Crime doesn’t pay – but Commercial Crime insurance can

Authored by RSA

Rogue employees. Dubious suppliers. Organised cyber criminals. Nobody likes to think their business is at risk, but company funds can present an attractive target to would-be thieves and fraudsters, and most commercial property and general liability insurance won’t cover you against financial losses from criminal activity.

Every year, businesses of all sizes and industries suffer heavy losses due to theft or criminal activity. But during periods of economic uncertainty, business crime rates rise, from a seemingly model employee finding a way to extract money from the business, to organised gangs of cyber criminals manipulating staff into voluntarily parting with company funds.

According to the Office of National Statistics, the pandemic significantly affected crime patterns. While the incidence levels of many types of crime fell during lockdown due to limited social contact, fraud rose by 32% and computer misuse, driven by an increase in unauthorised access to personal information, shot up by 85%.

Nobody likes to think that one of their own employees could be dishonest, but a trinity of factors can tip a usually law-abiding citizen towards breaking the law. All it takes is pressure (such as personal debt), opportunity, and the rationalisation that the criminal act is somehow justifiable or “no big deal” in the grand scheme of things. But even so-called “white collar” crimes are not victimless – they can have a devastating impact on an organisation’s bottom line and reputation.

A growing need for commercial crime insurance

Most commercial property insurance and general liability policies don’t protect against financial losses due to criminal activity, which is why Commercial Crime insurance is fast becoming a must-have coverage. But equally important is the claims experience in the event that your business suffers a loss.

Katherine Ashton, Senior Claims Technician within RSA’s Professional and Financial Risks Claims team explains, “Criminal activity is becoming more sophisticated, but so are the ways in which we handle these cases. We have a dedicated in-house team of experienced crime claims specialists who will triage the claim and advise on the best course of action, and ultimately invoke forensic investigations.

“When a claim is brought, we will act fast to recover losses where possible, and assist with compiling evidence and preventing further losses. So for example, if a business falls victim to a phishing scam, we will instruct the insured to contact their bank and have their account frozen pending investigation. Sometimes, the criminal hasn’t withdrawn the money quickly enough and we can recover the whole sum. If there are multiple transactions, we’ll involve our loss adjusters.

“We encourage all insureds to contact Action Fraud, who can help with recovery after an incidence of fraud. For fidelity claims involving employee fraud, businesses have to instruct the police if the member of staff has access to the company’s bank accounts, in order to pursue compensation or a confiscation order. If the police don’t make an arrest, the business can still bring a civil claim. But with a police conviction, we can write to the judge and have the insured’s excess added to the financial penalties,” adds Katherine.

So what does that look like in practice? Here are a trio of Commercial Crime claims we have recently pursued, from first call to final resolution:

Case study: protecting the interests of a preservation trust

A centuries-old castle is still accessible to the public today thanks to our insured, a charity that preserves the historic site and organises tours and community events. One of the insured’s directors made withdrawals and transactions using the trust’s credit cards and stole cash from the safe that was set aside for activities and events for the year.  We assisted the insured with the Police, who arrested the employee. We had a compensation order attached and received a full repayment of the Insured’s excess plus our outlay, enabling the trust to continue its restoration project.

Case study: recovering ill-gotten gains from supplier collusion

Two employees of the insured had colluded with subcontractors in instigating the payment of invoices where no underlying service had been provided, in return for kickbacks. False purchase orders for jobs were raised when the work had already been completed and these were matched to the fraudulent invoices by the finance team and payments issued. The policy indemnified for the full £1 million limit of indemnity plus the expenses limit of £100,000.

We pursued the two employees and one of the sub-contractors to try and effect a recovery. This required us to issue proceedings against the parties, impose freezing orders and attend a mediation which has finally resulted in agreements being reached with each of them after a persistent pursuit by RSA. This has included the parties having to sell properties and re-mortgage their assets to satisfy their debt, with a total sum of £585,000 recovered.

Case study: securing a conviction for employee theft

Our insured, a firm in the legal sector, discovered that an ex-employee had made fraudulent payments to herself by disguising expense payments due to suppliers and staff and editing legitimate emails as supporting documentation. A forensic investigation revealed that the ex-employee had made 134 fraudulent payments to her own bank accounts totalling £421,000. The claim was investigated and settled promptly under a Crime Insurance Policy with RSA.

At the same time, we applied to the court for a freezing order over the ex-employee’s assets and a charging order over a property of which she was part owner. We worked closely with the local Police force: the ex-employee was arrested and successfully prosecuted and is currently serving a four-year jail term. Following her conviction, the Court issued a compensation order for repayment of the stolen funds and should the ex-employee fail to comply, additional time may be added to her sentence. We expect to make a full recovery of our outlay, mitigating the claim cost to RSA and preserving the insured’s claims experience.

There are steps that businesses can – and should – take to minimise employee or third-party crime risk. 

These might include:

running background checks on new hiresvetting of suppliersapplying dual control procedures to paymentseducating employees with the authority to transfer money on recognising the hallmarks of social engineering fraudcarrying out periodic internal audits of accounts to identify any discrepancies that might be early indicators of criminal activity. 

However, as criminals and fraudsters are becoming more resourceful, even the most vigilant businesses can fall victim. In addition to direct financial losses, they are likely to face unforeseen costs relating to investigations, contractual penalties and crisis management fees. Ultimately, crime doesn’t pay, but taking out a robust, all-risks Commercial Crime policy certainly can.

To find out more, visit our Commercial Crime Insurance page.