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Crime Insurance - Part 1


What one has, another one wants. Usually we find legitimate means to get what we desire. However, there are the few among us who go the route of merely taking from others, especially from businesses. Crime is one of the many, serious exposures to loss where insurance protection is needed. Since other forms of coverage, such as property and inland marine policies, offer such limited protection against crime-related losses, crime insurance is necessary.

Crime insurance coverage may be purchased as a separate policy, or it may be added as a supplement to other coverage. Crime losses are handled in two distinct ways. One is on a discovery basis. It refers to a crime loss that is first discovered during a given period of crime insurance coverage. The actual loss may have occurred at an earlier time. The other method is a loss sustained basis which responds to losses both sustained and discovered within the policy period. It also handles losses that are sustained during the policy period and discovered within one year after the end of that policy period.

While all businesses are vulnerable to crime loss, their vulnerability differs. One business may be most threatened by internal sources of loss (dishonest employees) while others face a larger threat from burglars. Crime coverage is structured so a given business can select limits of protection that best fits its circumstances. Typical coverage includes the following:

Coverage

Applies To Loss Involving:

Employee Theft

The unlawful taking of money, securities and other property by employees. 

Forgery and Alteration

Outsiders that forge or alter checks, drafts, notes or other written promises, orders or business account directions. 

Inside the Premises

Theft, disappearance or destruction of money and securities from within the insured premises. Also covers premises damage caused by theft attempts. 

Inside the Premises-Robbery or Safe Burglary of Other Property

Robbery of a person in charge of the property or safe burglary of other property that occurs inside the premises. Also covers damage caused by robbery attempts.

Outside the Premises

Theft, disappearance and destruction of money and securities that occur outside the premises when that property’s in the custody of a messenger or an armored car company.

Computer Fraud

Money, securities and other property fraudulently transferred from the insured premises or banking premises by electronic means.

Funds Transfer Fraud

Funds lost as a direct result of fraudulent instructions directing a financial institution to transfer, pay or deliver funds from a transfer account.

Money Orders and Counterfeit Money

Counterfeit money accepted in good faith in exchange for purchases. Also covers money orders accepted by a business which are then rejected when presented to issuer for payment.

Please see part 2 which discusses situations that are commonly excluded from Crime policies.


COPYRIGHT: Insurance Publishing Plus, Inc., 2016

All rights reserved. Production or distribution, whether in whole or in part, in any form of media or language; and no matter what country, state or territory, is expressly forbidden without written consent of Insurance Publishing Plus, Inc.

 

Crime Insurance - Part 2

Part 1 discussed the valuable protection provided by Crime Insurance. However, companies that offer this coverage have to protect themselves from illegitimate claims.

It’s a sad but ongoing reality is that business owners and their employees are in the best position to steal or commit fraud. Therefore, there are many situations that do not qualify under a Crime Insurance Policy.

Ineligible situations include the following:

  • Acts Committed by the insured business (including business partners and employees).
  • Acts of Employees when the insurance company learned that an insured businessowner knew about the acts before the Crime Insurance Policy was obtained.
  • Acts of Employees, Managers, Directors, Trustees or Representatives. However, this exclusion does not apply to the policy’s Employee Theft provision.
  • Loss caused by unauthorized use of confidential business information.
  • Governmental Action (such as property seizure, forfeiture or destruction).
  • Indirect Income Loss (due to loss of access to money, securities or other property).
  • Legal Fees, Costs and Expenses related to any legal proceedings.

Other situations that are barred for coverage include securities trading and losses that can only be proved by warehouse receipts or inventories. The latter situations aren’t covered because such information can be easily manipulated to make it seem that a loss has occurred.

The reality is that businessowners have to make suspicious assumptions against both insiders and outsiders when it comes to protecting their assets. Fortunately, Crime Insurance Coverage is available to help meet such sources of loss.


COPYRIGHT: Insurance Publishing Plus, Inc., 2016

All rights reserved. Production or distribution, whether in whole or in part, in any form of media or language; and no matter what country, state or territory, is expressly forbidden without written consent of Insurance Publishing Plus, Inc.

 

Crime Insurance - Part 3

Parts 1 and 2 discussed the valuable protection provided by Crime Insurance and various situations that do not qualify for coverage. Parts 3 and 4 discuss how to handle two main crime exposures.

