An unfortunate reality facing business owners and executives is that nearly every business has an exposure to crime losses from either internal or external sources.
With the advent of cyber/electronic crime, the level of coverage as well as the method of how insurance policies address these exposures can vary greatly, depending on the insurance carrier and how the agent or broker structured the coverage.
The Association of Certified Fraud Examiners (ACFE) estimates that organizations lose 5 percent of their annual revenue to fraud, says Chris Zito, managing director of Zito Insurance Agency. And, employers with fewer than 100 employees lose almost twice as much as large businesses per scheme to occupational fraud, according to an ACFE 2018 Report to the Nations.
“Along with the proper implementation of crime coverage, these sobering statistics reflect the need for employers to ensure they have adequate internal controls in place to limit exposure,” he says.
Smart Business spoke with Zito about crime insurance and other mitigation that can help lower this risk.
Why should companies consider getting crime insurance?
Crime insurance can provide coverage benefits when other commercial insurance policies do not.
Some examples include coverage for:
- Fraudulent transfer of funds
- Telecommunications fraud
- Cyber extortion (also known as ransomware)
- Employee dishonesty, such as embezzlement of funds or theft of tangible property
- Forgery and alteration of checks or documents
- Social engineering fraud (also known as impersonation fraud)
- Computer fraud
- Counterfeit currency or bank checks
A number of the above coverages can be found in either a crime or a cyber policy, which may be written through different insurance carriers. Therefore, it is important for business owners and executives to work with an insurance agent who understands how to properly coordinate the various policies to avoid gaps or duplications in coverage.
What else can a business do to deter crime?
Every industry has unique risks and it is important that a crime policy is one of several elements of protection for the business. Prevention and detection are key to reducing the breadth and depth of an incident.
The organization should assess and potentially update its internal practices not try and limit exposure to fraud. For example, how often does the organization reconcile bank accounts? Who reconciles the accounts? Is software in place to detect fraudulent computer use? Does the company have its financial statements audited by at third party? Is there an active alarm system on premises?
There is a clear correlation between the size of a loss and the duration of the fraud. Having safeguards in place to actively prevent and detect fraud is critical.
How are crimes detected?
The most common method is through tips — about half of which tend to be provided by employees of the victim organization, according to the 2018 ACFE report. Whistleblowers may fear retaliation so it is important to allow employees to confidentially report fraud or theft, where legally permissible.
Other active detection methods include surveillance, audits, management review and technology controls.
Maintaining strong internal controls should be a priority for any organization. But even with precautions in place, no organization is immune to crime and fraud. Crime insurance provides protection from many types of wrongdoing.
Insights Business Insurance is brought to you by Zito Insurance Agency Inc.