Why Buy Fidelity / Crime Insurance?
By Rehana Moosa
“It’s just an additional cost for me. I don’t think it’s worth it.”
“I trust my employees, they would never steal from me.”
“I own a small business. I don’t have anything worth stealing.”
In my years working as a forensic accountant, I have heard many business owners decline to purchase fidelity insurance for a variety of reasons. Some of their reasoning is correct – fidelity insurance premiums will result in an additional cost, and business owners often do trust their employees. However, employee fraud can happen anytime to anyone. Fidelity insurance serves the same purpose as all other types of insurance – you hope you never need it, but you are glad you have it when you do.
There are several benefits to purchasing fidelity insurance beyond the peace of mind it brings.
Losses from employee theft can be significant
According to the Association of Certified Fraud Examiners, organizations lose 5% of their revenue to fraud every year.1 Over time, these losses can add up, especially for small businesses. Also, as technology advances, frauds are becoming increasingly sophisticated and can be difficult to detect, leading to higher losses.
Fidelity insurance can help businesses recover some or all of their losses. Businesses that do not have this coverage may face difficulty in recovering the stolen funds / property from the employee once the fraud has been discovered.
There are also additional costs associated with investigating employee fraud such as legal fees, forensic accountant fees, computer forensics costs, and lost time and productivity. These costs can add up as well and are in addition to the actual financial losses caused by the fraud itself.
Insurance companies can help with the litigation process
In cases where a fidelity insurance claim is paid by the insurance company, often, the insurance company will try to recover the funds paid from the employee through the civil litigation process.
Although the employer may still need to be involved in the civil litigation process (e.g. providing documents or testifying), the insurance company has the resources to lead the process and potentially recover funds paid to the insured. This process can involve seizing assets such as bank accounts and real estate, which can then be sold, with the proceeds going to the insurance company.
Since the litigation process can be daunting and expensive for many organizations, having fidelity insurance allows businesses to recover some of their losses without having to go through the court system on their own.
Access to experts
When an organization is a victim of employee theft, they often need assistance from experts to conduct an investigation and prepare a claim. Many insurance companies maintain a list of experts in a variety of areas that can assist insureds during this process. This provides immediate access to lawyers, forensic accountants, and computer forensics experts, and avoids the need for the insured to vet potential experts on their own.
Some fidelity insurance policies include professional fees coverage, which will cover the cost of hiring experts such as forensic accountants to investigate the employee theft and assist in preparing a claim.
As frauds committed against businesses increase in frequency, fidelity insurance coverage is becoming more important for businesses. Although fidelity insurance does cost money in terms of annual premiums, the cost is far outweighed by the benefits of having the coverage in place.
1Report to the Nations: 2020 Global Study on Occupational Fraud and Abuse
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Communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. For permission to republish this content, please contact Rehana Moosa Forensic Accounting Professional Corporation.
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