Why Commercial Crime Insurance is Essential for Your Business
Every year, businesses suffer enormous losses because of theft and criminal activity. These activities are not victimless crimes: they're quite costly. According to the Statistic Brain Research Institute, commercial crime costs American businesses almost $50 billion annually.
Another study conducted by Hiscox, a global insurer, found U.S. companies lost $1.13 million on average. Small and midsize businesses represented 68 percent of commercial criminal cases. On average, each business lost $289,864. Most companies cannot afford to have theft and crime-related losses affect their bottom line. An essential step that businesses should take to protect themselves is to purchase a commercial crime insurance policy. You'll learn why you should consider buying this must-have insurance coverage for your business.
What Is Commercial Crime Insurance?
Today, companies face an enormous risk of inventory and financial losses resulting from crimes. For instance, thieves and robbers can physically break into their property and steal goods and services. They also face situations where dishonest employees steal inventory. Others face white collar crimes when disreputable financial professionals transfer funds out of their bank accounts.
Generally, most commercial property insurance and general liability policies won’t cover losses that business owners may experience due to criminal activity, so they’ll need additional coverage to protect themselves. Commercial crime insurance protects against financial losses that companies suffer because of criminal activity. These policies offer comprehensive coverage against many forms of crime, including theft, burglary, robbery, forgery and fraud. It also reimburses assets, cash, merchandise and other property. Insurers also sell this coverage as business crime insurance. Although it may cost entrepreneurs money to purchase these policies, this investment pays exceptional dividends. It will protect them if their company suffers grave losses resulting from criminal activity on their property.
Commercial Crime Insurance are Different from Fidelity Bonds
Crime insurance is different from a Fidelity Bond that is required by the Employee Retirement Security Act (ERISA) to insure business against criminal dealings involving retirement. They protect against potential criminal actions from employees that specifically handle your company’s retirement plans. Commercial crime insurance is not required by Federal law but it covers employee dishonesty, theft of money, securities and other forms of fraud.
Who Needs to Buy Commercial Crime Insurance?
Unfortunately, no business is completely safe from becoming a victim of theft or fraud. According to the Association of Certified Fraud Examiners (ACFE), U.S. businesses have more than $400 billion annually in losses resulting from fraud and abuse.
Every company should consider getting commercial crime insurance to protect themselves and their assets. Some owners believe that only giant corporations should invest in a commercial crime insurance policy, but this coverage isn’t just for big businesses. Most small and mid-sized companies would benefit from this coverage.
Although fraud is a widespread problem, small businesses suffer the most losses because they don’t have enough financial resources to implement stricter auditing processes and safety measures. Additionally, because they have limited staff, most small business owners invest a lot of trust in their workers, although a few employees may violate it to commit crimes.
How Does Commercial Crime Insurance Work?
Most entrepreneurs obtain this supplemental coverage because most commercial property and business property policies don't cover losses resulting from criminal activity.
Owners can purchase business crime coverage as part of an industrial package policy, also known as “special multi peril insurance.” They can purchase them as standalone policies. It allows them to dictate which crimes they want covered versus those they are at a lower risk of experiencing. They can also add this coverage to insurance bundles they’ve already purchased. Commercial crime insurance offers substantial protection against property loss, liability, and other types of potential losses resulting from criminal activity. It can help business owners in the following situations:
- You’re a small to medium-sized company that has limited funds to invest in onsite security measures.
- Your business doesn’t have a sophisticated security system.
- You are a small enterprise that engages in regular transactions using checks, cash, credit, or electronic transactions or money transactions.
- You store valuable items in a safe or vault on your business premises.
- Your enterprise has inventory or stock onsite that employees, thieves, or criminals could easily steal.
- Your workers handle financial records and customer data.
- Your employees have access to valuables, cash, goods, and equipment.
- You hire part-time employees or volunteers.
What Does Commercial Crime Insurance Cover?
Your insurance policy can insure you against losses from a wide variety of crimes. Here are a few situations that your basic Commercial Crime Insurance coverage can insure against.
Employee theft coverage– Many companies work hard to find employees that they can trust to run their operations. Unfortunately, some employees can violate their employer’s trust by stealing inventory from them. This insurance covers any losses caused by employee theft or forgery. If your business knows your employee previously committed thefts at your business and you didn’t fire them, your policy may not cover these losses.
Funds transfer fraud – This coverage protects your business against fraudulent instructions provided to a bank or financial institution that causes them to transfer funds out of your account.
Premises coverage – It includes damages that result from criminal damages to your business from third parties.
Computer Fraud - This coverage will insure against losses caused by digital criminals who use computers to steal money, property, or securities to an area outside of your premises
Losses from forgery or alteration – Commercial crime insurance will pay for claims related to crimes committed by third-parties who forges a check, provides counterfeit money or alters financial materials to commit a crime against your company. It will also pay for legal fees to defend from lawsuits if someone sues you for refusing to pay for a forged check or promissory note.
Theft of securities and money inside your business premises – These policies can help your business if someone steals cash, checks, securities or other forms of currency from your company’s residence, your personal home or financial institution that relates to your business affairs.
Loss of money or securities outside the premises – It covers your business when there is theft, damage or destruction of money, securities and other property while it’s outside of your business premises and is in the care of an armored car company or messenger.
