Mrs B was very upset when her Blackrock, Co Dublin, home was burgled and her jewellery stolen. In particular, a valuable ring, made by Tiffany's in New York, with great sentimental value was taken.

Despite providing previous estimates of the ring's value from a leading Dublin jeweller, Mrs B's contents insurer, AMEV, reduced the value of the claim first by 20 per cent, and later by 10 per cent, on the grounds that jewellers will replace items at discounted rates when offered cash.

"The policy said nothing about applying discounts to valuations," writes her husband, "though my broker tells me that this procedure is common. My wife was in New York this year and called into Tiffany's who thought the idea of a 10 per cent discount for cash quite quaint, to put it mildly.

"It seems the height of impertinence that companies who invoke the averaging clause to reduce payments to those deemed to be under insured, should invoke the culture of the bazaar to reduce payments to those not under insured."

After corresponding with the company, and not wishing to waste any more time arguing, Mr B reluctantly accepted the 10 per cent reduced payment as settlement of the claim.

However, according to the company, a "cash-value deduction" settlement offer does not disadvantage the customer, since the purpose is to replace the item, old for new, not to necessarily achieve the exact valuation price.

Cash-value deductions, where possible, are part of AMEV's standard claims' procedure, Family Money was told, and are commonplace in Britain where other settlement companies act as a middleman in providing valuation information to insurers and clients. One such company, the Loss Management Group (LMG), set up here last year.

"Lost and stolen goods accounted for 25 per cent of our claims payout last year," said Mr Paul Kearns of AMEV, "and anything that helps us to cut our costs has to be considered."

The system works this way: a policy-holder reports the theft of a television, stereo or jewellery. The company checks the year and make of the item or the description and estimate of the jewellery with selected retailers. Those retailers offer the insurance companies a cash discount if they agree to replace the item at their shops. No cash changes hands if the customer agrees to the insurance company purchasing the replacement item and delivering it, but customers receive cheques, minus the discount, if they prefer not to replace the item or alternatively to buy it somewhere else.

The same procedure applies in the case of jewellery, though this can become more complicated, if the stolen piece is unique, handmade or if the stones are rare.

AMEV will still contact the jeweller who has provided the estimate to see if it can and will give a cash discount to replace the item, and most will do so. Watches, for example, are usually the easiest and quickest items to replace. "Jewellery mark-ups can be as high as 100 per cent," says Mr Kearns, "and most jewellers are quite happy to provide a 10-20 per cent discount to us for a cash purchase."

He conceded that Tiffany's may not take such a view, "but they are probably among the few in a position where they don't have to".

AMEV admits it has pioneered this cash-value deduction system here and believes others will follow suit if they are not implementing it already.

Family Money spoke to a spokeswoman for AIB's new home-cover policy, which the company has introduced with Guardian PMPA, and she insisted that such discounting did not apply to its contract and that customers would receive old-for-new benefit for all stolen items except standard ones like clothing and bed linen.

The cash-value deduction procedure may not be ideal but, say the companies that support it - it is designed to keep down insurers' costs, despite the additional administration work involved, and to replace the item rather than simply pay over a cash benefit.

For the policyholder, the important thing is to ensure that the "new-for-old" principle is adhered to and to resist any effort to replace the stolen or lost item with a less valuable one.

It also reinforces the recommendation that all valuables be properly identified (by written description, invoice or photograph) and their value reassessed every few years.