Commercial crime insurance is crucial coverage that protects your business from financial losses related to crimes such as fraud, embezzlement, petty theft, burglary, and robbery. It will not only provide coverage if bad actors from outside the company cause you harm but it will also respond to theft and fraud from inside the company.
While every business owner probably trusts their staff to some extent the statistics are a cause for concern. Namely, 90% of all significant theft losses come from employees and more than 75% of employees have stolen something from work at least once.
As more and more organizations are starting to operate globally, international thieves, con-artists, and criminal organizations also have an opportunity to carry out attacks on businesses. This, along with the fact that the criminals’ methods are becoming increasingly sophisticated and effective, makes crime detection considerably more complex.
Computer-related criminal activity is another serious consideration that must be top of mind for businesses. Most businesses, no matter their size, location, or industry, use computers and accept electronic payments. Cybercrime is becoming a top risk and concern for most companies. The potential losses connected to cybercrime are enormous and that’s without considering reputational harm, business downtime and loss of income, damage to your digital infrastructure, and potential liability exposures that can follow.
Is Commercial Crime Insurance Worth It For Your Business?
Regardless of size, industry, or location, every company is a potential target for commercial crime. Most business owners understand how damaging crime-related losses can be and how vital implementing internal controls and external security is for modern companies. However, there’s always a chance that criminals will be able to circumvent these controls, sometimes third parties but more often your own employees.
To gain a deeper understanding of commercial crime in order to better understand why your business needs a commercial crime policy, let’s discuss what crime-related claims it will provide coverage for:
Employee Theft: As mentioned earlier, employee theft is one of the most significant and most common crime exposures that businesses face. Embezzlement, theft of information, and skimming are very common, almost daily, business crimes that occur. This is an unfortunate fact that most business owners will need to accept and properly safeguard their businesses against. A commercial crime policy will cover most losses related to employee theft.
Third-Party Theft and Robbery: If someone outside the business commits theft of money or securities on your premises, the crime policy will kick in to cover these losses. It will also reimburse you if your business property is damaged during the event. Keep in mind that the crime policy won’t cover valuable property that’s damaged in a crime-related event, that’s where your commercial property policy would kick in, assuming you have purchased one.
Fraud, Forgery, and Cyber Exposures: If criminals use forged documents, such as checks, promissory notes, or invoices to rob your business, you can rely on your crime policy to cover your losses. Also, if you’re given cash or checks that appear legitimate but are proven to be counterfeit, you’ll be reimbursed. Commercial crime insurance will also cover the losses that occur when cybercriminals commit fraud or theft using digital means. However, it will not pay for losses and liabilities resulting from a data breach itself; that’s something a cyber liability insurance policy protects against. Social engineering attacks are also considered cyber exposure and are not covered by a crime policy.
As you can see from the examples above, crime insurance is always a good idea. However, it’s essential to weigh the potential exposures with the cost of insurance. How much crime coverage does your business need and how much can you expect to pay for it?
How Much Will Commercial Crime Insurance Cost?
The question of crime insurance pricing is a complicated one. As with all other types of insurance, companies price fidelity bonds and related policies according to business risk and crime coverage amounts. There are several factors connected to your business that will determine how expensive crime coverage will be for each business.
Let’s break down these characteristics in order to gain a deeper understanding of what factors affect crime insurance premiums:
The Size Of Your Business: When discussing the size of a company, two components will affect your premiums; the number of employees you have and your revenue. The logic for insurers here is simple; the more employees you have, the higher the chance that someone will steal from your business. They’ll also consider if your employees work at a single location or if you have multiple workplaces. The disorder caused by moving from one office to another and the fact that it may be more difficult to spot someone stealing from several locations will impact your premium. Furthermore, criminals are more likely to target companies that have more money to be stolen. Additionally, claims for bigger businesses will be more severe. While a bad actor can defraud a small business for thousands of dollars, the same criminal act can cost millions for a company with more available resources.
