not $11,000.00. Carefully review all documents in high dollar watch claims.

Clearly, these “replica” watches present blatant violations of the designs and trademarks of the luxury watch companies. It is astounding to me not only that they are so flagrantly advertised on Facebook, but that they are also allowed to be shipped into the United States. It is unknown how many insurers currently have policies on the books for these counterfeit watches, or how many hundreds of thousands of dollars in fraudulent claims have been paid. The only we do know is that this is an issue that needs to be addressed.

These are not “fun replica watches” as I have heard from a few. When people complain to me about why insurance premiums continue to rise…I just show them this fake Rolex Submariner and the very authentic looking receipt for US$11,323.94. 

Robert James FGA, GG
United States Gemological Institute
Global Claims Associates
Property and Casualty Adjuster, Texas Department of Insurance #1300433
Member: National Association of Independent Insurance Adjusters
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