Crime insurance is a type of insurance that provides coverage for businesses against losses caused by criminal acts such as theft, fraud, and embezzlement. This type of insurance can be purchased by companies to protect against financial losses resulting from criminal activities committed by employees, customers, vendors, or other third parties. With the increasing incidents of cybercrime and internal fraud, commercial crime insurance has become a crucial part of risk management for any business. By having this coverage in place, businesses can improve their risk management practices, protect their assets, and improve their reputation.
Which all Businesses Need Crime Insurance?
Businesses that engage in the following activities are more vulnerable to petty theft:
- Participate in currency transactions
- Hire part-time workers
- Possess expensive office equipment
- Inventory management
Similarly, if you are involved in the following activities, you are more vulnerable to digital theft and manipulation:
- Electronic transactions
- Customer information
- Sensitive financial records
An employee can steal from your company's cash reserves, or fall victim to an email phishing attack, whether you are a public company, a private company, or a non-profit. In addition, they could cooperate with a third party to steal your company's stock gradually over time by obeying fraudulent instructions to transfer your company's funds to another account.
A private company, public company, or non-profit organization can have an employee stealing from its cash reserves or be victimized by an email phishing scam. A third party may collaborate with them to steal your company’s stock gradually over a period of time. Worse, they could follow fraudulent instructions to transfer funds from your company to another bank account.
Needless to say that losses related to criminal acts can be frustrating and costly. Commercial crime insurance can provide financial protection for businesses against losses resulting from criminal activities. In the event of a loss, the insurance company will provide compensation to your business, which can help you to recover from the financial impact of the loss.
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During his absence, a senior manager shared his credentials with the accountant, who misused them to divert funds to his personal account while also concealing them in the book of accounts. A loss investigator was appointed by the insurer by utilizing its global network to confirm and expedite the settlement of the claim.
What is Included in Crime Insurance?
- Employee theft coverage
This coverage is designed to protect a business from financial losses caused by theft or embezzlement committed by its identifiable employees, acting alone or in collusion with others. It also covers loss due to forgery or alteration of cheques, bills of exchange, and promissory notes, which may be caused by the employee.
2. Premises coverage
This coverage is designed to protect a business from financial losses caused by crime that occurs on the business's premises. This policy covers damages caused by disappearance, destruction, wrongful abstraction, or computer theft of securities or money from the premises of the insured by external parties. It also covers the loss of or damage to such property, a locked safe, cash drawer, cash box, or cash register within the premises resulting from robbery or burglary.
3. Transit cover
This coverage is designed to protect a business from financial losses caused by actual destruction, theft, disappearance, or wrongful abstraction of goods, products, money, or securities outside the premises. This type of coverage applies also to the movement of goods, products, money, or securities from one location to another through any mode of transportation, while being conveyed by the Insured, a partner, an employee, or anyone authorized by the Insured. This coverage can be extended to loss of or damage to other property by robbery/attempt thereat outside the premises while the property is being conveyed by the Insured, a partner, Employee, or anyone authorized by the Insured.
4. Depositors forgery coverage
It protects against financial losses caused by forgery or alteration of a cheque, draft, promissory note, bill of exchange, or similar written promise made or drawn by or drawn upon the insured or his authorized agent. It will also cover the reasonable lawyer fee, court costs, or other legal expenses incurred by the insured that are related to the defense of a claim resulting from such a forgery or alteration.
5. Computer fraud coverage
This policy covers the losses caused to the insured from computer-related frauds by a third party (to whom the Insured has not given authorized access) including hacking, viruses, and other malicious activities. This coverage can be purchased as a standalone policy or as an endorsement of a commercial crime policy. Such fraud should directly result from fraudulent input of Electronic Data directly into the Computer Systems of the insured or fraudulent modification/ destruction of Electronic Data belonging to the insured.
6. Legal expenses coverage
This coverage is designed to cover the reasonable fees, costs, and expenses incurred and paid by the Insured, with the prior written consent of the Insurer, in the defense of any demand, claim, suit, or legal proceeding brought against the Insured during the Policy Period. This can include costs such as hiring a lawyer, court fees, and other expenses incurred during the legal process. It would also cover the defense costs incurred by the insured for providing documents or information required by the investigator during an investigation.
7. Public relation costs
In the event of a covered crime, such as fraud, embezzlement, theft, forgery, or employee dishonesty, this policy may cover the costs associated with managing the public relations aspect of the incident. Public relations expenses can include communication and reputation management efforts aimed at minimizing the negative impact on the insured business's image, reputation, and stakeholder relationships. This coverage might extend to expenses related to developing and running advertising campaigns or communication initiatives aimed at repairing the damaged reputation and restoring public trust.
8. Credit card fraud coverage
This coverage applies to losses incurred by the insured as a result of unauthorized charges or transactions made on a credit card account belonging to the business. It can also cover losses caused by credit card skimming, a type of theft where a small device is placed on card-reading equipment to read and store credit card information.
9. Crisis communication costs
In the event of a covered crime, this policy may cover the costs incurred by an insured organization in attaining the services of any public relations (PR) or crisis management firm. This might be required to manage the public image of the business in such situations as fraud or lawsuits. This would also cover costs related to media relations and press conferences, advertising campaigns, social media management, and other necessary communication efforts to manage the crisis and protect the reputation of the insured business.
10. Court attendance cost
This policy may cover the costs associated with the attendance of an employee at court as a witness in a criminal case involving the business. This can include costs such as travel and accommodation expenses, as well as lost wages for the employee while they are away from work. This type of coverage is important for businesses as it helps to mitigate the financial burden of having an employee attend court as a witness in a criminal case and can help to ensure that the employee's absence from work does not cause significant disruptions to the business.
