Well written commercial crime policies help companies avoid fraud

Given the losses that can result from commercial crime, underwriting broad-form policies to cover these losses is not something that insurers fall over each other to do. That said, the exercise of assessing the exposures that apply when underwriting a commercial crime policy can help companies reduce opportunities for fraud.

Commercial Crime policies cover a wider range of risks than a standard Fidelity policy. These include consequential loss, loss suffered from a computer virus, third party computer fraud (hackers), litigation costs and fraudulent transfers. Commercial Crime policies can also cover liability to third parties resulting from the action of dishonest employees.

Given the potential sums involved and the difficulty of accurately assessing corporate risk, a lot of interrogation is required up front. Getting all the information is essential to pricing a Commercial Crime policy correctly - and avoiding a situation where a claim is repudiated because of non-disclosure.

“Due diligence exercises also afford an opportunity to tighten up potential clients’ operational risk and reduce opportunities for commercial crime – in the process making companies that insurers would have been reluctant to underwrite safer bets” says Brian Gillespie of Alexander Forbes Risk Services.

As such, interrogation is central to helping companies identify opportunities for commercial crime that they may have been unaware of.

“Ten years ago proposal forms for Commercial Crime policies were unheard of” says Gillespie. But, with claims increasing in size and frequency in recent years, the whole industry has realised the necessity of covering all bases.

Given the potential for loss “insurers prefer to write commercial crime policies for well managed, well controlled and regularly audited businesses, where management has bought in to employee education and training - along with good controls and multiple checking systems” says Gillespie.

Equally, it is difficult to place Commercial Crime policies for badly-managed businesses at reasonable terms, if at all. At the same time even if a business appears sound “you often don’t know how badly they are being run until something goes wrong” cautions Gillespie.

While a badly-run company might result in an insurer rejecting a claim on grounds of non-disclosure, the situation can be avoided if sufficient due diligence is done up front.

As such “over the years we’ve found that the process of due diligence itself affords companies the best protection against commercial crime as it allows us to identify and close opportunities for commercial crime at acceptable rates” concludes Gillespie.