Read any news website or watch any regional or national news broadcast and you'd be hard-pressed not to learn about businesses that have been subjected to criminal activity.

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Whether it is a retail store that has experienced blatant theft or a corporation that may have been subjected to digital fraud, businesses across all industries experience criminal activity. Crime insurance typically covers both physical assets, such as merchandise, as well as money, that are stolen or damaged due to criminal activity by employees or third-party individuals. "Fidelity and crime insurance helps businesses mitigate the costs associated with criminal activities such as theft and fraud," said Mike Westen, assistant vice president and crime product management lead for Bond & Specialty Insurance at Travelers. "These criminal acts can be perpetrated by individuals both inside and outside of an organization. Many businesses when victimized are not able to recover stolen assets, even with the assistance of law enforcement, so a Crime insurance policy can be crucial to mitigating losses and continuing operations." Today's crime insurance policies should include broad coverage offerings to address the various exposures a business faces. As Westen explained, most policies include coverage for employee/insider theft and dishonesty, but many businesses also purchase coverage for acts perpetuated by outsiders such as forgery, funds transfer fraud, computer fraud, and social engineering fraud coverages, to name a few. In the area of employee theft, crime insurance protects a company against losses resulting from an employee who may have stolen money, as well as inventory or intellectual property. |

Intellectual property

Intellectual property (IP) is a term much bandied about in today's knowledge-based economy. It is something that every successful business, whether they know it or not, builds and accumulates. The term "intellectual property" covers an array of intangible assets including patents, copyrights and trademarks — things a company and its employees know can be valuable. It also comprises such things as trade dress as well as expertise, data, and even management and operations. It can be the collective knowledge and expertise of a company, or that of individual employees. Accumulated information, data and know-how are perhaps the most overlooked and undervalued intellectual-property assets. That's why crime insurance pertaining to intellectual property is paramount as IP is increasing its presence on corporate balance sheets, impacting shareholder value both indirectly via revenue generation and directly via the high intrinsic value placed on powerful intellectual property. |

Fraud and embezzlement

In addition to intellectual property, crime insurance also protects companies against other computer-related crimes such as fraudulent electronic funds transfers. Business email compromise (BEC) has proven to be an expanding avenue for funds transfer fraud, or FTF, which is a low-tech attack that disproportionately targets small businesses. With fewer options to pivot inside a network and less infrastructure and data to hold hostage in a ransomware attack, smaller organizations become easier targets. To prevent an FTF incident, companies should actively manage their cyber risks. Insurers should focus on providing active protection with risk assessments, monitoring and alerting, incident response and claims as part of their coverage. In addition, more retailers have adopted e-commerce platforms, opening up more attack surfaces for cybercriminals seeking to monetize customer and company data. |

Tangible theft

For companies within the retail segment, crime insurance is vital. Shoplifting losses vary by store type but can account for about one-third of the total inventory shrinkage, according to the National Association for Shoplifting Preventing (NASP). In fact, more than $13 billion worth of goods are stolen from retailers each year (or approximately $35 million per day), and the NASP estimates that about 10% of the U.S. population are shoplifters. Jeff Kroeger, executive vice president, head of commercial lines at World Insurance Associates, said that many crime placements are driven by contract requirements, but crime is an exposure for all forms of businesses. "Financial institutions and retail are obvious crime targets, but even schools or non-public facing businesses are vulnerable especially as they are less likely to have robust controls," Kroeger said. "Crime insurance is often packaged with other lines of management and financial lines coverages such as employment practices liability, directors and officers, fiduciary, kidnap and ransom but can also be written on a stand-alone policy. |

Marketing coverage to customers

When it comes to marketing fidelity or crime insurance, it is fairly straightforward as the majority of organizations across all industries should consider purchasing a broad crime insurance policy. "Fortune 500 companies, Main Street businesses, nonprofit organizations and government entities all have exposure to criminal acts," Westen said. "Insurance agents should be able to provide material that highlights the exposures present in various types of companies." Crime insurance also protects customers from loss of money and securities due to a standard property policy excluding coverage, says Cash McMillen CIC, partner and executive vice president of operations at The Cashion Company, Inc., in Little Rock, Ark., and a Trusted Choice independent agent. This type of policy covers loss from theft, whether by employees or other parties, forgery, digital funds transfer fraud, money order or counterfeit paper currency, social engineering fraud, identity fraud and other types of losses from lost funds. "Anyone who owns a business has exposure to loss from crime," McMillen said. "The marketing of this coverage is most effective when the independent agent provides examples of claims that have occurred." |

Risk mitigation steps

The best practices in crime-risk mitigation include having at least two people involved in the oversight of company funds and property. As Westen explained, awareness training helps employees recognize out-of-the-ordinary activity and can prevent or lessen the impact of fraud events. Procedures like segregation of banking duties; dual oversight of payroll and vendor lists; and reviews of employee expense accounts can help protect a company from acts of insiders. "Dual transaction authorization helps to mitigate the risk of funds transfer fraud, computer fraud and social engineering fraud committed by outsiders," Westen said. "Insurance carriers may offer credits for businesses that implement quality risk controls like the ones mentioned above." McMillen added that best practices also include: |

• Requiring dual signatures on all outgoing checks;
• Requiring the bank to verify checks over a certain threshold;
• Hiring a CPA to audit each year; and
• Verifying all electronic pay instructions by two methods before sending payment.

"Companies should also secure paper money in a time lock safe, and also require bank statements to be reconciled by an employee that doesn't have access to writing checks, and other methods," McMillen said. "In commercial insurance, there isn't usually a filed discount for these controls, but they are certainly taken into consideration when the underwriter is calculating their judgment rating and credit may be added if controls are in place." As far as current pricing of crime insurance, rate plans vary by insurer, most of which rate based on industry segment, financial size and employee count. Various factors determine crime-coverage pricing such as business type, size, security controls and limits, Kroeger explained. Businesses such as financial institutions would be subject to higher premiums. "The coverages are priced based on various methods, namely the number of employees and the number of employees who have access to the money, annual revenue, loss history, the physical location of the insured's office, and other methods," McMillen added. "Pricing is determined by the basic rating methods, as well as the underwriting of the insured's controls in place to prevent loss. The underwriter can then apply a judgment rating to adjust up or down based on various factors." Kroeger recommended that insurance professionals advise clients interested in crime insurance that disgruntled employees are a common perpetrator. That's why it's imperative that companies conduct background and reference checks for new employees and periodic checks on current employees that may be transferred to a position that provides more authority over internal controls. "However, this is not legal in all jurisdictions or industries," Kroeger said. Also, insurance professionals should advise their clients to have strong internal controls. Require additional authentication steps for any banking information changes on invoices using pre-arranged contact information and reconcile bank accounts monthly by an individual not authorized to write checks, withdraw, transfer or deposit funds. "The best advice to manage risk for any business is to follow all applicable laws, keep accurate records and establish the best procedures for whatever type of business they are in. In short, it's really good advice to tell clients to document everything, keep up to date with regards to employees' backgrounds (i.e., yearly criminal and motor vehicle record background checks), and to be as clear as possible as it relates to employee policies and procedures," said Jerry Palmaioli, assistant director of sales at Insureon. "The reality is that any small business that handles financial transactions should really have a crime insurance policy." See also: |

• Most dangerous cities for house crimes
• The 10 safest cities in the U.S.
• The most dangerous places in the U.S. in 2022-2023