Crime and Fraud Insurance

In this guide, we will help you better understand 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, you will be reimbursed for financial loss, legal expenses, forensic and public relations costs should anyone, anywhere, commit fraud against your 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

Your 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 your policy might be restricted:

• A member of staff colludes with a supplier to transfer your own funds
• An employee colludes with your customer to steal customer funds
• Your 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 yours or even customer(s) computer systems prior to leaving.

Policy limits to consider

If you are an SME, the choice of insurer is generally limited to the same provider as your 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.

If you are a larger business and need a higher limit than £2,000,000, there are certain insurers who can offer up to £5m. Otherwise you 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.

Risk profiling

There are claims trends relating to different sectors, however the application for insurance will require you 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. Your customers may be worried about you having access to their computer systems or knowledge of their internal procedures.

We are finding that more and more of our clients’ customers mandating a requirement to have up to £5m crime cover in place. It is always worth a fresh review of your contracts.

nvestors will also want to see this type of cover in place. If you are 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.