Posted on: February 19, 2021
Your business’s safety net: Why you need crime insurance
A volatile economic climate, combined with dramatic changes in technology, have resulted in an altered risk terrain for modern businesses – which is why fraud and business crime have increased significantly in recent years. In fact, PwC’s 2018 Global Economic Crime and Fraud Survey found that globally, 49 percent of organisations had experienced economic crime in the previous two years.
Businesses also face exposure to embezzlement, forgery, misrepresentation, robbery, theft and a number of other hazards. Many of these crimes can be exceptionally hard to detect, especially with internal breaches. Thankfully, crime insurance covers you against both ‘external’ crimes carried out by third parties, as well as ‘internal’ crimes perpetrated by employees.
Aside from the direct impact of the crime itself, business crime can incur costs long after the deed. Such costs include:
- Discovery: The costs associated with discovering the crime and investigating its extent.
- Opportunity: The opportunity cost of the capital expended on investigation, rectification and mitigation.
- Interruption: The cost of the interruption to your business, such as lost sales, rental costs for temporary replacement equipment or premises, and staff overtime.
- Reputation: The cost of any damage to your reputation; for example, if customers shy away from online orders because they think your website is not secure.
- Operations: The cost of reviewing and updating internal processes and procedures.
Not all business insurance policies include protection from crimes, so you should check your existing coverage and evaluate your risk profile, especially with more and more transactions being conducted online.
Who needs crime insurance?
Business crime can have ruinous consequences for enterprises of all sizes, from sole traders to multinational corporations.
A dishonest employee embezzling cash might send a small business bankrupt. That outcome may be less likely in a larger corporation; however, larger-scale operations present different risks. A spate of high-profile fraud and embezzlement cases in major companies over the past few years demonstrates that, while modern technology enables broader monitoring and security conditions, it also provides broader avenues for fraud.
Aside from financial costs, fraud can have long-lasting social effects – and bad PR exacerbates risks for modern businesses. In an age of social media and heightened concerns about data security, there are increasingly serious consequences of crime, including reputational harm, loss of customer trust, difficulties in hiring and costs of crisis management.
Bad guys are an unfortunate reality of business. However, no matter how vigilant any organisation is, and how stringent its audit and compliance procedures, risk is ever-present.
What makes a good crime insurance policy?
Each business’s risk profile is unique, and an effective crime insurance policy will be tailor-made to fit your circumstances.
An institution with a significant risk profile, such as a multinational financial services company, needs comprehensive coverage. Basic crime insurance covering direct losses due to fraudulent staff activity will not suffice.
Certain insurers cover losses discovered during the policy period (even if they were committed prior), as well as loss establishment costs including fraud investigation, erroneous fund transfers and any costs, fees and expenses arising from direct losses. Coverage extensions may include third-party computer crime, forgery, counterfeit and client loss, as well as new subsidiaries, offices and staff.
The same coverage would not be required for a small retail business that conducts most of its transactions in cash.
Organisations can select further extensions that may suit their individual risk profile. Extensions include business-interruption costs, contractual penalties, extortion, joint-venture liabilities, legal expenses, telephone systems fraud, PR expenses and more.
Contact your insurance broker/adviser today to ensure you’ve got the right cover, at the right price, for the right risks. You’ll be glad you did.