If you want to protect your business from losses associated with employee crime, you’ll have to go outside your standard commercial property policy.
While theft of items from your business is usually covered under commercial property insurance, employee dishonesty and illicit removal of money and securities aren’t. To insure against these potentially staggering losses, you need commercial crime insurance.
Commercial crime insurance is a broad term. It refers to insurance or bonds that protect companies against dishonest employee actions, computer and fund transfer fraud, forgery and alterations, theft and destruction of money and securities, and employee theft of client property.
Computer fraud is a growing problem
Computer fraud is particularly important for small and midsize companies because criminals are heavily targeting this sector with phishing emails. These social engineering efforts include impersonation of financial managers and other attempts to fool employees into transferring funds to unauthorized people. Standard commercial property insurance does not cover financial losses stemming from these types of attacks.
Commercial crime policy versus fidelity bond
Though the terms “commercial crime policy” and “fidelity bond” are used interchangeably, there may be important differences. A commercial crime policy can help if someone outside of your company steals from you. This could be an embezzler, a burglar, a hacker or a counterfeiter passing bogus currency.
A fidelity bond focuses primarily on your employees. There are multiple types of fidelity bonds that make up commercial crime coverage, and some depend on the type of business you run. For example, financial institutions should obtain bonds designed for the banking or investment sector.
Companies outside the financial sector might be interested in a business services fidelity bond. This type of bond insures against employee theft of customer property. A company that has employees who go to client worksites or handle client assets can benefit from a fidelity bond that covers those workers. Imagine a case where a home therapist is accused of stealing jewelry or an accountant is charged with embezzling client funds.
If your employees stay on your business premises, you might want an employee dishonesty bond. This covers internal employee malfeasance.
Fidelity bonds can be written to cover all your employees. This is called blanket coverage. Or they can be written to cover just those with access to your financial accounts. Talk to us about the number of personnel you wish to cover, because this will affect your cost. It might not be necessary to cover all, or even many, employees. Note that owners, partners, directors and officers of a company are generally prohibited from being insured under a fidelity bond.
A fidelity bond is normally written to cover a set of named perils, such as embezzlement, forgery, etc. You will typically be given a choice of how your coverage is triggered: when the loss is discovered or when the loss is sustained. If your policy is triggered when the loss is discovered, it must be in force at the time of the discovery. If your policy is triggered when the loss is sustained, it must have been in force when the loss occurred.
When to report a loss
Understanding the term “discovery” is important. You don’t need to have all the facts or be able to prove a crime to trigger your coverage. If you become aware of facts that reasonably suggest a loss has happened, that is the time to report it. If legal action is taken against your company or a named insured for actions included in your policy, that also triggers your coverage. If you delay reporting and further crimes are committed, you could forfeit protection.
Understand that a conviction is usually necessary to validate a claim against a crime bond. Without that, the loss might not be covered since the perpetrator won’t have been proven to be a person insured by the bond or policy. Under a commercial crime policy, you may be able to secure coverage to help pay for a forensic expert. They can build a body of proof supporting the loss you are claiming. That is a beneficial component of a policy.
How do you get commercial crime insurance?
Your company can purchase a commercial crime policy or fidelity bond as a stand-alone product or as an addition to a commercial insurance package. Some business owners policies include crime insurance, while others allow you to add it as an option.
We can help you decide which insurer or surety company can best meet your needs. We can also help you secure the right product from a reliable institution.
You will need to consider how a new policy will dovetail with your other commercial coverages. For instance, you may also need an Employee Retirement Income Security Act (ERISA) bond or a fiduciary bond. These protect your company against failures in benefits administration or the handling of financial accounts. You will also want to see how much coverage your commercial property insurance provides for lost, stolen, or destroyed financial instruments, such as cash, checks, or other securities. It is usually minimal, so building that protection out may be advisable.
In the end, successfully protecting your assets will depend on having high-quality insurance and monitoring your financial accounts. While you can't always prevent crime, you can train your employees and institute custody protocols to avoid internal dishonesty.