Crime insurance protects the business against financial loss caused by fraud or dishonest acts. A typical policy might include coverages for employee dishonesty, forgery or alteration, and funds transfer fraud. While crime insurance is a must-have for businesses in the financial, healthcare, and non-profit sectors, small businesses are just as much at risk.
As small business owners, we often feel like we know our employees on a personal level and could never imagine that they might be dishonest. However, the Association of Certified Fraud Examiners found in their Occupational Fraud 2022 report that compared to large organizations (defined as more than 10k employees), small businesses (100 employees or less) “had the highest median loss of USD 150,000” because of occupational fraud. It is important to note that the impact of a $150k loss to a small business will be much more significant than the same loss to a large business.
So, what might employee dishonesty look like?
· Does someone other than you order supplies and pay bills? Employee dishonesty might look like an employee with access to the company credit card making personal, unauthorized purchases with the business funds.
· Do you provide tools and supplies for your employees to complete jobs? Employee dishonesty might look like an employee stealing those materials for their own use or selling them to others for a profit.
· Do you have a specific employee that handles payroll? Employee dishonesty could look like that employee diverting excess funds for the business to their own payroll.
Besides the risk of employee dishonesty, a crime policy might also cover forgery or alteration. This could include coverage for financial loss due to someone forging your signature, altering your checks, or bank drafts drawn against your bank account. For example, consider a bookkeeper altering one of your checks after they were signed to make them payable to an account that the bookkeeper controls.
Another common coverage you might find in a crime insurance policy is funds transfer fraud. Nearly everything today is done online, including banking and financials. It’s safe to assume most of us have seen one or more phishing scams come across our email. Consider a new employee who has received an email from a “bad actor” pretending to be you. The new employee, assuming you’re the one asking them to do this, makes an immediate wire transfer. While reviewing your account activity later, you notice this transaction and determine it to be fraudulent. The funds transfer fraud coverage in the commercial crime policy would aid in covering the cost of the fraudulent transfer.
Many commercial insurance policies “throw-in” these coverages, but typically at a lower limit compared to those available on a separate, specific commercial crime policy. It’s important to consider how exposed your business is to these types of losses and what amount of coverage you feel you need.
Give your agent a call today to review your current insurance program and discuss if you’d like to consider options for crime insurance coverage.