Agents will many times be asked, what limits should my business carry? This is one of those “loaded” questions and you risk an E&O exposure if you answer directly. You can always come back with the response, “What limits do you feel comfortable carrying?”, but this won’t really help. Other answers:
- Many similar businesses such as your own, carry $X,XXX,XXX limits.
- I recommend carrying a minimum of $X,XXX,XXX limits.
- Since we are trying to protect your assets, let’s look at the amount of assets we are trying to protect.
Whatever answer you give, always offer quotes for limits above that so they can see what they cost and they can potentially accept those higher limits.
Where I see the most shortsightedness in terms of both coverage and limits is with crime insurance. Many times the limits offered under a BOP are not sufficient and the agent fails to offer higher limits. I believe crime insurance is the most “undersold” coverage that agents handle. Many clients do not believe they are ever going to have a loss and therefor do not request higher limits than they are offered.
Let me give you some examples of some recent losses to exhibit the point I am trying to make:
- $3,300,000 embezzled from a school district
- $728,143 stolen from a trucking company
- $2,900,000 embezzled by a caregiver of a blind patient
- $350,500 embezzled from an electrical contractor
- $20,000,000 embezzled by a credit union CFO
- $510,000 embezzled by CEO of mental health agency
- $500,000 embezzled from insurance agency over 10 year period and discovered when the sale of the agency revealed the loss (they only had $10,000 limits under their BOP)
- $410,000 embezzled by church administrator
- $5,000,000 embezzled by bank assistant branch manager
- $8,000,000 embezzled from an industrial processing firm
You can see where I am going with this. Losses have grown and the thought process behind offering higher limits has not. We look at general liability limits and property valuation limits and barely give a thought to proper crime insurance limits. Keep in mind that for every embezzlement news story you hear, there are 5 or 10 that you DO NOT hear about. Think about it…. Do you want your customers to know that one of your “trusted” employees embezzled from you? Will they think you don’t have “good controls” in your business and are poorly running it? If it was a large amount taken over a period of time, would they think you don’t know what is going on in your operation? Many times in family operations they don’t want this information to get out for fear of hurting the rest of the family or ruining their reputation.
Some statistics for you:
- 80% of workplace crime is committed by employees
- One in four employees has either witnessed or committed workplace fraud or abuse
- One in four employees committing fraud against their employer has been with the company for more than 10 years.
- Only one in three of those witnessing a workplace crime bothers to report it.
- The average organization loses 6% of its total annual revenue to fraud and abuse committed by its own employees.
So what should you do?
- First, learn more about crime insurance. I have run across very few agents who had an in-depth knowledge of crime insurance and would be able to subsequently explain to a client what they needed to properly cover their operation. I found one online that would be a good starting point: http://www.independentagent.com/Education/Webinars/SiteAssets/Pages/live-webinars/2014%20Crime%20Webinar%20Handout.pdf
- Get familiar with the new ISO endorsements that just came out that pick up some of the cyber crime exposures. It is amazing at how much has changed recently and this gives you a good reason to discuss this area with your clients including discussing cyber liability coverage.
- Get familiar with your carriers forms since many of them may not use ISO endorsements and their forms may differ from ISO.
- Get familiar with the type of losses happening out there and have claims examples ready to show your clients so they can see just how prevalent it is and “it can happen to them”.
- Look at monoline crime coverage if your carrier can not offer higher limits or cannot offer the comprehensive crime forms available in the market. If you are going to use more than one carrier, make sure the coverage is coordinated between the carriers.
- Always, always, always quote higher limits. This avoids them saying in court in an E&O trial that if they had known it only would cost a little bit more, they would have bought more coverage.
I truly believe this is a coverage area that can “come back and bite you”. It is viewed more as a fringe coverage and not as essential coverage. I think you have to view it as a required coverage and then push for sufficient limits. A uncovered crime loss can put a company out of business!
Kenneth Kukral, CIC – VP of Special Risks – That means, call me if you need help on placing a unique, difficult, large or more complex risk. Kennethkukral@intlxs.com 800-937-3497 ext 2079