Commercial Crime insurance can help protect your company from significant losses caused by both third parties or internal employees. It provides coverage for loss of money or other assets against theft, fraud, forgery, burglary, and more.
First-party coverage protects your business from its own losses that occurred as a result of some type of criminal activity. Third-party coverage protects your business if another business or entity claims that a criminal act perpetrated by your business caused them direct losses.
Although strong internal controls, audits, and a good outside CPA firm can greatly reduce employee theft, even the most vigilant companies have sustained significant multi-million dollar losses. According to a recent report, companies around the globe lost an estimated $4 trillion to fraud in 2017. The right crime policy can safeguard your business from the risk of corporate asset theft to more sophisticated computer and online schemes.
We advise our clients to consider crime insurance because it’s a simple risk transfer mechanism for theft and manipulation.
Businesses that do the following are more exposed to petty theft:
Companies that deal with the following are more exposed to digital theft and manipulation:
In order to mitigate this risk, businesses buy insurance directly related to crime. Losses related to criminal acts can be frustrating and costly. In the digital age, manipulation and digital crime can be disruptive and this simple line of insurance can help.
Let’s take a look at some of the most common business crimes that are committed in order to better understand why businesses should acquire a versatile crime policy:
The type of employee theft that your business is most exposed to will depend on your industry. For example, retailers need to be very aware of shoplifting. According to a FaceFirst study, 36.5% of inventory shrinkage is caused by shoplifting and other types of organized retail crime. In many cases, employees will collaborate with external entities in order to orchestrate shoplifting tactics.
Other more obvious internal types of employee theft include things such as embezzlement, information theft, larceny, and skimming. Employee theft can be as simple as taking money from the cash register when no one is looking and as complicated as forging signatures, inflating expense reports, and funneling funds through fraudulent accounts.
An employee feeding sensitive information to competitors in exchange for money or other assets can also be considered a type of employee crime.
One common misunderstanding regarding crime insurance is related to computer fraud. Commercial crime insurance will often cover losses in which employees or third-party hackers committed fraud or theft via computers, but crime insurance will typically not cover losses as a result of data breaches. This is covered separately, under your cyber liability insurance policy.
If you’re concerned about digital theft, manipulation, and attacks, we encourage you to explore both crime and cyber insurance concurrently.
The biggest difference between cyber liability and commercial crime coverage is that a crime policy will cover your direct loss of funds while a cyber liability policy will cover the economic damage that results from data breaches and other types of cyberattacks that could lead to indirect financial losses.
At the most basic level, crime insurance typically covers dishonest acts like petty theft and funds transfer fraud committed by part-time staff, volunteers or contractors, property damage, and burglary.
As the digital world has evolved, so has crime insurance. Now crime insurance can also cover digital crime, including theft of business information, money or property by hackers or con artists.
This often includes acts of forgery, and any instances of counterfeiting and impersonation that can do harm to your business.
For more examples of coverage, read our full article on commercial crime insurance claims examples.
Discovery vs. Loss Sustained Coverage Difference
An important decision to make when considering crime insurance is when do you want the policy to be triggered. There are two types of available triggers for the crime insurance policy: a discovery trigger and a loss sustained trigger.
A discovery coverage policy will provide insurance for losses that are discovered during the policy period. It doesn’t matter when the crime actually occurred, only when it was discovered.
Loss sustained coverage will only cover the losses that have both occurred and were discovered while the policy was active. In addition to this, the policy will typically allow for an extended discovery period of up to one year, during which a loss can be discovered and reported.
When trying to decide on a policy with a discovery trigger, keep in mind that crime losses may take a long time to discover and can occur over an extended period of time.
As is the case with every type of insurance policy, there are common exclusions in crime policies that limit coverage.
Some of the most common crime insurance exclusions include:
However, there are certain things that can be covered through a variety of enhancements and endorsements that can be added to your crime policy such as licensing violation fines and identity fraud expenses.
As always, the best course of action is to talk with an experienced InsureCert broker to discuss your needs and all of your coverage options when putting together a crime policy that’s right for your business.
As with all other types of insurance, companies price fidelity bonds and related policies according to business risk and crime coverage amount.
Some common risk metrics include:
Insurers also consider whether the employees work at the same location or at multiple offices.
Companies with high revenue streams generally are more tempting targets for malefactors and have more to lose. Underwriters like to see some basic safeguards, such as a few strategically-located and unobtrusive cameras. Underwriters also like to see that there are financial controls in place to protect against manipulation. A working prototype of a satellite stored in your office would be high value and could drive premium up significantly.
Businesses looking to save money on commercial crime insurance may look to add coverage to other policies through endorsements. Smaller businesses may add it to their BOP or directors and officers policy. Standalone policies will offer more comprehensive coverage and higher limits but will cost more.
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A former senior manager at FoxConn, the world’s largest electronics maker and assembler, was charged with stealing and selling 5,700 iPhones for a value of about $1.56 million.
The Sixth Circuit appeals court found that American Tooling Centre’s loss of $834,107 due to email spoofing was covered by their crime policy.
Medidata employees were “spoofed” into wiring $5 million to an account they were led to believe was for an acquisition by a series of fraudulent emails that the fraudsters misrepresented were from an outside attorney and Medidata’s own president.
In May 2018, Happy Egg Co. of Rogers discovered that they were scammed out of nine payments totaling $972,500 that were re-routed via a change-of-account email from a purported employee.