What, Exactly, Does Business Crime Insurance Cover?

December 11, 2020

5-minute read

The typical organization loses 5 percent of its revenues to fraud each year. The average loss caused by employee dishonesty is $140,000, with one in every five cases reporting a loss of at least $1 million.

Given the above, it’s a no-brainer that your business needs Commercial Crime Insurance.

Real-life illustrations of the damage that can be done are everywhere.

Consider the case of the sales director who had been named “Employee of the Year” several times over a 17-year career and who sold and pocketed $345,000 of his company’s inventory “out the back door.”

What about the sales supervisor who stole $1.6 million in client payments and attempted to cover things up by producing fraudulent checks? In this particular case, the employer was under-insured, so its insurance carrier paid just $500,000 of its losses, leaving it on the hook for $1.1 million.

People steal. From their employers. All the time. They also steal from each other. Even more frequently.

A Commercial Crime Insurance policy can take some of the sting out of these instances.

It’s not just large businesses that need to worry. The Association of Certified Fraud Examiners’ most recent report found that organizations with fewer than 100 employees see the largest share of fraud cases – 28 percent.

Why are smaller companies more susceptible to fraud? Mostly because they have fewer resources to prevent and detect it, according to the ACFE.

So, beyond employee theft, what else do these policies cover? Here’s a quick rundown:

Funds transfer fraud – This coverage protects your business against fraudulent instructions provided to a bank or financial institution that causes them to transfer funds out of your account.

Losses from forgery or alteration – Covers you if someone forges a check, provides counterfeit money or alters financial materials to commit a crime against your company. It will also pay for legal fees to defend from lawsuits if someone sues you for refusing to pay for a forged check or promissory note.

Theft of securities and money inside your business premises – Covers you if someone steals cash, checks, securities or other forms of currency from your company’s place of business.

Loss of money or securities outside the premises – Covers you when there is theft, damage or destruction of money, securities and other property outside of your business premises.

What’s Not Covered?

Policies from carrier to carrier can and do vary, but the following are typically not covered by a Commercial Crime Insurance policy:

• Losses caused by employees after you’ve been made aware of a crime committed by said employees.
• Indirect or consequential losses such as business interruption or loss of potential income.
• Legal expenses.
• Data theft, including theft of a company’s data, trade secrets, client lists, or intellectual property. (These would be covered by a Cyber Insurance policy).
• Property damage caused by fire. (Your Property policy would cover this).
• Fines and penalties.
• Salaries and bonuses, commissions, fees, and any associated lost income.

Coverage Provisions

Again, crime coverage will vary by insurer, but policies generally share the following characteristics:

• A typical business crime insurance policy is written on a “named perils” basis, which means that a loss must fall within one of the categories of crime specified in the policy to qualify for coverage.
• For commercial crime policies, the limit is usually not aggregated, applying separately to each and every loss.
• Although deductibles apply separately to each loss, a series of acts by the same person or same group of persons are deemed a single loss, and thus subject to one limit and one deductible, regardless of how long the theft continues prior to being discovered.

One last important note: Commercial Crime policies, like any insurance product, come with exclusions, too, including actions taken by owners and managers. Those misdeeds would more typically be covered under a Directors and Officers Insurance policy.

Paul Plaksin is an insurance advisor in CCIG’s Commercial Lines department. Reach him at Paul.Plaksin@thinkccig.com or at 720-330-7914.

CCIG is a Denver-area insurance, employee benefits and surety brokerage with clients nationwide. We do more than make sure you have the right policy. We help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.

Back to Resources