What Is Business Crime Insurance?
Business crime insurance, also known as commercial crime insurance, is a specialized policy designed to protect businesses from financial losses caused by criminal activities. These activities can include robbery, forgery, computer fraud, and theft by employees or outsiders. This insurance must be purchased separately from commercial property policies, as it fills in the gaps left by those policies, which often do not cover certain types of financial losses, such as employee theft.
Key Points
- Coverage Scope: Business crime insurance covers financial losses due to crimes such as fraud, embezzlement, robbery, burglary, forgery, and computer fraud.
- Supplementary Policy: It is purchased separately or added to commercial property or business owner’s policies (BOP) through an endorsement.
- Vulnerable Businesses: Companies that handle cash or online payments are particularly susceptible to business crimes.
- Protection: The policy safeguards cash, assets, merchandise, and other properties from criminal acts.
Impact of Business Crime
Business crime is a significant liability for companies. The Association of Certified Fraud Examiners (ACFE) estimates that businesses worldwide lose about 5% of their revenue to fraud annually. Small businesses are particularly at risk due to fewer personnel for safety and auditing and a higher level of trust in employees. Losses can be devastating, with smaller companies experiencing median losses of around $150,000, which can be more damaging to them than to larger businesses. As business technology advances, so do opportunities for fraud, making business crime insurance increasingly important to protect assets, operations, and reputations.
This comprehensive approach to business crime insurance highlights its necessity and benefits, ensuring businesses are well-protected against various criminal activities.
How Business Crime Insurance Functions
Business crime insurance is essential because standard commercial property or business policies typically do not cover crime-related losses. Companies can obtain this insurance from providers offering business policies, either as a standalone policy or as part of an industrial package policy known as “special multi-peril insurance,” which includes various protections against crime, property loss, liability, and other potential risks.
Types of Business Crime Insurance Coverage
Business crime insurance generally includes several types of coverage:
1. Employee Theft (Employee Dishonesty Coverage)
Covers losses caused by employee theft, which are usually not covered by standard commercial property policies or BOPs. Small businesses are especially vulnerable due to limited resources for detecting and managing theft.
2. Forgery or Alteration
Protects against losses from the forgery or alteration of checks, drafts, and promissory notes. For instance, if a check is altered fraudulently, this coverage compensates for the financial loss.
3. Theft of Money and Securities Inside Your Premises
Compensates for stolen cash or securities from your business premises or bank’s business location, including damage to premises, safes, or cash registers caused by theft attempts.
4. Robbery or Safe Burglary Inside Your Premises
Covers loss or damage to property other than money or securities. For example, it protects against financial losses if an employee is robbed or a safe is forcibly opened.
5. Theft of Property Outside Your Premises
Extends coverage to the loss of money and securities outside your business premises, such as assets in the custody of a messenger or armored car service.
6. Computer Fraud
Protects against losses resulting from fraudulent computer activities that transfer money, securities, or other property from your business to an external location.
7. Funds Transfer Fraud
Covers scenarios where scammers impersonate someone from your organization to direct an employee to wire funds to a fraudulent account.
Is Commercial Crime Insurance Worth It For Your Business?
Regardless of size, industry, or location, every company is a potential target for commercial crime. Business owners recognize the severe impact of crime-related losses and the importance of implementing internal controls and external security measures.
However, criminals can sometimes bypass these controls, whether they are external parties or, more often, your own employees.
To understand why your business needs a commercial crime policy, let’s explore the types of crime-related claims it covers:
- Employee Theft: Employee theft is a significant and common risk for businesses. Crimes like embezzlement, information theft, and skimming occur frequently. A commercial crime policy will cover most losses related to employee theft, helping safeguard your business.
- Third-Party Theft and Robbery: If someone outside the business steals money or securities from your premises, the crime policy will cover these losses. It will also reimburse you for any business property damage during the event. Note that the policy won’t cover valuable property damage; your commercial property policy would handle that, assuming you have one.
- Fraud, Forgery, and Cyber Exposures: If criminals use forged documents, such as checks, promissory notes, or invoices, to defraud your business, your crime policy will cover the losses. It also covers losses from counterfeit cash or checks. Additionally, bussines crime insurance protects against losses from cybercriminal activities involving fraud or theft using digital means. However, it does not cover losses and liabilities from data breaches, which are protected under a cyber liability insurance policy. Social engineering attacks are also excluded from crime policy coverage.
Given these examples, crime insurance is clearly beneficial. However, it’s important to balance potential risks with the cost of the insurance.
