Crime Insurance Guide

What You Need To Know About Crime Insurance

This may come as a surprise to you, but 76 percent of employees report that they have personally observed questionable behavior or even overtly illegal acts at work during the last twelve months. That could include everything from downloading proprietary information and selling it to a competitor, to falsely reporting a broken laptop and ordering a new one.

These risks are magnified if your business has multiple locations or allows people to work remotely, and these days — that’s pretty much everyone.

Of course, even if you install one of these screens in each office or chain everyone to their desks, some degree of employee dishonesty, and therefore business risk, is almost inevitable.

Crime insurance policies protect you from exposure in these instances. Together with Third Party Crime, these policies also cover internal theft of client property, even if that property is personal information or other property without a direct monetary value.

What is a Crime policy?

The average bank robber steals a little over $3,000 in cash per attempt, but the average dishonest employee hacker steals over $24,000 per attempt, and that amount could double or even triple in the coming years. So, going with a substandard Crime Insurance policy is a very big risk.

In addition to computer theft, most crime policies also guard against many other fraud/dishonesty losses, including:

  • Funds transfer fraud: instant worldwide fund exchange has put new life into old schemes, such as payments to dummy vendors.
  • Forgery: a false signature on a contract or agreement could potentially trigger millions of dollars in liability exposure.
  • Employee theft: many businesses issue company credit cards, keep rather large amounts of petty cash on hand, or have valuable property with ready buyers on the dark web.

The level of theft insurance coverage mainly depends on premium payments. And, as a rule of thumb, the higher the coverage, the greater the peace of mind. Most companies would have problems dealing with even one major commercial crime incident, because these events consume lots of money and time.

Who needs Crime insurance?

To answer this question, consider the following examples:

  • ABC Co. is a profitable enterprise that hasn’t updated its fidelity bond in quite some time, and feels that upgraded fidelity bond coverage would be too expensive. In the case of ABC Co., a cybercrime incident may cost a few hundred thousand dollars, and in the “bring your own device to work” world, the risk is simply too significant to write off. Therefore, a crime insurance policy can help cover the risk associated with these situations.
  • Business has not been too good at DEF Ltd., a company that showed a healthy profit just a few quarters ago. Therefore, takeover and buyout rumors have been making their way around the office lately, and according to some of them, a move may be announced within the next few weeks or months. In this case, without a crime insurance in place  even a small theft incident can make a potential buyer to think twice before signing the buyout documents.
  • HIJ, LLP is the dictionary definition of “well-established law firm” — the head accountant who's been with the firm for ten years is still the new kid on the block. Mr. J, whose ancestor founded the law firm a couple of centuries ago, believes there is little need for a Crime package policy because the firm’s risk is so low. Unfortunately, the truth is that putting the company’s faith in the people is not always the smart choice; and occasionally the trusted accountant who has devotedly served the company for eons might have been embezzling funds for eons as well.

These examples and ones like it can make your business a victim of dishonest acts, and may cause your business to suffer large losses as a result of criminal acts. In this situation, a Commercial General Liability policy may not cover these losses, but are specifically covered under the Crime insurance policy.   

Commercial crime insurance examples

  • 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.
  • A recent report identified that United States retailers are losing $60 Billion a year to shrinkage, up from $57 Billion in 2014. Additionally, the US Retail Fraud Survey identified employee theft as the single biggest cause of loss to retailers.
  • Wells Fargo was fined $185 million after it was revealed its employees since 2011 had created around 2 million unauthorized banking and credit card accounts to meet sales goals, charging customers fees on accounts they hadn't asked for and may not have known existed.

Commercial Crime insurance coverage

Most of these policies cover employee-related theft or fraud, but they don’t protect against third-party crimes, owner errors, or accounting mistakes. There are separate business insurance policies, such as Errors and Omissions and Cybercrime policies, that protect against these exposures.

Fidelity bonds often relate to employee pension plans; these bonds are typically required under the Employee Retirement Income Security Act. Note there’s a difference between first-party bonds that cover employee fraud (typically, “employee” also means contractor, intern, or consultant in this context) and third-party bonds that apply in the event of a third-party crime.

How much does Crime insurance cost?

As with all other types of insurance, companies price fidelity bonds and related policies according to business risk and coverage amount.

Some common risk metrics include:

  • Number of Employees: insurers also consider whether the employees work at the same location or at multiple offices.
  • Revenue: as mentioned earlier, companies with high revenue streams generally are more tempting targets for malefactors and have more to lose, but that’s not always the case.
  • Office security: underwriters like to see some basic safeguards, such as a few strategically-located and unobtrusive cameras as well as a robust antivirus software that lets owners monitor employee website visits.
  • Irreplaceable items: a rare coin collection might impress potential clients, but it may need a new home outside the office reception area.

As for coverage amount, it is usually best to work backwards when considering a Crime insurance policy. Think about how much you can afford to lose, and then make sure your fidelity bond policy gives you at least that much coverage.

Summarizing Commercial Crime insurance

For various reasons, many large business operators are oblivious to the risks that the firm faces in terms of internal wrongdoing like employee theft and fraud. But the risk and potential liability are too big to ignore.

Chat with us to learn more about your Crime insurance needs. An experienced commercial insurance broker can find a policy that’s tailor made for your business, giving you the confidence you need to get things done.

Rather than being elusive and forcing terrible paperwork on you, our brokers make insurance quick, simple and painless — thanks to cloud-based technology and partnerships with many of the top-rated insurance carriers in the country.

Get started with now with zero upfront commitment.

P.S. Check out our blog or our Insurance Guide Section to learn even more.