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Employee theft is an unfortunate reality that business owners need to seriously consider and prepare for, no matter how unpleasant it may be. These are the facts:
- 75% of employees admit to stealing at least once from their employer.
- Employees cause 90% of all significant theft-related losses.
- Workplace crime costs businesses in the US an estimated 50 billion per year.
- A typical fraud case lasts 14 months before detection and causes an average loss of $8,300 per month.
- Nearly 5% of global revenue is lost to fraud, with operations, accounting, upper management, and sales departments responsible for almost half of the cases.
- One-third of all business bankruptcies were caused by employee theft.
Bottom line; employee theft and fraud are both widespread and extremely costly for businesses of all sizes. However, there is some good news for business owners worried about the crime-related losses caused by their employees who are looking for a way to mitigate these risks.
Employee dishonesty coverage, written under a commercial crime policy, offers substantial protection for most forms of crime committed by your workers. The coverage is not only extensive but is also fairly affordable when taking into consideration the number and cost of potential exposures from which it can safeguard your business.
To help you better understand how to protect your business from employee dishonesty, let’s go over exactly how crime insurance works in these situations, what exposures it will cover, what exclusions you can expect, and how much it will cost.
Employee dishonesty coverage (also called employee theft insurance and employee dishonesty insurance) is meant to protect your business from financial damage caused by criminal acts committed by one or more employees. This includes criminal acts such as:
Theft of Money or Securities: If employees steal money or securities from your business, whether by simply taking cash or conducting unauthorized transfers, the employee dishonesty coverage will fully reimburse your company for all related losses.
Forgery and Alteration: You’ll be covered in the case that any of your employees forge a check, draft, or promissory note to gain financial benefit at your company’s expense. Also, if you give your employee a check to cash and they alter the amount to steal from you, you’ll be covered. If you entrust your employees with access to check or bank accounts, this coverage is essential.
Credit Card Fraud: Whether one of your workers misuses a credit card that belongs to a customer or fraudulently charges one of the company’s credit cards, the financial and reputational damage can be severe. A preferred policy will cover all losses related to credit, charge, and debit cards.
Embezzlement: Employees entrusted with access to the company’s funds have a fiduciary duty to safeguard those assets and ensure they are used as intended. If they convert the funds for personal use, they can cause serious harm to your business. The right crime insurance policy will protect your company from expensive losses of fraud and embezzlement.
How Employee Dishonesty Policies Are Written
There are two types of employee dishonesty insurance policies: loss sustained and discovery base. The difference between the two lies in how the policies are triggered and what each will cover.
A discovery base policy will only reimburse the business for losses discovered during the policy period. This means that it doesn’t matter when the actual criminal act occurred, only when it’s discovered.
A loss sustained policy will cover the losses suffered during the time the policy is active. A preferred policy will also allow for an extended discovery period of up to one year, during which it will still provide coverage.
Employee Dishonesty Coverage Exclusions
Although employee dishonesty coverage is fairly broad, there are still some exclusions that you should consider before securing a crime policy:
Volunteers: Under the standard terms of a crime insurance policy, volunteers won’t be considered employees and thus won’t be covered. This is a particular concern for nonprofit organizations and government entities, as volunteers will typically make up a significant portion of their workforces and have extensive access to funds. However, it is possible to add coverage for volunteers as an endorsement to most crime policies. With the endorsement, volunteers will be treated the same as employees, with all the typical terms and exclusions applying.
Business Interruption: Criminal acts committed by your employees could cause significant disruption and damage to your operations. Sometimes you’ll even need to shut down for a certain period in order to recover. Keep in mind that employee dishonesty coverage will only reimburse you for the losses caused by the act, but it won’t help you recover the income lost due to the interruption. This is why having a business interruption policy is essential to ensuring that the expenses (lost revenue, rent, payroll, etc.) incurred during the shutdown won’t cause you to close your doors permanently.
Unreported Crimes: Most employee dishonesty policies will require that you report the crimes committed against your company to law enforcement. Additionally, you’ll need to bring forward charges and cooperate with any official investigations if you want to be reimbursed for theft or fraud damages.
Employees with Criminal Histories: If any of your employees have a history of theft (either from your business or at a previous job) and you’ve been made aware of it, they won’t be covered. If you know that an employee has stolen from you and you forgive them and allow them to keep their jobs, the insurer will not cover you if they steal from you again.
Inventory: If you can prove that an employee has been stealing inventory, the policy will respond to cover your losses. However, if you discover inventory losses later and can’t prove that a crime has occurred, the insurer won’t consider the loss to be crime-related.
Employee Dishonesty Bonds vs. Crime Insurance
Employee dishonesty bonds are a type of fidelity bond that will protect you from the criminal activities of your employees. An employee dishonesty bond will cover most types of employee theft, including attempts to steal securities, money, or property.
While very similar to a fidelity bond, employee dishonesty coverage under a crime policy will typically offer considerably higher limits and broader coverage. On the other hand, a fidelity bond will be significantly cheaper, making it a more attractive option for smaller businesses.
If you want to learn more about the difference between fidelity bonds and crime insurance, you can check out this in-depth guide.
How Much Will Employee Dishonesty Coverage Cost?
The question of crime insurance cost is fairly complex as there are numerous factors related to the particularities of your business, your insurance needs, and your industry that will affect the cost of coverage.
The most important factor is undoubtedly the size of your business. The more employees you have, the higher the chance that one of them commits a criminal act against you. The same can be said for your revenue. The more money that’s available to be stolen, the more you’ll have to pay to adequately protect it. Businesses with many employees and significant revenue will have to secure higher limits in their crime policies, driving the price of coverage up for them.
Insurers will also consider your financial controls and security protocols before quoting you. The more careful a business is, the less it’ll have to pay for crime insurance. Having robust procedures for handling money, deposits, checks, and transfers will go a long way in reducing your premium.
Additionally, businesses with a history of crime-related claims will be seen as higher-risk clients and will be charged considerably more for insurance. If you want to learn more about how much you’ll have to pay for employee dishonesty insurance, you can read this article on the cost of crime insurance.
Working with an insurance broker to secure the right amount of coverage for your needs at the right price is crucial to ensuring that your business is fully protected and insulated from potentially expensive cases of employee dishonesty and theft. If theft happens to your business, make sure you know how to conduct an employee theft investigation.
If you want to better understand your employment dishonesty coverage needs, reach out to one of our expert brokers at any time.
What does a commercial crime policy cover and what do crime insurance claims typically look like?