Another “Undersold” Insurance Coverage, Crime Insurance

What standards have you established in your agency?  By this I am asking if you have set “standards” for your clients on appropriate coverage and limits they need at a minimum.  If a client wants limits lower than the standards you set will you either not take them on as a client or state that you will not write that low a limit in good conscience?

While setting standards might sound like a “dream”, if only you had clients that would listen to you and take your recommendations because they see you as the expert and value your advice.  I guess it is the goal to build the type of relationship with your clients so that they have the confidence that you are there to truly protect them and have a high degree of trust in you.  This doesn’t happen over night and takes a long term systematic approach to make it happen.  I feel I have that type of relationship with our current agent and weigh his recommendations very highly.  I have confidence that he knows his profession well enough and that he is looking out for my best interests.

This all brings me to the point that there are a number of coverages that should be a standard part of a “comprehensive insurance program”.  These are things like International coverage, EPLI and appropriate limits for umbrellas.  One of the areas that does not get enough press is having appropriate crime limits.  Many clients do not believe they will ever have a crime loss and see it as a “fringe” coverage.  Clients who have experienced a loss will tell you that it is one of the key coverages in your insurance program.

I read a statistic from the Association of Certified Fraud Examiners that estimated that 6% of a company’s revenue is lost to “occupational fraud”.  This is a startling figure and should open the eyes of clients who say “it could never happen to my company, we have too tight of controls for it to ever happen”.  Many clients believe a small limit provided for in their Business Owners Policy (BOP) is sufficient.  I know of an claim where a trusted long time bookkeeper set up a couple fictitious vendors and over a 10 year period absconded with a $500,000 in company funds.  They found out when the company sold and there was not enough cash on hand to pay off their outstanding payables.  This resulted in the owner paying off the payables with the funds he received from the sale, walking away with zero for ten years of work.  The $10,000 limit on their BOP did little to take care of this claim.

So what are you to do about this issue?  Good question.  I would make the following recommendations:

–          Talk with your crime underwriters.  They will have knowledge of claims that have occurred in their company and can give you some generic details of what the losses were, how much they ended up going for and what the outcome of the loss was.

–          Set minimum standards on what you believe your clients could potentially lose.  Then start with that limit and offer higher limits.  Remember that a client with insufficient limits could be out of business in the event of a loss.

–          Do a little research on some local claims.  It is easy to find articles on crime losses in your local newspaper or on the internet.  It is also easy to find “innovative” type claims that help your client to see of new ways that employees are stealing from their employer.

–          Consider a monoline crime policy for your client.  Many of these markets have specialized underwriters who handle this type of coverage exclusively and can offer higher limits and more expansive coverage.  Make sure you tailor the coverage with any existing coverage the client may have with their package carrier.

This is one of those areas that is not given the time and attention that is needed and could easily put your client out of business.  While a decent number of companies who sustain a total loss, never make it back in business, the same is true for clients sustaining a crime loss.  There is the added stigma of wanted to keep the loss “under wraps” so that clients do not get the idea that you run shoddy operation and can even control your own employees.  This could result in a loss of confidence by your clients and open the door for your competitor to exploit this “chink in your armor”.

While there are many things that can be done to control the exposure to crime losses, the exposure and risk can not be eliminated.  There are many checklists available that your carriers can provide that will help to reduce the risk.  While clients may resist implementing many of these controls since it adds layers of double and triple checks it will pay off in the long run and add to their long term stability and financial health.  Working with their accountant in this area will help make them an advocate in your corner for insurance matters.  Don’t resist building a relationship with the clients accountant and outside legal counsel too.

 Stop offering “optional coverage”.  Start offering essential coverage and limits.  It is all in how you talk to and present to your client to gain their confidence and trust.

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