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Crime Insurance Is a Vital Need in Today’s Business Environment

David W. Griffin Sr., CIC, LIA

David W. Griffin Sr., CIC, LIA

According to a 2008 study conducted by the Association of Certified Fraud, U.S. businesses lose about 7% of their annual revenues to fraud. This equates to a staggering $994 billion loss each year nationwide to employee fraud. Even worse, occupational fraud schemes are extremely costly to a company’s bottom line, with the median loss in the 2008 study coming in at $175,000.
The three most common categories of employee scams are fraudulent statements, asset misappropriation, and bribery or corruption. Two out of five businesses suffer more than five instances of fraud, and one in four loses at least $1 million as a result of fraud. For these reasons, crime insurance is a wise purchase, extending coverage to you and your business for fraud-related financial losses.
In addition to covering employee fraud, most crime-insurance policies also cover third-party scams including forgery, counterfeit currency, and theft of company property. Many policies also cover money losses due to computer fraud by hackers who seek company funds, customer credit-card numbers, or other financial data.
Technology makes fraudulent schemes much easier to accomplish. In fact, as more and more business is done over the Internet, computer coverage and protection against unauthorized funds transfers or computer access are on the rise. For example, with a simple scanner, it is easy to forge a check, and many fraudulent Web sites attempt to collect personal data from unsuspecting victims.
Not all fraud-related crimes involve money. Some involve company goods that have no apparent value. Keep in mind that there are markets for many unusual items. One insurance company tells of a meatpacking plant where an employee was stealing animal fat and selling it for personal gain.
Although many employees carry out such crimes because they are disgruntled, the most common motivations for employee fraud are greed, vindication against the employer, and financial need. Regardless of motive, you need to be aware of the possibilities, and adequately covered.
When employees get caught for such crimes, they do jail time, but companies never fully recover the total amount lost. That’s where crime insurance comes in. With proper coverage, you can recoup your financial losses.
In addition to crime insurance, it is also recommended to maintain a strong system of checks and balances to ensure that unethical employee behavior doesn’t pay off. Such controls can affect your company’s insurability and premiums as insurers examine the extent of internal controls, as well as a company’s history of fraud losses, when determining whether the company is a good risk. With a combination of crime insurance as well as internal control procedures, you will protect your company as well as show dishonest employees that crime doesn’t pay.
Please keep in mind that several carriers have added a coverage to their crime package called ‘funds-transfer fraud.’ The coverage is inexpensive, but if you are doing a lot of banking via the Internet, it will cover an exposure to your business that could be sizeable. Unfortunately, hackers are here to stay, and you must consider this exposure in developing your business risk-management program.

David W. Griffin Sr. is one of three partners at the Dowd Agencies, a full-service agency providing commercial, personal, and employee benefits. It is the oldest insurance agency in Massachusetts with operations and management under continuous family ownership. The Dowd Agencies has four offices in Western Mass.; (413) 538-7444; [email protected]

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