An employee of a nationalised bank in Mumbai stole gold ornaments and cash worth ₹58 lakh from the lockers of two bank customers.
In the delicate domain of modern business, every thread plays a crucial role in weaving success and stability. Yet, amidst the triumphs and achievements, a shadowy concern often lurks in the background: employee theft. This silent menace poses a significant threat to businesses of all sizes, causing financial losses, eroding trust, and straining the very fabric of an organization's integrity. This is why, in this era of evolving business landscapes and heightened economic uncertainties, safeguarding your enterprise against employee theft is more vital than ever before.
One potent shield against this formidable adversary is employee theft crime insurance. This article aims to unravel the importance of this often-overlooked insurance coverage, shedding light on its role in protecting your organization from the perils of internal theft. Here, we will explore the stark realities of employee theft, its impact on businesses, and the strategic significance of employee theft crime insurance as a safeguarding instrument. Let's shine a spotlight on this critical aspect of risk management that every prudent business owner or manager should consider.
Let’s start with the basics first!
What is Employee Theft Crime Insurance?
Employee theft crime insurance, commonly referred to as employee dishonesty insurance, shields businesses from employee theft. Employee theft coverage offers financial protection for losses or damages to cash, securities, and other property originating directly from theft perpetrated by an employee, whether that individual is identified, and whether that employee is working alone or in collaboration with others.
Employee theft is one of the main categories of coverage under a typical commercial crime policy, which can be acquired separately or in combination with other crime policies. A typical commercial property policy may offer some little coverage for damages brought on by third-party criminal activity, but it often excludes losses brought on by employee theft. Typical commercial property policies leave this gap, which is filled by employee theft crime insurance policies.
Definition of ‘ Employee’ in Employee Theft Crime Insurance
It's essential to understand that not every individual in your organization will qualify as an "employee" for the purposes of employee theft coverage. A particular definition of "employee" is used by employee theft crime insurance, to assess if compensation will be provided in the event of property theft.
In this situation, any natural person is an employee-
· During the employment and for the first 30 days following the termination of employment, unless the said termination results from "theft" or another dishonest act by the "employee";
· Whom you pay a salary, wages, or commission directly; and
· Whom you can rightfully direct and control while they are working for you.
For someone to be considered an "employee" of your company, all the above requirements must be satisfied. It's important to note that the company's owners and partners will not be treated as employees.
The most contentious part of employee theft coverage has been the third provision above, on the "right to direct and control." Other executives or shareholders of businesses that act without supervision from anybody else, including the board of directors, have also been subject to well-established legal precedents. it is a settled fact that the executive/shareholder in many of these situations won't be regarded as an "employee." Employee theft coverage will not apply to any theft involving them.
On the other hand, the term "employee" encompasses a wide range of workers for your business, including:
· Former employees retained as advisors or consultants
· Substitute staff
· Seasonal employees
· Temporary employees
· Leased personnel
· Interns and students (So long as they are getting paid)
What does Employee Theft Insurance cover?
Typically, employee theft insurance covers the following:
1.Employee Theft: This insurance typically covers losses resulting from the theft of money, securities, or other property owned by the insured business. It can include theft of cash from the company's premises, embezzlement of funds by an employee, or unauthorized taking of company property.
2. Forgery or Alteration: Employee theft insurance often provides coverage for losses arising from forgery or alteration of financial instruments, checks, promissory notes, or other documents by employees.
3. Fraudulent Transfer of Funds: It may cover losses resulting from fraudulent electronic transfers or wire transfers initiated by an employee for their personal benefit.
4. Computer Fraud: Some policies extend coverage to losses caused by computer fraud or cybercrimes committed by employees, such as hacking into the company's financial systems or manipulating electronic records.
5. Deceptive Practices: This coverage might be shielded from financial harm if an employee misleads the employer or engages in deceitful activity to get access to funds or property.
6. Investigation and Legal Expenses: Employee theft insurance may cover the costs associated with investigating the theft or fraud and any legal expenses incurred in pursuing legal action against the dishonest employee.
7. Employee Theft by Third Parties: In some cases, this insurance can also cover losses caused by collusion between employees and third parties, such as vendors or customers.
It's important to note that the coverage can vary depending on the specific policy and the industry. Businesses should carefully review their policy terms, coverage limits, deductibles, and any conditions that may apply to ensure they have adequate protection against employee-related theft or dishonesty.