EMPLOYEE THEFT

Employees who steal from their employer betray a trust, so protecting against this source of loss involves evaluating each employee’s trust level. Trust level equates to the amount of company assets (such as money or inventory) that a given individual controls. Vulnerability to employee theft is directly related to the level of asset access held by employees and the number of employees who have such access. Safeguards involve reducing this vulnerability.

It is impossible to eliminate employee theft. However, it can be mitigated by controls. Controls can also assist in capturing the parties responsible for a loss. The first type of control limits the opportunities for theft, the second are audits which quickly identify wrongdoing. There are several techniques that a business can employ.

1. New hires - New employees who handle cash, securities, or inventory must be scrutinized. A background check should verify the references and other information before hiring an employee.

2. Separation of duties - Job duties should be separated so different employees handle deposits, account payments, statement reconciliations, inventory orders and receiving shipments. With smaller staff,  use of job overlap and rotating duties can assist in reducing theft opportunities.

3. Check handling - All checks should be countersigned (signature by two or more authorized persons). The person who countersigns should not be involved in reconciling or preparing checks. A threshold amount over which all checks must be countersigned should be established in cases where universal countersigning is impractical. Payroll checks should receive the same careful treatment. Incoming checks should immediately be stamped “for deposit only” and then be recorded as received.

4. Inventory control - There should be records to keep track of inventory movement. Only a few select individuals should be authorized to order items. Prior approval of suppliers by someone other than the person who places the orders should be in place. This can prevent collusion and eliminate payments to fictitious suppliers. Prior approval of customers that pay by credit should also be required so that orders are not shipped to fictitious customers or locations and payments cannot be collected.

5. Outside audits - Regardless of the number, extent, and effectiveness of internal controls, someone inside the company has ultimate control. The only way that person can be held accountable is through an independent outside audit. A Certified Public Accountant (CPA) who is totally independent of the company should conduct the audit at least annually.


COPYRIGHT: Insurance Publishing Plus, Inc., 2016

All rights reserved. Production or distribution, whether in whole or in part, in any form of media or language; and no matter what country, state or territory, is expressly forbidden without written consent of Insurance Publishing Plus, Inc.

 

Crime Insurance - Part 4


Parts 1 and 2 discussed the valuable protection provided by Crime Insurance and various situations that do not qualify for coverage. Parts 3 and 4 discuss how to handle two main crime exposures.

THEFT, ROBBERY AND BURGLARY BY OTHER THAN EMPLOYEES

While it’s impossible to prevent all criminal acts, provisions can make criminal activities more difficult to commit and to make criminals aware that it will be difficult to profit from crime.

1. Barriers - A good first crime barrier is a good lock. The better the lock, the better the barrier. However, key management is essential. All keys should be numbered and assigned so they may be retrieved from employees who leave the company.

The next barrier is windows. They should either be fixed or be closed and locked during non-business hours. Windows consisting of tempered and/or bulletproof glass are best.

Fences and/or walls erected around the perimeter of the location or premises are also effective barriers. They should be high enough and properly configured to discourage climbing and not be erected near trees. A secured gate manned by company or outside service providers personnel can reduce or prevent unauthorized entry

2. Alarms - Alarms do not prevent entry. However, they do alert police, guards, or authorities who can intervene and try to stop the criminal activity. Alarms reduce the premises’ attractiveness as a theft target. A number of alarm systems are available. Each has different degrees of effectiveness. Silent alarms are useful for situations that involve cashiers and tellers, notifying police of a criminal act without alerting the criminal.

3. Location - Holdups are much more likely if the business’ operating hours are different than those of other businesses in the area, if it is located near an access road (such as an interstate or state highway) or if only one employee works on a given shift. Businesses located in high crime areas must take more precautions.

4. Money handling - The amount of cash kept on hand should be kept to a minimum, checks should immediately be stamped “for deposit only,” and credit card receipts should be stored separately from cash. Cash drawers should be regularly emptied of large bills, checks, and credit card receipts to minimize the loss if there is a holdup. Items removed from the drawers should be deposited or placed in a safe, vault, or other secure receptacle. Bank deposits should be made at least daily or more frequently.


COPYRIGHT: Insurance Publishing Plus, Inc., 2016

All rights reserved. Production or distribution, whether in whole or in part, in any form of media or language; and no matter what country, state or territory, is expressly forbidden without written consent of Insurance Publishing Plus, Inc.