11. Counterfeit Currency Fraud
This policy may cover the financial losses that may occur as a result of a business unknowingly accepting fake currency in good faith, in exchange for goods or services. It can also cover losses caused by a business unknowingly depositing fake currency into its account. This can include losses incurred by the insured business in transactions or business activities where the counterfeit currency was used and subsequently discovered to be counterfeit. The insured business is typically required to provide appropriate documentation and evidence. This may include police reports, expert opinions on counterfeit notes, financial records, and any other relevant documentation that substantiates the nature and extent of the losses.
12. Fund transfer fraud
This add-on cover may reimburse the financial losses that may occur as a result of unauthorized electronic transfers of funds from a business's bank account. It can also cover losses caused by a business falling victim to phishing scams or other forms of fraudulent activities targeting the business's funds. The policy may provide coverage for expenses incurred by the insured business in verifying the fraudulent fund transfer and conducting investigations. This can include costs associated with engaging forensic services, IT consultants, legal experts, or other professionals to assess the situation and gather evidence. In cases where legal action is necessary to recover the funds or hold the responsible parties accountable, the policy may cover the legal expenses incurred by the insured business.
13. Care custody and control
This policy may cover the financial losses caused by damage or loss of property while it is in the care, custody, or control of the insured. This can include damage, destruction, theft, or loss of property due to covered perils. This type of coverage is typically used by businesses that store, handle, or transport other people's property such as warehouses, logistics, or storage companies. It can also be used by businesses that have to temporarily take possession of the property for a specific purpose such as cleaning, repair, or maintenance, for example. However, the amount approved should be within the Limit of Liability specified in the schedule of the policy.
14. New subsidiary
This coverage automatically includes subsidiaries newly created or acquired (during the policy period) by the insured, under the main policy, without the need for additional paperwork. However, at the start of the policy period and at the time of loss, the insured must declare that the insured controls, directly or indirectly, more than 50% of the interests entitled to vote in the election of the governing body of such a subsidiary organization. Also, the insured should give the insurer sufficient details in the stipulated timeline so that the insurer can evaluate the insurer’s potential increase in exposure after such creation or acquisition. Based on such an evaluation, the insurer may calculate an additional premium to levy and pass necessary endorsement as applicable.
15. Extortion cover
This coverage is designed to protect a business from financial losses caused by extortion, which is a type of criminal activity where a person or group threatens to cause harm or damage to a business unless a demand for money or other valuable consideration is met. This type of coverage applies to losses that occur as a result of a business paying money or other valuable consideration to meet the demands of an extortionist. It can also cover costs associated with the investigation and prosecution of extortion.
16. Investigation Cost
This policy may cover the costs associated with investigating a crime that has been committed against a business. This can include costs such as hiring a private investigator, legal fees, and other expenses incurred during the investigation process. The insured business typically needs to provide appropriate documentation and evidence of the expenses incurred. This can include invoices, receipts, contracts with investigative professionals, or any other relevant documentation that substantiates the nature and amount of the expenses.
17. Interest receivable or payable
This type of coverage applies to losses that occur as a result of a third party's failure to pay interest on money that the business has loaned or invested, or failure to pay interest on money that the business owes to a third party. However, such a failure should result directly from a loss covered under this policy. Also, the insurer’s liability for such interest receivable or payable
- should be calculated by applying the average of the RBI base rate prevailing between the time of sustaining such loss and the date of discovery of such loss; and
- Is limited to 15% of the Limit of Liability specified in the Policy Schedule and such amount is part of the Limit of Liability specified therein.
18. Data reconstitution cost
This cover includes the reasonable cost of rewriting or restoring the insured's software systems or programmes with the prior written consent of the insurer. Such rewriting or restoration work should be necessary to correct the programmes or security codes following a covered loss. The insurer’s liability for such work is limited to a certain percentage ( usually 5%) for any single loss. Also, the approved amount is part of and not in addition to the Limit of Liability specified in the Policy Schedule.
19. Audit Fees
This type of coverage applies to the costs associated with an audit of the business's financial records that may be required as a result of a covered loss. This can include costs such as hiring an auditor, legal fees, and other expenses incurred during the audit process. The insured business typically needs to provide appropriate documentation and evidence of the expenses incurred. This can include invoices, receipts, contracts with auditing professionals, or any other relevant documentation that substantiates the nature and amount of the expenses.
20. Social Engineering Fraud
This coverage offers financial protection in the event that the insured incurs monetary loss due to an employee falling victim to a social engineering scam. It specifically covers loss caused due to the good faith transfer of money or other property. Such a loss should be a direct result of fraudulent instructions by a person impersonating a client, supplier, vendor, or employee authorized by the insured to provide such instruction.
What is Not Included in Crime Insurance?
- Income loss caused by a criminal act by the insured
An insured who commits a crime and loses their income as a result is not covered by a crime policy.
2. Cybercrime losses such as trade secrets and patents
Intangible assets, such as trade secrets, patents, copyrights, and other forms of intellectual property, are not covered by this policy. There are specialized policies designed to cover these types of losses, such as intellectual property insurance, which can be an effective option for businesses.
3. Property damage caused by fire
The loss of income associated with fire is usually covered separately by fire or property insurance policies. Crime insurance excludes any income loss resulting from a fire.
4. CXOs or company management committing crimes
This policy does not cover losses resulting from criminal acts committed by CXOs or other management members.