In this guide, we explain the scope of a crime policy, what might be insured or partly insured under other policies, and commercial factors that may also lead to companies taking out cover against crime.
What does crime and fraud insurance cover?
Essentially, businesses will be reimbursed for financial loss, legal expenses, forensic and public relations costs should anyone, anywhere, commit fraud against the company. One of the features of crime insurance is that it captures the many gaps found in general commercial insurance policies.
Examples of crime cover and gaps in other policies
A business' Cyber and Directors Liability policy may have elements of cover, but they are likely to be sub-limited, contain deliberate acts exclusions, and for social engineering losses, internal procedures warranties will often apply.
The following are examples of where the policy might be restricted:
- A member of staff colludes with a supplier to transfer the business' funds
- An employee colludes with a customer to steal customer funds
- The accounts department is tricked into paying a fake invoice because, inadvertently, checking procedures were not followed
- A director sets up an unauthorised consultancy firm to charge for advice to the company
- A manager falsifies expenses over a long period of time
- A disgruntled employee deliberately impairs the business' or even customer(s) computer systems prior to leaving.
Policy limits to consider
For SMEs, the choice of insurer is generally limited to the same provider as the directors & officers liability and crime cover is therefore offered as part of a package. The average policy limit is between £250,000 and £1,000,000 and insurers offer up to £2,000,000 maximum limit. For larger businesses that need a higher limit than £2,000,000, there are certain insurers who can offer up to £5m. Otherwise they will need to purchase the covers in layers, for example £3m in excess of £2m. An excess layer is a top-up liability cover designed to provide increased limits of liability over the primary insurance cover.
There are claims trends relating to different sectors, however the application for insurance will require businesses to apply minimum standards of risk management ranging from pre-employment checks, cyber security, internal payment procedures and generally a favourable loss history. Companies, in growth mode, also tend to be susceptible to claims as they update systems and change the structure of their business.
Other commercial factors - lenders, customers, investor requirements
These parties recognise the importance of financial stability and the Fiduciary Duty you owe the company to buy insurance. Customers may be worried about the business having access to their computer systems or knowledge of their internal procedures. We are finding that more and more of our clients’ customers are mandating a requirement to have up to £5m crime cover in place. It is always worth a fresh review of the contracts. Investors will also want to see this type of cover in place. If buying cyber insurance for the first time, then insurers will not provide retrospective cover. This means if a fraud is discovered for an act prior to the policy being put in place, then these claims would be excluded. This is why it is important, if you are looking at exit plans or new investment, for you to have cover in place and, ideally, evidence a history of insurance.