Why insurers worry about clients’ crime coverage

As clients tighten their purse strings in anticipation of an economic downturn, they are increasingly underinsured for their crime-related losses.

Crime insurers are seeing an uptick in social engineering (i.e., phishing) claims, says Katherine Gauthier, vice president of specialty solutions (E&O, D&O & Crime for Canada), at Intact Insurance.

Whether commercial insureds have reduced their budgets, cut staff, or become lax with their security controls, fraudsters are taking advantage of these vulnerabilities, she explains.

Crime insurance coverage is “at its core covering money, securities, [and] inventory of entities,” Gauthier tells Canadian Underwriter. “One aspect of coverage is social engineering fraud. And that’s something [for which] we’re seeing more and more claims.

“Anytime there is a change or evolution in how people work, how people take care of their data, and how money and securities are protected, there is also a need to change controls and rethink what the exposures are.”

In the evolving hybrid work environment, employees remain vulnerable to fraudsters who may take advantage of a disconnected workplace to enact scams.

“People are working in multiple locations so they may have never met,” she says. “That creates all sorts of different vulnerabilities that fraudsters can use to gather information to create a fraud, and ultimately, to impersonate an executive or a vendor to try to have an individual release funds to them.”

Staffing shortages

Many industries continue to experience staffing shortages, which can lead to security lapses.

Small businesses are at more risk than their larger counterparts. They tend to suffer disproportionately larger losses because they lack control measures used by larger entities.

But crime isn’t confined to a certain-sized company, says Gauthier, adding Intact has seen an increase in crime policy submissions.

“Crime is not an issue for just one class of business or one industry — small, large or multinational,” she notes. “It’s really something all companies need to be thinking about.”

For brokers, as clients’ exposures evolve, there’s an opportunity to ask clients about their changing risks.

“This is a really good opportunity for brokers to say to customers, ‘Post-pandemic, how have things changed for you as an organization? Are your controls still appropriate? Are there areas we need to talk about and update — be it from a limit, coverage, or a controls perspective?’”

Controls such as ‘segregational duties’ — designed to prevent error and fraud by ensuring at least two individuals are responsible for separate parts of any task — or dual-signing authority can easily be instituted to reduce a company’s loss risk.

As for carriers, they are working on refining their crime products.

“We’re looking at the data to better educate our brokers and customers about what we [are] seeing in existing and future claims trends, and how we [can] change our pricing models or our underwriting models to help clients protect themselves and reduce the future number of claims that they may have.”

This story is excerpted from one that appeared in the August-September print edition of Canadian Underwriter. Feature image by iStock.com/Gleb Kosarenko