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What are the key exclusions of Employee Theft Coverage?
The key exclusions of employee theft coverage can vary depending on the insurance provider and policy terms, but some common exclusions typically found in such policies include:
Acts committed by owners or partners in the business
The loss of future business income
Employees who have a known history of committing theft or fraud
Salary and benefits paid to the perpetrator while he or she was committing the theft
Indirect losses resulted from an employee theft
Why is Employee Theft Coverage important for businesses?
Employee theft coverage is important for businesses for several reasons:
· Financial Protection: It provides financial protection against losses resulting from theft, embezzlement, fraud, or other dishonest acts committed by employees. Such incidents can lead to significant financial damage to a business, and having coverage can help mitigate these losses.
· Employee Trust and Relations: Having employee theft coverage in place can demonstrate a commitment to employees and create a sense of trust within the organization. Employees may feel more secure knowing that the company has measures in place to protect its assets.
· Preventive Measures: Knowing that the business has insurance coverage for employee dishonesty can act as a deterrent for potential thieves within the organization. It sends a message that the company takes such matters seriously and will take action if necessary.
· Compliance Requirements: In some industries or for certain types of contracts, employee theft coverage may be required for regulatory compliance. Failing to have this coverage in place could result in legal and financial penalties.
· Legal and Investigation Costs: In the event of employee theft, investigating the incident and pursuing legal action can be expensive. Employee theft coverage often includes coverage for investigation and legal costs, helping the business manage these expenses.
· Peace of Mind: Business owners and management can have peace of mind knowing that they have a safety net in place if an employee commits dishonest acts. This can allow them to focus on running the business without constantly worrying about internal theft.
· Reputation Management: Theft or fraud committed by employees can harm a company's reputation. Employee theft coverage can help the business recover financially, allowing it to take necessary actions to rebuild its reputation.
· Customized Coverage: Businesses can often customize their employee theft coverage to suit their specific needs and risks. This means they can tailor the coverage to address the unique challenges and vulnerabilities within their organization.
How is the cost of Employee Theft Coverage determined?
The cost or premium of an employee theft crime insurance policy depends upon a number of factors including-
· Industry- Businesses operating in high-risk industries, such as convenience stores, can expect to pay more in premiums.
· Annual sales- Higher premiums may be the result of your firm being exposed to more risk as its income increases.
· Business size- The likelihood of crime, including employee theft or dishonesty, increases with the number of employees your company employs. This increases your risk proposition and hence your premium.
· Security measures- Businesses that can put in place security provisions such as cameras, safety equipment, and regular auditing procedures may be able to get their premiums reduced.
· Business property- You will have a higher risk for a crime if your company has high-value property in-store or keeps a sizable amount of cash at hand. This may put your premium on the higher side.
· Claims history- A history of frequent claims will obviously raise your premiums, as is the case with most insurance policies.
From the discussion above, we have observed that the importance of employee theft crime insurance cannot be overstated. As we conclude our exploration of this often-overlooked insurance coverage, one truth remains abundantly clear: the threat of internal theft is not a matter of "if," but rather "when."
Employee theft, in all its forms, can erode the very foundations of trust and financial stability that businesses rely upon. It can tarnish reputations, strain relationships, and push even the most resilient organizations to the brink. However, by recognizing the significance of employee theft crime insurance, business owners and managers can take proactive steps to protect their enterprises from this insidious threat.
In today's world, where financial vulnerabilities and uncertainties are a constant presence, employee theft crime insurance is not merely an expense—it's an investment in the longevity and security of your business. It provides peace of mind and a financial lifeline when you need it most.
Frequently Asked Questions (FAQs)
1. Is employee theft crime insurance the same as employee dishonesty insurance?
Yes, in insurance terms, employee theft and employee dishonesty insurance generally refer to the same type of coverage. Employee theft insurance is often called employee dishonesty insurance as well.
2. Does Employee Theft Coverage cover third-party crime?
No, third-party crimes are not covered by employee theft crime insurance. Theft and forgery performed by employees of your organization are covered by this insurance. Only if one of your employees conspired with an outsider to steal, third-party coverage may get attracted.
3. Are independent contractors covered under Employee Theft Coverage?
No. Independent contractors are not considered employees under employee theft coverage. They will not be covered if they are involved in a theft from your company.