What is Crime Insurance?
This form of cover provides protection to businesses for loss of money, securities or assets from employee theft as well as fraud. They can incorporate employee fraud and dishonesty, theft, fraud or dishonesty by third parties, and cybercrime.
Pre-internet, the main types of losses insured against would be acts of employee dishonesty. Examples of such claims could be fabricated payments to bogus suppliers, or theft of stock, sometimes involving collusion. Now, fraud, and in particular third-party fraud, is the dominant risk**.
Fraud Risk
Fraud is now the most commonly experienced crime in the UK and it is estimated that 8 out of 10 of us will have experienced some form of fraudulent attack*. The cost of fraud in the UK is estimated at £190 billion annually; of this, the private sector is attributed with losing £140 billion to fraud***. In the digital world we now live in, cybercrime forms the biggest part of this; while other areas of fraud such as public-facing national fraud and cybercrime have reduced over the last decade****, cybercrime is increasing each year.
The lockdowns of the COVID-19 pandemic caused an increase in remote purchasing and that in turn has led to a different fraud landscape, and one which is dominated by cybercrime.
It is not just big businesses that are affected by cybercrime. As a small or medium-sized business owner, it is easy to think that you are not a target but, in reality, any business can be hacked by cyber criminals. In fact, often, smaller businesses pose a better option for criminals as they often have less security measures in place. Cyber criminals can be well-organised, sinister groups that attack on a large scale, often from outside of the UK, or sole-operating teenagers causing disruption for their own entertainment. Usually, the one thing in common of those that are targeted is that there is a weakness which can be exposed in the systems or controls of that individual or their business.
What is Cybercrime?
Cybercrime encompasses two main types of crime:
- Cyber-dependent crimes– crimes that can be committed only using Information and Communications Technology (ICT) devices and where the devices are both the tool and target of the crime.
- Cyber-enabled crimes – traditional crimes which can be increased in scale or reach by the use of computers, computer networks or other forms of ICT devices.
Some examples of cyber fraud are:
- Hacking to steal
- Developing malware for financial gain
- Holding data to ransom
Cyber insurance policies are there to protect you and your company in the event you suffer a cyber-attack but go beyond a claims payment; they can also provide a service which helps policyholders by assisting with technical experts and advising you on what to do when something goes wrong, something that can be extremely costly amid a cyberattack. Find out more about cyber insurance.
Employee Dishonesty
Turning to “traditional” areas of fraud, regrettably employee dishonesty is more common than you might think. Our specialist team have seen claims for systemic issues such as widespread, overtime fraud, expenses fraud and more premeditated fraud such as stock theft, collusion fraud and embezzlement.
Systemic fraud is a type of internal fraud that every business should look out for, whether it’s a small 10-person shop or a 10,000-employee corporation, and fraud is often committed in many small amounts over a long period of . Some common types of employee fraud include asset misappropriation, benefits fraud and data theft.
Consequences of Fraud
The repercussions of fraudulent attacks can be huge. It is not just the amount stolen or the ransom demand extorted, it is the potential loss of reputation with customers that can be most damaging.
Not only this, but even when offenders are apprehended, gaining a conviction can be a long, drawn-out process with fraud cases being complex. A recent prosecution took 2 years of jury time to reach a conviction and reputedly £5 million of costs. This means not only is your time and attention taken away from the day to day running of your businesses but there may also be costs involved to seek restitution.
Scale of the Problem
We have already highlighted that this is a big issue for businesses, but further research shows just how widespread and far-reaching fraud is. Half of businesses have experienced fraud at some stage in the last 2 years. The NCA estimate that only 20% of incidents are reported*** which is worrying, as the risks can only really be understood and defended against if we have a clear and full picture of the exposure and can learn to improve defences against the types of attack being engineered.
Crime Insurance Cover
Crime Insurance policies incorporate employee fraud and dishonesty, theft, fraud or dishonesty by third parties, and cybercrime with extensions often offered for corporate identity fraud and erroneous electronic transfers of money.
Substantial limits of cover can usually be purchased at inexpensive rates when compared with many other widely purchased forms of insurance.
The cybercrime element can be bought as an extension to some Cyber Liability policies but often with much lower limits.
If you would like more information about Crime Insurance or a thorough review of your business insurance, please contact our Commercial Insurance Team on 01653 609151 or at commercial@mcclarroninsurance.com.
Sources
*https://www.bdo.co.uk/en-gb/news/2022/more-than-a-third-of-uk-firms-report-fraud-increase-in-2021
**UK Finance Annual Fraud Report 2022
***https://www.nationalcrimeagency.gov.uk/what-we-do/crime-threats/fraud-and-economic-crime
