Embroker Team September 6, 2022 7 min read

What is Third-Party Crime Coverage?

Man shrieking as employee steals large bag of money from workplace and he lacks third-party crime coverage

Third-party crime coverage will protect your business if it suffers direct losses due to criminal activity carried out by someone outside your company. To qualify as a third party, the perpetrator can’t own or be employed by the business, nor can they serve as the executive shareholders of the company. 

Securing the right commercial crime insurance is crucial for companies of all sizes. Even if you haven’t had any exposures thus far, crime-related losses are more common than you might think. 

Employee theft is definitely the most common type of crime that can affect your business, with 75% of employees admitting that they have stolen at least once from their employer, according to recent studies. 

However, while such first-party criminal acts are both common and expensive, the damage they cause often pales in comparison to what parties outside your business can do, especially when we’re talking about professional criminals. 

According to a Global Application and Network Security Report, the average recovery cost from a cyber attack now exceeds $1 million per occurrence. In addition, almost a third of small businesses suffer losses due to fraudulent activities. And according to the 2018 Sensormatic Global Shrink Index Report, customer theft accounts for 35.55% of losses in companies of all sizes. 

Companies can lose considerably more than just money and securities as a result of criminal activity. A business could lose customers and suffer reputational damage if it falls victim to a highly publicized crime. 

Also, the emotional impact of crime on employees and owners shouldn’t be overlooked. It can be tough to recover from the feelings of anger and helplessness that can result from witnesses or playing any type of role in a serious crime. A preferred commercial crime policy could pay for counseling and support if you or your employees are traumatized by a robbery or violent criminal events. 

For a quick but thorough overview of the protection a crime policy can provide, check out this video:

Sometimes the damage and disruption caused to a business’s operations can be too much to recover from, forcing the company to close its doors. Insurance can protect you from monetary loss as a direct result of first and third-party crime, as well as against indirect losses.

Who Needs Third-Party Crime Coverage?

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Any business could be victimized by crime. This means that most companies will be well served by a strong crime policy, as it’s a simple and relatively affordable way to transfer the risk of theft and manipulation to the insurer. However, some businesses are more exposed to third-party crime than others. 

If you have large quantities of cash on your premises or costly equipment in the office, you may be a tempting target for criminals. Also, businesses that have multiple vendors and large numbers of invoices coming in are more likely to be targeted by con artists. 

Additionally, companies that deal with digital transactions or store valuable customer data on their networks are particularly vulnerable to cybercrime and data breaches. However, keep in mind that a third-party crime component of your crime policy will only cover certain aspects of these attacks, which we’ll discuss later. To fully protect your data and networks, you’ll need to purchase a cyber liability policy as well. 

A common question businesses have when purchasing crime insurance is whether they are covered in the event that independent contractors or freelancers commit a crime against them and how these types of workers are classified within a crime policy. 

Independent contractors are not considered employees and will not be covered by first-party crime coverage. If they steal from your company or are involved in criminal activities, you’ll need third-party coverage to be protected. 

What Will Third-Party Crime Coverage Protect You From?

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To help you further understand if your business needs third-party crime insurance and how much coverage you’ll need, let’s break down what it will protect you from:

Forgery or Alteration: If a third party forges or alters checks, drafts, or promissory notes and causes financial damage to your business, third-party crime coverage will reimburse your company for such losses. In addition, if such deception is used to direct the business to pay a certain sum of money on fraudulent grounds, you’ll be protected. Preferred third-party crime coverage will also protect the personal assets and accounts of the company’s executives from business-related criminal acts. It will also cover forgery related to credit, charge, and debit cards.

On-Premises and In-Transit Theft: If someone outside your business commits theft of money or securities located on your business premises, a crime policy will cover these losses. Typical wording on the policy will be along the lines of “physical destruction, misplacement, or mysterious unexplainable disappearance of money and securities.” Additionally, money and property you hold in a bank will also be covered, even though it’s technically not located on your premises. 

The insurer will reimburse you for property damaged during a criminal act, including security equipment, such as cameras, locks, safes, or cash registers that may have been damaged. 

Third-party crime insurance will also protect your business from the theft of money and securities while in transit. For example, if your money ends up being stolen from a delivery service, from an employee transporting it, or from a dedicated cash transport company, the insurer will reimburse you. 

Paper Currency Fraud: If you accept counterfeit money in exchange for products or services from a third party, your crime insurance policy will reimburse you for that amount. Also, if you accept a money order issued or purporting to have been issued by any post office or bank in good faith, and the order is not paid out, the policy will protect you.

Computer Fraud and Funds Transfer Fraud: No matter how much you’ve invested in your company’s cybersecurity plan, cybercriminals will always look for ways to compromise your business’s data and networks. The insurer will indemnify the company if a third party commits computer fraud and causes loss of money or securities. However, there are strict limitations to coverage for computer-related risks in the scope of a crime policy. First, it will only cover particular cases so as not to overlap with what a cyber liability policy would cover. Second, a crime policy will only cover losses that result from the use of a computer to fraudulently transfer funds from inside the business premise or the insured’s bank to an outside party.

Third-Party Crime Coverage Exclusions

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It’s crucial for businesses to understand what won’t be covered by their third-party crime policy so that they either supplement their policy with additional insurance or strive to protect themselves through other risk management methods

The most crucial aspect that’s not covered is the loss of income due to your interrupted operation. Your business may need to close for days or even weeks after discovering a crime in order to investigate the exposure, improve security, or repair damaged property. Crime insurance will help reimburse you for the losses caused by the crime, but not for the income lost due to the downtime. 

This is where a business interruption policy would come in handy and ensure that you won’t have to worry about whether you’ll be able to cover rent and payroll while your doors are closed. 

Additionally, if a third party suffers losses directly related to the theft of your business’s money or property and they sue you, your crime insurance policy won’t protect you from liability.

Keep in mind that a typical business crime insurance policy is written on a “named perils” basis, which means that a loss must fall within one of the categories of a crime specified in the policy to qualify for coverage. This means that if you’re an unfortunate victim of very creative criminals, you may end up without coverage. 

However, most policies cover a vast array of perils, and crime insurance has been around for a very long time. Therefore, it would take extraordinary criminals to come up with something that your policy won’t be able to cover. 

Your third-party crime insurance policy also won’t cover the expenses of compiling proof of loss unless you specifically add claims/investigative expense coverage.

It’s also important to note that crime insurance will only cover a limited number of computer crimes, resulting in financial losses. 

For instance, social engineering attacks, which are criminal activities and are carried out by third parties, won’t be covered by commercial crime insurance. We really can’t reiterate enough how important it is to also purchase cyber liability insurance to ensure that you’re protected from cyber exposures. 

Cyber insurance will cover both the legal costs and possible settlements that you’ll need to pay related to third-party losses that resulted from a cybercrime that targeted your business. It will also reimburse you for the losses you suffered and even help pay for upgrades to your cybersecurity.  

Working with the right broker and securing sufficient coverage at the right price will ensure that even if criminals cause considerable damage to your business, you’ll be fully protected and compensated, allowing you to keep going without suffering potentially crippling financial losses. 

If you want to understand your third-party crime insurance needs better, you can reach out to one of our expert brokers at any time to secure the right coverage.


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