Fidelity & Crime Coverage
BY: ALIYA DAYA ROGERS INSURANCE
In the past five years, 35 % of private companies in Canada reported a loss due to workplace crime or fraud such as employee theft, vandalism, or forgery, with employee theft the most common type of loss suffered by these companies. Experts estimate that 96 % of all companies will experience some type of employee theft without recognizing how much of their organization’ s potential is being reduced as a result of these activities. Forty-one percent of these companies victimized by fraud decided not to report their cases to local law enforcement, with the fear of bad publicity being cited as the most common reason.
Every company, regardless of its size, is a potential target for white collar crime. Employee fraud is a fact of business life even in the bestmanaged organizations, and it can be costly; employee theft causes businesses to lose billions of dollars annually. Even if your company conducts background screenings, segregates financial duties, educates employees on how to detect fraud, or employs electronic fraud detection systems, it may still be vulnerable.
WHAT IS FIDELITY / CRIME INSURANCE? Fidelity / Crime coverage is a form of insurance that protects organizations from loss of money, securities, or inventory resulting from crime. Common Fidelity / Crime insurance claims allege employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts. These schemes involve every possible angle, taking advantage of any potential weakness in your company’ s financial controls. Liabilities covered by Fidelity / Crime insurance fall into two main categories:
• Money and Securities Coverage pays for money and securities taken by burglary, robbery, theft, disappearance, and destruction.
• Employee Dishonesty Coverage pays for losses caused by most dishonest acts of your employees, such as embezzlement, forgery, alteration, and theft.
• Due to a continuously evolving and creative criminal element, there are other forms of Fidelity / Crime insurance coverage which may be added to your policy as extensions or endorsements. These newer coverages can be modified to your organization’ s
28 specific operations or requirements:
• Social Engineering Coverage pays for losses as a result of a confidence scheme that intentionally misleads an employee into sending money or diverting a payment based on fraudulent information that is provided to the employee in a written or verbal communication( email, fax, letter, or phone call). It is the act of accessing information, physical places, systems, data, property, or money by psychological methods rather than technical methods or brute force.
WHY DOES YOUR ORGANIZATION NEED FIDELITY / CRIME INSURANCE? Workplace fraud is commonplace, and your company can be victimized by anyone— even the“ trusted” employee. Every employer would like to believe that its employees are honest, hardworking, and loyal. The sad truth is that workplace fraud takes place with alarming regularity. Most employees who were caught and found guilty of embezzling truly believed that they were merely“ borrowing the money” and had every intention of paying the money back... or so they thought. The reality is that the combination of need and opportunity can make seemingly honest employees turn to criminal acts. Consider:
• The typical organization loses five percent of its revenues to fraud each year.
• Eighty percent of workplace crime is carried out by employees.
• One in four employees has either committed or witnessed workplace fraud or abuses.
• One in four employees committing fraud against his or her employer has been with the company for more than ten years.
• Background checks( when used) are little help to employers to mitigate fraud. Most occupational fraudsters are first-time offenders with clean employment histories.
• Only one in three of those who have witnessed a workplace crime will report it.
• Worldwide, the median or average loss caused by Employee Dishonesty is $ 140,000USD, with one in every five cases reporting a loss of at least $ 1,000,000USD. In Canada, the median or average
loss caused by employee dishonesty is $ 154,000USD.
• Social Engineering attacks on businesses have increased 55 % in 2015 – 2016. Over 100,000 people are affected by these attacks each day.
• Thirty-five percent of large businesses, 22 % of medium businesses, and 43 % of small businesses are targeted specifically by Social Engineering attacks.
A fraud scheme could go undetected for years and could cost hundreds of thousands of dollars or more. It’ s difficult for a business to absorb that kind of financial impact without feeling dramatic, even devastating, effects.
According to the Association of Certified Fraud Examiners( ACFE), the average business in North America is losing five percent of its total annual revenue from losses involving employees— about $ 9 –$ 12 per day per employee. For an organization with 40 employees, and assuming 250 working days in a year, this amounts to at least $ 90,000 off its bottom line.
Smaller companies are often more vulnerable to fraud because they may lack financial or inventory controls that larger companies typically employ. So take the above statistics and add robbery and burglary to them, since small operations are more likely to be victims of these crimes, and you’ ll see that small businesses can lose at least 20 times more than large corporations. In fact, shoplifting, robbery, and burglary put such a disproportionate strain on small businesses that many disintegrate as a result.
Most insurance policies either exclude or provide only nominal amounts($ 5,000 or $ 10,000 limits) of Fidelity / Crime protection under Money / Securities and Employee Dishonesty coverage, excluding Social Engineering altogether. We highly recommend you speak to your insurance broker to confirm your limits and coverages. For more information, contact a Rogers broker at rogersinsurance. ca or call 1.800.565.8132. +
References:
Association of Certified Fraud Examiners, 2012 Report to the Nations.
Association of Certified Fraud Examiners, Report to the Nations on Occupational Fraud and Abuse, 2016 Global Fraud Study, http:// www. acfe. com / rttn2016. aspx.
Symantec Internet Security Threat Report 2016.