Small to medium-sized businesses are particularly vulnerable to crime events taking place “on the inside” of their businesses, including employee dishonesty, fraud, theft of property and computer-based crime. The statistics are startling with 68% of all employee crime taking place in small/medium business for a loss of over $50 billion annually. Thirty-three percent of business bankruptcies are due to employee theft, with a median loss of $290,000.
With many of these losses uninsured, business owners are looking for ways to avoid financial ruin. Suing their accounting, insurance and legal professional is becoming more commonplace. Specifically, professional liability insurers are experiencing an increasing number of malpractice claims for “failure to identify” employee theft and dishonesty while performing various professional services. The illicit acts of an employee (or partner/management/ownership) include false vendor invoices, ghost employees, theft of valuable metals, computer fraud, credit card forgery, embezzlement and ERISA violations. The average time before fraud is detected is about two years and most instances involve small amounts of money over long periods of time. It is this last part that makes it difficult to detect crime, but lawsuits are increasing nevertheless.
68% of all Employee Crimes take place at small/medium businesses
33% percent of all business bankruptcies are due to employee theft
$290,000 median loss at small/medium businesses
Small/medium businesses lose $50B annually to employee crime
Accounting, insurance and legal professionals are amongst a business owner’s most trusted advisors, yet these parties might not be aware of an insurance solution to employee crime. Often called crime or fidelity insurance, these policies protect businesses from the circumstances described above. Many of these offerings also feature broad ERISA protection, meeting the requirements of the frequently-purchased ERISA bonds and negating the need for multiple policies. Policies should also include coverage for computer fraud and wire fraud transfer.
Recommending that a client consider the protection of a crime policy makes good business sense. Such a recommendation helps fulfill the fiduciary duties to the client. Documenting the recommendation, as one would document all communications, further protects you should the client choose not to obtain coverage and attempt to sue at a later time. Remember, you do not need to know all the in’s and out’s of crime coverage, just that it is there.
Making the referral to an insurance professional goes along way towards protecting the business owner, as well as your own practice.
John Torvi is the Vice President of Marketing & Sales at the Herbert H. Landy Insurance Agency of Needham, MA. John has been in the insurance industry, focusing on the needs of business owners, for over 27 years. He holds a Bachelors Degree from Providence College and a Masters Degree from Springfield College and is a frequent speaker and contributor to professional journals and conferences for the legal, accounting, real estate and insurance industries.
The Landy Agency is a national leader in providing non-medical, professional liability and cybercrime insurance for accountants, attorneys, and real estate professionals. John can be reached at 781‐292‐5417 or johnt@landy.com. Visit www.landy.com for more information.
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