Losses caused by counterfeit money orders and currency – It covers you when a person uses counterfeit money orders or currency to pay your business.
Third-party theft – Commercial crime insurance also provides financial protection if your employee steals your customers’ money, property, assets, and property while on the clock. It doesn’t shield you against third-party claims that your customer may bring against you resulting from that theft. (This coverage isn’t available in all states, and it varies by location).
Supplemental Coverages You Can Add to Your Commercial Crime Insurance
There are some upgraded coverages that you can pay for an extra premium. They include the following:
Property of Clients – This covers the theft of a client’s money, securities, or other property by one of your employees. It is useful if your employees work at a client’s site. If a customer complains that your employee has stolen items of theirs, it can cover your business for this loss.
Extortion and kidnapping – This insurance will cover situations when a criminal kidnaps a director, manager, partner, or worker belonging to your business. The coverage will pay for the ransoms due to extortionists that threaten to harm your business premises or property. Your company can also purchase a standalone Kidnap and ransom insurance policies.
Exclusions on Commercial Crime Insurance Policies
Although commercial crime coverage provides enormous protection for businesses, it doesn’t cover every criminal act. They won't cover the following situations such as:
Actions of owners, business partners, directors, officers – These policies generally don’t shield against intentional criminal acts committed by administrators or management figures. You will need to purchase directors and officer insurance to protect your company against these acts of deception.
Crime-related claims - This coverage will not cover claims that a customer may file against you due to a crime someone committed on your property. This insurance won’t provide financial protection liabilities your organization may owe to others that result from these losses.
Accounting errors - Crime insurance generally doesn't pay when an employee of yours makes an accounting or bookkeeping mistake.
Specialized occupations – Commercial crime insurance doesn’t protect certain industries who must seek out tailored policies for their businesses. These include the banking industry, legal fields and other occupations.
Data breaches and related liabilities – This insurance doesn’t cover data breaches, losses of patents, sharing of trade secrets, or release of customer lists. You will have to purchase cyber liability coverage for protection.
Income losses – These policies won't replace the income that you lost because of criminal activity.
Employees that stole from you in the past – Commercial crime insurance only covers the first time a worker steals from your business. It won't pay for their future crimes.
Inventory shortages – This insurance doesn’t cover stock shortfalls that an employer discovers during a physical count to check against financial statements. If your workplace has a video that shows an employee has stolen this inventory, this policy may cover the loss.
Third-party liabilities –This coverage doesn’t cover any crime-related losses you may incur to third parties.
Losses arising from trading and investment decisions – These exclude indirect losses of income from stolen money or securities.
Legal fees – All attorney fees, except those related to forgery lawsuits, are excluded from coverage.
Warehouse receipt fraud – Commercial crime insurance doesn't cover issues involving warehouse receipts that prove the ownership of commodities, including copper and other materials, stored in a facility.
Government seizures – These policies don’t cover seizures of property by federal authorities.
Limits on a Crime Insurance Policy
Most insurance companies customize commercial crime insurance policies to the needs of a company. They compute limits based on the maximum possible losses and budget of each enterprise.
How Much Does Commercial Crime Insurance Cost?
It’s much cheaper to purchase this insurance as part of a business owner’s policy (BOP) or commercial package policy than getting standalone coverage. You can often save 25 to 50 percent by packaging your commercial crime coverage into a BOP or CPP, instead of buying this coverage separately. Insurers will base your premiums on several factors, including:
- How many employees you have
- Your annual profits and financial assets
- The quality of your security system (or lack of one)
- Your equipment and inventory stock
Additionally, the amount of coverage you should purchase will depend on how well you know or trust your employees.
Discovery Versus Loss-Sustained Basis Coverage
Insurers write these policies on either a loss sustained basis or a discovery basis.
Loss-sustained policy – It is similar to occurrence coverage found in liability insurance. This policy covers losses resulting from criminal activity that occurs when it is in effect. It pays for these losses even when an owner hasn't discovered the crime until after the coverage expires. They can file a claim at a later date, as long as it occurred when it was active.
Discovery basis policy – These resemble claims-made liability coverage. Entrepreneurs must have an active policy at the time they discover criminal activity. Once their insurance expires, they no longer have coverage for any losses that occur. Policyholders have a 60-day window to find fraud. The discovery period allows business owners to submit claims within two months.
How You Can Reduce Your Chance of Becoming a Crime Victim?
There are seven steps that your business can take to protect against crimes at your business. They include:
- Run complete background checks on all of your employees.
- Install panic locks on any rear doors.
- Keep a safe to house your important financial documents and money on your business premises.
- Train your workers how to operate your business safely in case the worse happens.
- Develop a detailed plan for your employees about what to do if there is a robbery at your business.
- Deposit your funds into the bank every day.
- Check your receipts against your bank deposits.
Are you searching for a Commercial Crime Insurance Policy that will protect your business from losses? You can trust SmartFinancial to help you find an affordable policy that meets the needs of your business. We have improved the way companies and people search for insurance. Our transparent insurance technology makes it easy to find affordable commercial crime policies within your area. You won't have to spend hours comparing coverage. All you'll need to do is complete a quick application, and we'll provide you with a list of local insurance companies with great coverage that fits your needs. You'll have the option of buying a policy online or by phone. It's quick, easy, and effortless.
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