Fidelity insurance provides 1st party coverage against financial loss due to dishonesty, fraud of misconduct by employees in connection to their employment and peformace of duties.
Events of loss covered under the policy will typically include:
– Theft of cash register’s monies
– Misappropriation of the business’s cash for the employees’ personal gain
– Theft of the business’s inventory
Losses need to be of a direct cause and be committed by the employee itself in order to be considered for cover.
Fidelity Insurance policies would exclude acts of terrorism, losses due to natural perils or losses as a result of 3rd party actions (i.e Robbery, theft by public). Other common exclusions will include losses resulting from negligence, extortions, and blackmails, or losses due to bad accounting practises. As long as the policy is covering 1st party losses (i.e. owner’s cash or inventories), 3rd party losses as a result of employee’s theft is not covered under the policy.
For example, if the employee is transporting steel beams out from the factory and onto the container truck and in that process they damage the neighbour’s car parked nearby, the policy will not respond to a claim in that respect
Fidelity Guarantee Insurance would be applicable to almost all businesses that transact on cash terms and handles inventories of high value. In situations whereby the company has less stringent processes to safeguard its assets, the possibility of internal fraud & theft should never be disregarded when formulating your internal compliance procedures.
The job scope of the employees defines their responsibility and empowers the individual(s) to make careful and prudent decisions in the best interest of the company. Functions within the company such as finance department, logistics, and front-end POS staff handles monies and goods which could be misappropriated as a result of misconduct of the employee assigned to that task. For such situations, losses can be impaired in the absence of an insurance policy.
If your company does not have a strict check and balance process, or if you are overseeing a large business operation, it is highly unlikely you are able to keep tabs on each and every employee. Safeguard your assets against internal misappropriation of funds & property by purchasing a Fidelity Guarantee Policy today.
You should consider how much cash or assets could be stolen/siphoned off in a worst-case scenario. You should also consider your business operations: how often do employees have direct access to company cash/assets? How much cash/assets do they have access to at any one time?
For SMEs turning over between $1-$3 million in annual revenue, you can consider carrying a fidelity guarantee insurance policy with $50,000-$100,000 coverage as a minimum starting point.
For SMEs with up to $5 million annual revenue, a fidelity guarantee insurance policy with $200,000 in coverage would be a better minimum starting point.
Having a fidelity guarantee policy, together with strong accounting controls and finance oversight procedures, will dramatically reduce the risk of your business being taken advantage of (or even dealt a crippling financial blow) by dishonest employees.
The premium is usually dependent on a few factors, mostly internal processes. Safe keeping of cash, and how cash is passed on to employers gives underwriters to insights on whether there are lapses that may attribute to possible losses due to employee theft and misconduct. Internal controls such as the availability of safe boxes, employees access to cash, whether bank accounts are reconciled on frequent basis, whether invoices are properly kept are different aspect of evaluating whether premium loading is appropriate.
Poor record keeping allows for employees fraud and does not provide early detection for missing inventories or monies. The absence of authorised signatories in managing cash flows within the company allows for misappropriation of funds, and monies can be siphoned out of the business, resulting in cash flow problems in the business. Such poor practises can lead to higher premiums on the purchase of Fidelity Guarantee Insurance policies, as the risk of financial loss due to internal theft would be higher.
For most companies that have adopted sufficient preventive measures for such occurrences, the cost of purchasing a Fidelity Guarantee Insurance policy is relatively low. Insurance premiums could start as low as $200/year for a company turnover of up to $1 million.
Fidelity Guarantees and Banker’s Blanket Bonds are actually very similar. They’re both employee bonds that provide payouts to businesses if their employees commit fraud against them. The only major difference between the two policies is that that banker’s bonds have coverage designed specifically for banks.
Banks have lots of employees who deal directly with large amounts of physical cash and financial assets, so banker’s bonds – with their tailored and broader coverage – were created specifically to insure them. Banker’s bonds provide coverage against theft or fraud at ATMS, fraudulent use of cheques, bills, money orders, and other cash instruments, and ransom/extortion demands.
Unless you’re running a bank, a Fidelity Guarantee Insurance policy will provide your business more than sufficient protection.
You should install CCTV cameras and have strong accounting controls. To file a claim under a fidelity guarantee policy, insurers will usually impose a time limit of 4-6 months. If you discover the fraud after this time period, you’ll no longer be eligible to make a claim for the loss. That’s why it’s so important to have strong internal processes to ensure that all finances are in order. That way, if something suspicious does occur, you can immediately conduct a thorough investigation into the matter.
If you find that there was indeed dishonesty at play, you can file a claim and be compensated for your loss. Having CCTV footage or accounting records as evidence will also be crucial for successfully utilising the policy, because claims are usually only paid out upon successful conviction of the dishonest employee in a court of law. If you don’t have enough evidence to prove that the employee stole from you or committed fraud, then you won’t be able to receive the policy payout from insurers.