Crime insurance: Why you need it, how to choose wisely

By Higginbotham on January 20 , 2016

Business crime insurance

Crime against your business is one of the most traumatic, potentially costly, even heartbreaking risks you face. And it happens every day, to businesses of every size – a trusted employee betrays that trust by stealing property or embezzling money, a cyber thief steals sensitive customer and employee data, or a burglar breaks in and steals valuable equipment.

There are endless ways crime can affect your business, whether perpetrated from inside or out.

In addition to the examples above, there’s credit card fraud, document forgery or alteration of checks, theft or fraud by a vendor or other third party – and the list goes on. To add insult to injury, the costs continue to mount even after a crime has been discovered, including costs for investigation, business interruption, reconstructing data, dealing with forged checks, or public relations to repair a damaged reputation.

According to statistics from the Association of Certified Fraud Examiners, a typical business loses up to 5 percent of revenue to fraud every year. The median loss caused by employee theft is $145,000, with more than one fifth of cases having losses of at least $1 million. And crimes by employees and third parties have been on the rise ever since the 2008 recession.

It’s frustrating – you can seemingly do everything right and still be a target.

Even with background checks, smart hiring and training practices, good pay and benefits, robust security measures, and other means of creating a safe and positive work environment, there will always be vulnerabilities. A determined fraudster or thief will exploit weaknesses in even the most well prepared organization, and even the most valued and trusted employee can be susceptible to dishonesty, especially if he or she is under financial or other stresses. And no matter what kind of crime is committed against your organization – from inside or out – it can involve a messy and costly cleanup.

That’s why in this day and age, you can’t afford to be in business without robust crime insurance protection as part of your risk management strategy.

This is no longer “nice to have” coverage – it’s essential protection. Crime insurance provides coverage not available in your general business insurance policies, and is specifically designed to provide coverage for such things as:

  • Dishonest acts of employees
  • Fraudulent acts by third parties
  • Irreplaceable company documents, records, data, and customized software
  • Burglary, even if no forced entry is involved

But choose wisely – not all crime coverage is the same.

Commercial crime insurance can be purchased as a stand-alone policy or as part of a Business Owners Policy (BOP) or another package policy that includes several types of insurance coverage. But there are a couple of crucial tips to keep in mind.

First, the rights of recovery between a commercial crime/employee theft and forgery policy and most BOPs are completely different, even though the costs for coverage are similar. Under a BOP, the insurance carrier gets first right of recovery until it’s repaid for the losses it paid. Once the insurance company is “made whole,” the business owner is next in line for recovery (although the carrier might not work for recovery once it’s made whole). However, under a separate commercial crime policy, the insured business owner has first right of recovery after recovery expenses are paid, then the right of recovery shifts to the insurance carrier. Second, a commercial crime policy provides coverages above and beyond what many BOPs provide such as computer fraud, funds transfer fraud, money orders, and counterfeit money protection.

When you need help making smart choices about crime protection for your business, see our business insurance experts at Higginbotham.


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