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Technology Insurance
Loss Scenarios for IT Firms

Theft of inventory
A manager of a wholesale paper products distributor colluded with a fellow employee in the warehouse to manipulate inventory and defraud the company. The pair stole from the company by diverting raw material before it became inventory, and by selling rolls of paper and other finished products. An anonymous tip regarding the theft resulted in the company hiring a private investigator. The private investigator uncovered the scheme and determined that it had been taking place for nearly two years.

RESOLUTION The total loss to the distributor exceeded $1.6 million.


It might not be the book keeper


Doing business in today’s economic environment can create significant amounts of risks. As companies nationwide try to find ways to keep their doors open, they’re downsizing, merging, and consolidating. Notably, these are the types of activities that cause employees to believe they’re justified in committing fraud. Employee fraud is a growing problem that involves such serious scams as asset misappropriations, fraudulent financial statements, bribery, and even corruption.

Currently, it’s estimated that American businesses lose more than $40 billion annually due to employee fraud. Recent studies have found that the most harm comes from the executive suite, not from a disreputable bookkeeper. The study, prepared by the Treadway Commission, found that higher- level executives of the victim’s company caused 83% of fraud that occurred from 1987-1997.

As with most risks, prevention is the best way to reduce losses. Companies must implement internal checks and balances to assure ethical behavior. Companies also should be certain to obtain the proper commercial crime coverage. If you have questions about your crime coverage, don’t hesitate to contact our staff for a coverage review

To put it bluntly: it is the loyal, long term, conscientious and trusted employee whose dishonesty can put you out of business. The programmer who never takes a vacation and is never sick. The payroll clerk who always makes sure that he or she distributes everybody's paycheck. The stock clerk who is always there. The long term employee who is “just like family.” Let's face it. Only employees like this really have the opportunity steal over a long period of time. Only employees like these can take enough to jeopardize the financial survival of your firm. Robbery and Burglary may be more spectacular and hit the local headlines - but that's a one time event, and rarely does enough monetary harm to damage the firm's financial strength permanently.


Employee Dishonesty

The Surety Association of America found, after a study of management's exposure to employee dishonesty and a review of losses over an extended period, that insureds did not carry employee dishonesty insurance in amounts large enough to cover the loss in a majority of actual losses studied. In light of this, the association developed a formula that has been widely used to replace guesswork in arriving at sufficient amounts of employee dishonesty insurance for individual insureds.

This simple and practical formula employs an exposure index that utilizes the two principal elements of exposure to dishonesty losses: current assets and gross sales or income. The formula is available through insurance companies. Employee dishonesty insurance should not be renewed for previous limits without careful review. Just as property insurance limits should be increased in the face of rising building costs and higher price tags on goods, so should fidelity insurance in many instances.


Fidelity/Crime Insurance


What is Fidelity/Crime Insurance?

Fidelity/Crime Insurance insurance protects organizations from loss of money, securities, or inventory resulting from crime. Common Fidelity/Crime insurance claims allege employee dishonesty, embezzlement, forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and other criminal acts.

These schemes involve every possible angle, taking advantage of any potential weakness in your company’s financial controls. From fictitious employees, dummy accounts payable, non-existent suppliers to outright theft of money, securities and property. Fraud and embezzlement in the workplace is on the rise, occurring in even the best work environments.

Liabilities covered by crime insurance usually fall into two categories, although many polices combine both types of coverage:

  • money and security coverage pays for money and securities taken by burglary, robbery, theft, disappearance and destruction.
  • employee dishonesty coverage pays for losses caused by most dishonest acts of your employees, such as embezzlement and theft

When do I need Fidelity/Crime Insurance?

Any business employer needs to be concerned with Employee Dishonesty or any business handing cash or securities needs protection from robbery or theft will need Fidelity/Crime Insurance.

Because crime-related losses are not typically covered by most property insurance policies, crime protection insurance is a necessary component for any business. Unfortunately, the majority of businesses don't purchase enough crime protection.

If yours is like the average U.S. business, you can expect to lose 6 percent of your total annual revenues to employee fraud.

According to a recent study by the Association of Certified Fraud Examiners (ACFE). It estimates the average business is losing six percent of its total annual revenue from losses involving employees — on average more than $9 per day per employee.

For an organization with 40 employees, with 250 workdays in a year, this could amount to as much as $90,000 off its bottom line.

Add to this other crimes such as robbery and burglary, where small operations are especially likely to be victims, losing at least 20 times more than large corporations. In fact, shoplifting, robbery and burglary put such a disproportionate strain on small firms that many disintegrate as a result.


Why do I need Fidelity/Crime Insurance?

Fraud and embezzlement in the workplace is on the rise, occurring in even the best work environments. According to a leading international accounting firm:

  • 80% of workplace crime is carried out by employees
  • One in four employees has either committed or witnessed workplace fraud and abuse
  • One in four employees committing fraud against their employer has been with the company for more than 10 years
  • Only one in three of those who have witnessed a workplace crime bother to report it

The Association of Certified Fraud Examiners has found that:

  • Fraud and abuse costs U.S. businesses more than $400 billion annually
  • Fraud and abuse costs employers an average of $9 a day per employee
  • The average organization loses 6% of its total annual revenue to fraud and abuse committed by its own employees

These frauds can go on for years, and when discovered the ultimate impact can be enormous. Smaller companies are especially vulnerable to Fidelity crimes.

Most business insurance policies either exclude or provide only nominal amounts of coverage for loss of money and securities as well as employee dishonesty exposures.

The American Management Association has estimated that employee dishonesty causes as much as 20% of the nation's business failures.

White collar crime can have serious financial consequences, even threatening a private company’s survival. InsureCast offers a solution to handling crime losses committed by employees, through ForeFront Crime Liability Insurance Policy. Please go to our online CoverageCoach questionnaire to get a free no obligation Fidelity/Crime Insurance quote.


Typical Fidelity/Crime Insurance coverage highlights include:

Comprehensive coverage for:
  • Employee theft
  • Money and securities while on premises or in transit
  • Forgery
  • Funds transfer fraud
  • Computer fraud
  • Money order and counterfeit currency fraud
  • Credit card fraud
  • Optional client coverage
  • Coverage for investigative costs for covered losses
  • Responds to Employee Retirement Income Security Act of 1974 (ERISA) plan bonding requirement.
  • Broad definition of employee, including directors and officers; employees, including part-time, leased, temporary, and seasonal employees; and volunteers.
  • Worldwide coverage.

Computer Fraud

Computer Fraud covers the fraudulent transfer of money, securities and other property from any computer inside your premises or a banking premises to somewhere else outside of either premises. For example, your salesperson was staying in a hotel in Peking (where the employee was conducting business from a rented hotel room) and someone broke in and used the salesperson's laptop to transfer funds to his/her account; this too would be covered.

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