In its 2012 Report to the Nations, the Association of Certified Fraud Examiners (ACFE) found that organizations typically lose five percent of their revenue to fraud each year. Even more frightening is this statistic from that report: the medium loss of survey respondents was $140,000. Over one-fifth of the losses studied exceeded $1 million. Small-to-medium sized businesses are often fraud targets because they lack anti-fraud controls. The smallest organizations in the ACFE study suffered the largest median losses.
In this study and as is often the case, employee theft occurred over time. Typically, the fraud continued for about 18 months before the organization detected the thefts. Because a majority of the organizations discovered the thefts through a tip, a robust internal reporting system can help your company avoid a loss. However, only an integrated system of checks and control can help an organization reduce or eliminate internal fraud.
What Insurance Coverages Do I Need?
Does your company handle cash, credit cards or securities? If so, Fidelity/Crime coverage is a must. A standard crime policy is typically divided into two categories:
- Money and securities coverage, which pays for losses due to break-ins, theft, robbery, disappearance and destruction, and
- Employee dishonesty coverage, which pays for losses caused by the fraudulent acts of your employees, like a theft or embezzlement
Depending on the size of your company and your business’s unique needs, other endorsements may be available for targeted protection, such as data breach coverage.
Perhaps you’re convinced your current crime coverage is spot on, but what about your limits of coverage? First, consider the size of your deductible or self-insured retention (SIR). If a loss occurs, your deductible or SIR amount quickly reduces your operating income. Next, remember that some policies restrict or eliminate coverage for events that occur over consecutive policy periods. The first action taken by your claims examiner will be to determine if your loss is one occurrence subject to one deductible, or multiple losses subject to more than one deductible or SIR. One insurer estimated that 60 percent of their policyholders were underinsured at the time they submitted a claim under their crime policies.
At Renewal, Take a Close Look at Coverages
Fidelity/Crime insurance is a frequently misunderstood coverage. Never assume that because your insurance coverage seemed sufficient last year that this year, it remains sufficient. Threats change. Courts’ coverage interpretations narrow or expand the scope of your current coverage. Fraud opportunities accelerate as threats from abroad continue to cause data breaches. Your renewal offers an important opportunity for you to review both your coverage adequacy and your current limits. It also offers you a time to review the capabilities of your anti-fraud efforts.
In closing, we’d like to remind you that the ACFE study found that any company that instituted any of 16 anti-theft measures suffered “considerably lower losses and time-to-detection than organizations lacking those controls.” If you would like a review of your current insurance program or help with the design of anti-theft measures, please contact me at [email protected] or at 732-392.4262.