How Much Does Crime Insurance Cost for Your Business?
The cost of crime insurance can vary significantly, influenced by several factors related to your business. Here’s a detailed look at what affects crime insurance premiums:
Key Factors Influencing Crime Insurance Costs
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Business Size
- Number of Employees: More employees mean a higher risk of internal theft. Insurers consider both the number of employees and whether they work in one location or multiple locations, as multiple locations can complicate security and increase risks.
- Revenue: Higher revenue implies more resources available for theft, potentially leading to more severe claims.
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Security Protocols
- Office Security: Insurers favor businesses with robust security measures. Simple steps like installing cameras, access controls, and securing cash and securities can lower premiums.
- Cybersecurity: Implementing password controls, security training, two-factor authentication, and data encryption can reduce both cyber liability and bussines crime insurance costs. Weak cybersecurity makes a business a more attractive target for cybercriminals.
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Financial Controls
- Procedures: Strong financial controls, such as segregating duties, robust deposit procedures, and thorough checks for wire transfers, can significantly reduce insurance costs.
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Property and Equipment Value
- Value of Assets: The more valuable your business’s property, the higher the cost to insure it against theft. High-value items that are easily accessible can drive up premiums.
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Coverage Limits
- Insurance Coverage: Higher coverage limits mean higher premiums. Businesses need to balance the cost of coverage with the level of protection they require. An insurance broker or agent can help determine the appropriate coverage amount.
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Claims History
- Past Claims: Businesses with a history of crime-related claims or lax controls can expect higher premiums. Insurers assess the risk based on your claims history.
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Policy Deductible
- Deductible Amount: A higher deductible generally means lower premiums. This is the amount your company must pay out of pocket before the insurance coverage starts.
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Location
- Geographical Impact: Insurance premiums can vary by state and are typically higher in large cities or areas with high crime rates compared to safer locations.
Understanding these factors can help you manage and potentially reduce the cost of crime insurance. Implementing strong security measures, robust financial controls, and maintaining a good claims history are practical steps to lower premiums. Working with an insurance broker or agent can also provide insights into how to get the best coverage at the lowest cost.
Bussines Crime Insurance Costs: Strategies to Reduce Expenses
If you’re aiming to save on commercial crime insurance, consider these strategies:
- Add Crime Coverage as an Endorsement:
- For Larger Companies: Adding crime coverage to other policies, such as directors and officers insurance, can be cost-effective. This is particularly useful for larger companies with a board of directors or VC-funded startups.
- For Smaller Businesses: Adding crime coverage to a business owner’s policy (BOP) provides sufficient protection for most claims at a lower cost, even though the coverage may be less comprehensive.
- Consider Fidelity Bonds:
- What Are Fidelity Bonds?: These are a subtype of crime insurance that protect against criminal acts by employees. While similar to crime insurance, fidelity bonds usually have lower limits and cover fewer exposures, making them less expensive.
- Cost Savings: Fidelity bonds can be a cost-effective alternative, often costing between 0.5% to 2% of the bond’s value. This can result in substantial savings while still offering essential protection, including reimbursing customers if they suffer damages due to employee actions.
By carefully choosing how to integrate crime insurance into your existing coverage and considering fidelity bonds, businesses can effectively manage their insurance costs while maintaining adequate protection against crime-related losses.
The Risks of Not Having Commercial Crime Insurance
Given the risks involved, it’s evident that any business opting out of a crime policy or securing inadequate coverage is exposing itself to significant danger. As criminal tactics become more sophisticated and exposures increase, the potential losses for a business can escalate rapidly.
Employee theft, the most common risk, is on the rise, especially during economic instability. Partnering with a reputable insurer and obtaining the appropriate policy at a fair price ensures that your business will be fully compensated in the event of a major crime-related claim, allowing you to endure the subsequent financial impact.
Additionally, a well-chosen policy could cover counseling and support for employees traumatized by robbery or violent criminal incidents.To determine your commercial crime insurance needs, appropriate coverage limits, and costs, you can consult with our expert brokers anytime to secure the right protection.
FAQs
What does business crime insurance exclude?
Business crime insurance generally does not cover indirect losses, legal expenses, fines, penalties, or losses caused by employees with known criminal histories. It is crucial to review your policy for specific exclusions.
How do you buy business crime insurance?
You can purchase business crime insurance from providers offering business, commercial property, or BOP insurance. It can be added to existing policies or bought separately, ensuring comprehensive protection tailored to your business’s specific needs.
