Ing + McKee

What Is Commercial Crime Insurance?

March 22, 2024

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 coverage 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

The computer fraud angle is particularly important for small and midsize companies because criminals are heavily targeting this sector with phishing emails. These so-called social engineering efforts include impersonation of financial managers and other attempts to fool employees into transferring funds to unauthorized people. Financial losses stemming from these attacks are not covered by standard commercial property insurance.

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 your funds are stolen by someone outside of your company, such as an embezzler, a burglar, a hacker or a counterfeiter who passes your company bogus currency.

Fidelity bonds focus 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 specially designed for the banking or investment sector.

Companies that are not in 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 work sites or handle client assets would most likely be well-served by a fidelity bond that covers those workers. Imagine a case where a home therapist is accused of stealing jewellery or an accountant is charged with embezzling client funds.

If your employees stay on your business premises, you might want an employee dishonesty bond, which covers internal employee malfeasance.

Fidelity bonds can be written to cover all your employees (called blanket coverage) or just th feew with access to your financial accounts. Talk to your insurance broker 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 those mentioned above: 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. Your policy must be in force at the time of the discovery (or the actual occurrence of loss in the latter case) for coverage to apply.

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 is also a trigger for coverage, so you should report it. If you delay and further crimes are committed, you could forfeit protection.

Keep in mind 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 forensic experts who can build a body of proof supporting the loss you are claiming. That is a very 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 some crime insurance, while others allow you to add crime as a tailored option.

Your insurance broker will help you decide which insurer or surety (a company that provides fidelity bonds) can best meet your particular needs. They will 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 a combination of high-quality insurance and robust monitoring of your financial accounts. While not every crime can be prevented, you can train your employees and institute custody protocols to avoid internal dishonesty.

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