Security Protocols: Insurers will want to see that you’re taking office security seriously. Having solid procedures and controls in place will signal that an incident is less likely to occur on your premises. Investing in security technology will also affect your premiums. You don’t have to go overboard, but simple precautions such as adding a few unobtrusive cameras and access controls for cash and securities will bolster how much underwriters trust your company not to experience a claim, allowing them to offer you a better deal on your coverage. Also, your cyber protections such as password controls, security training, two-factor authentication, and data encryption will play a significant role in the cost of both your cyber liability and commercial crime coverage. Companies with lax cybersecurity are seen as a juicy target for cybercriminals and an expensive business to provide coverage for by insurers.
Financial Controls: Insurers will want to see that your business has strong financial controls in place. Segregating duties and installing robust procedures for deposits, writing checks, inventory management, and approving wire transfers will reduce your insurance premium considerably.
Property and Equipment Value: The more valuable property your business has, the more you’ll have to pay to protect it from theft. Items that have a direct cash value or are especially valuable and are easily accessible to employees will drastically drive up the price of coverage.
Coverage Limits: The coverage limit represents the maximum amount that you’ll receive in the event of a claim. Higher limits will mean more expensive coverage. If you’re hit with a severe crime that causes massive losses, your limit may be exceeded and you won’t be compensated for the costs that exceed it (unless you’ve purchased a commercial umbrella policy). It’s a good idea to work with an insurance broker or agent to understand how much coverage you’ll need and what’s the lowest amount you’ll be able to pay to be sufficiently covered.
Claims History: When quoting you, insurers will look into your past claims. Businesses that demonstrate lax controls and have excessive crime-related losses can expect their premiums to be considerably higher.
Policy Deductible: Most commercial insurance policies will have a deductible. It represents the amount of money your company will have to pay out of pocket before the coverage starts. The higher the deductible, the lower the premium.
Location: In general, insurance premiums will differ considerably from state to state. Additionally, businesses operating in large cities and particular areas with high crime rates can expect to pay a lot more for crime insurance than those located in areas that are considered safer to live and work in.
How Businesses Can Reduce The Cost Of Commercial Crime Insurance
If you’re looking to save money on commercial crime insurance, it may be a good idea to add crime coverage as an endorsement to other policies, such as directors and officers, if you’re a larger company with a board of directors or a VC-funded startup.
For smaller businesses, adding crime to their business owners policy will give the company crime coverage that is less broad but will cost considerably less and still offer ample coverage for most likely claims.
An additional way to reduce your crime insurance cost is to consider fidelity bonds. Fidelity bonds are a subtype of crime insurance that cover the business from the risk of criminal acts committed by employees. They are similar to crime insurance but crime insurance will typically have considerably higher limits and will cover more potential exposures.
However, fidelity bonds will be cheaper to purchase and could reimburse your customers if they suffer damages. Businesses buying fidelity bonds instead of a commercial crime policy can expect to pay between 0.5% to 2% of the bond’s value, which could result in considerable savings.
You can learn more about fidelity bonds and whether they are the right fit for your business in this in-depth guide: What’s the Difference Between Fidelity Bonds and Crime Insurance?
The Potential Cost of Not Having Commercial Crime Insurance
Given the exposures we discussed, it’s clear that any business that foregoes investing in a crime policy or secures insufficient coverage is taking a very significant risk. With exposures growing and criminals becoming more sophisticated, the potential losses that a business faces are skyrocketing. Employee theft, which is the most common exposure, is also on the rise with the economy going through a tumultuous period.
Working with the right insurer and securing the right policy at the right price will bring you peace of mind that if a big crime-related claim hits, your business will be fully compensated and you’ll be able to weather the financial storm that follows. A preferred policy could also pay for counseling and support if your employees are traumatized by a robbery or violent criminal events.
If you want to better understand what your commercial crime insurance needs are, what coverage limits you need, and how much it will cost you, you can reach out to one of our expert brokers at any time to secure the right coverage at any time.