There are several types of malicious acts that could affect the small business, including vandalism, theft, embezzlement, and hacking. Coverage with criminal insurance can help protect against these occurrences.
Why Business Crime Insurance?
Often the small business owner has a small number of trusted employees. An act such as embezzlement by one of these employees may come as a huge shock to the business owner and may result in the failure of the business.
Scenarios such as this are, unfortunately, very common in small businesses whose management puts blind trust in its employees and lacks internal controls. Small businesses are the most vulnerable to types of occupational fraud, according to a study in 2008 by the Association of Certified Fraud Examiners. Businesses with less than 100 employees suffered around a $200,000 loss. This amount is higher than for any other type of business. Common schemes for fraud in the small business included fraudulent billing and check tampering.
Typically, crime-related loss is not covered by commercial property insurance policies, so instituting crime insurance, also called «fidelity» insurance, is a good idea for any small business. This type of insurance is often overlooked, especially if businesses are looking for ways to cut costs, but underinsurance is the most common reason small businesses are unable to recoup after a catastrophic loss. Businesses simply do not purchase enough protection against crime. Since fraud by employees can go unnoticed for years, the accumulated damage to the business could be fatal.
Commercial crime insurance is especially important for the small business, but becomes an even bigger necessity if the business deals in checks, online payment systems, cash, or credit cards. There are generally limits specified for losses for both on and off-premises. Coverage may extend to merchandise, property, securities, or cash.
What Does Business Crime Insurance Cover?
Business crime insurance is usually designed in a manner that covers some basic types of business crime but may then be customized to fit the specific needs of the small business if necessary. Endorsements may be added to the business owner’s policy or may be additionally written in other small business insurance policies. Most basic business crime insurance policies cover the following:
- Alteration or forgery
- Employee dishonesty or fraud
- Monetary and securities theft
- Robbery or burglary
- In addition to these basics, policies may also cover:
- Computer fraud
- Counterfeit paper money
- Credit card fraud
- Cash destroyed by fire
Regardless of the basic policy, the coverage will vary according to the specific type of policy you choose. Business crime insurance may typically cover the damage to or loss of property occurring from theft after forced, violent entry into your business or an armed robbery. In addition to this regular coverage, the policy may also include scenarios such as hacking and computer fraud or forgery of documents.
Types of Business Crime Insurance
Business crime insurance coverage is available in two basic types: Loss-sustained and Discovery Commercial Crime Insurance.
Discovery commercial crime insurance covers any losses discovered within the policy coverage period, with no regard to when the losses were sustained. Loss-sustained commercial crime insurance reimburses only those losses that occur while the policy is active and effective and only up to a specific period after expiration (generally about one year).