Jan 11, 2016

Commercial Crime 101: Protection & Insurance

Every company, regardless of size, is a potential target for commercial crime. Whether it’s employee dishonesty, forgery or alteration, theft of money and securities, burglary or computer fraud, these types of criminal acts costs businesses billions of dollars each year.

Because crime-related losses are not typically covered by most property insurance policies, commercial crime insurance protection, also known as fidelity insurance, is a necessary component of a comprehensive insurance plan for any business. Unfortunately, the majority of businesses overlook commercial crime protection because employers don’t think it can happen to them or that their employees are too loyal to commit acts of crime. Studies have shown that the majority of employee thefts are carried out by long-term employees.

Nearly 30 percent of all business losses are a result of employee theft, according to the Better Business Bureau. In fact, a study by the Association of Certified Fraud Examiners (ACFE) estimates the average business is losing five percent of its total annual revenue to fraud, which translates to a potential fraud loss of more than $3.7 trillion worldwide.

Protecting Your Business from Commercial Crime

Commercial crimes can happen at any time. The changing economic environment, advancements in technology and expansion of operations overseas makes the threat even greater for businesses. No business should be a victim of crime. Here are some steps to better protect your company from potential threats.
Insure your business.

 Liabilities covered by crime insurance typically fall into two categories:

  • Employee dishonesty coverage – This type of coverage pays for losses caused by dishonest acts of employees, including embezzlement and theft, forgery or alteration and computer hacking.
  • Money and security coverage – This coverage protects companies from securities taken by burglary, robbery and theft inside the company.

Employee background checks.

The first way to prevent fraudulent employee behavior is to hire the right candidates. Pre-employment background checks are especially important for employees handling cash or other sensitive financial data. Keep in mind that if a company hires an individual who has a prior criminal record and they steal from a company, it may impact the type of crime coverage the employer is holding. Sometimes the policy will not cover another criminal act committed by an employee who was hired with a prior criminal record.  An important enhancement available on employee dishonesty insurance is to modify this prior criminal record exclusion to only apply to prior acts that exceed a threshold of $10,000 or $25,000 (so an employee previously caught shoplifting isn’t excluded from the company’s crime coverage).

Educate employees.

Hold a training session on typical security threats that can hurt the company through the cyber world, as well as offline. Proper training helps employees understand what the security risks are and how they can contribute to a safer environment. Training should cover password policies, email and web usage, and mobile guidelines that can impact the company’s network.
In the cyber world, Spear Phishing, also known as Social Engineering Fraud or Fraudulent Impersonation, which targets a specific individual via email with the intent of deceiving that person into transmitting funds and releasing confidential information has increased. Make your employees aware of the ways cybercriminals can hack your systems. Teach staff members to recognize the signs of a breach or a suspicious email, so you can identify and address as soon as possible.

Secure your network.

In case of a cyber attack, every business should invest in an anti-virus, malware and spyware detection software.

Businesses should be proactive about instituting policies and procedures before criminal incidents or events occur that could ultimately leave that company vulnerable to threats.

G. Martin Irons, CPCU, CIC, ARM
Vice President - Technical Development Department
The Graham Building
Philadelphia, PA , 19102

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