Fraud: The most under-estimated risk?

There is one form of crime which is affecting more of us in the UK than ever before: Fraud. And it is scary to think that most small and mid-sized businesses have no insurance protection in place!

Scale of the problem

As the latest Crime statistics for 2019 are about to be published, it is chilling to note that there were estimated to be over 3.6 million offences of Fraud against individuals in England and Wales in 2018 – an increase of 12% compared to the previous year.*

The annual cost of Fraud in the UK is £190 Billion and according to the Accountancy Firm PWC, half of businesses have experienced Fraud at some stage in the last 2 years.**

Unsurprisingly perhaps, given the massive increase in recent years in the use and application of electronic devices, the most prevalent aspect of fraud is now Cyber Crime, which for the first time has outstripped Asset Theft as the main area of fraud. And this is at odds with the global picture: in the UK 49% of corporate fraud is now Cyber-based Crime, compared with 31% globally.

What do we mean by Cyber Crime?

Cyber Crime encompasses two main types of crime:

Cyber-dependent crimes – crimes that can be committed only through the use of Information and Communications Technology (‘ICT’) devices and where the devices are both tool and target of the crime
Cyber-enabled crimes – traditional crimes which can be increased in scale or reach through the use of computers, computer networks or other forms of ICT.***

The main examples in the Fraud context would be:

• Hacking to steal
• Developing malware for financial gain
• Holding data to ransom

“It won’t happen to us”

It’s not just big businesses who are affected by cyber crime either. As a small or mid-sized business owner, it is easy to think that you are not a target but the truth is that last year one in 5 businesses were hacked by cyber criminals. Even Yorkshire-based business – Betty’s Tea Rooms – were hacked in 2015, with thousands of customers’ details being stolen. The perpetrators, surprisingly, can be teenage kids just having fun but worryingly, cyber crime is usually carried out by more sinister factions from far outside of the UK.

Offline Crime

Let’s not lose sight of the non-cyber types of fraud either. Employee dishonesty is more common than we think; we have seen claims for systemic issues such as widespread overtime fraud, as well as incidents involving collusion between an employee and an outside party. And companies with long-serving staff are not exempt, although they may think they are; fraud is often committed in many small amounts over a long period of time when employees feel they have built up an element of trust.

It’s hard to pick up a newspaper nowadays without there being some incident involving fraud noted. Indeed, today (at the time of writing) it has been reported an AIM-listed company have suffered a $600,000 loss from a fake loan agreement.

The repercussions of such crime can be huge; it is not just the amount stolen or the ransom demand extorted, it is the potential loss of reputation with customers which can be most damaging.

Even when the offenders are apprehended, gaining a conviction can be a long drawn-out process with Fraud cases being amongst the most complex. A recent prosecution took 2 years of jury time to reach a conviction and reputedly £5 million of costs.

So, what is Crime Insurance?

Insurance cover for employee fraud has been around for a very long time but has never been widely sold. Modern Crime policies incorporate Employee Fraud and Dishonesty but also theft, fraud or dishonesty by third parties and Cyber Crime. Extensions are provided for Corporate Identity Fraud and erroneous electronic transfers of money.

And substantial limits of cover can be purchased at usually inexpensive rates when compared with many other widely purchased forms of insurance.

The Cyber Crime element can be bought as an extension to some Cyber Liability policies but often with much lower limits.

So, why do so many businesses not insure against Fraud and Cyber Crime?

It is difficult to understand why Crime insurance is not purchased more widely, given the extent of risk and the sheer volume of known criminal activity in this area. Whilst cyber risks are a relatively new exposure, fraud is not.

How can you protect yourself and your business?

Whilst the risk will never disappear, there are a number of actions you can take to help protect your business.

1. There are firms of accountants who specialise in helping businesses create robust systems of control to reduce the likelihood and impact of internal fraud – it is worth discussing this with your accountant to see if they’re able to offer help or point you in the direction of someone who can
2. Many IT companies and Cyber specialists offer advice to businesses to help them protect their IT infrastructure
3. Crime policies offer wide insurance cover to protect the business when all else fails. Alongside Cyber Liability policies, a business can feel a little more at ease with these policies on their side should the worst happen.

If you would like to discuss Fraud or Cyber cover for your business, or any other element of your commercial insurance, you can contact our Commercial Team on 01653 609151 or at

* Crime Survey for England and Wales, December 2018, Office for National Statistics.
** PWC Global Economic Crime Survey 2018
*** National Cyber Security Strategy definition.

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