Crime, Fraud & Fidelity Insurance

Financial Crime insurance helps reduce organisations’ vulnerability to direct losses stemming from theft and certain types of fraud. It is an often overlooked insurance because crime-related losses are not typically covered by commercial property insurance, so it’s vital to ensure that your business is protected.

Fraud is not just a one-off occurrence and companies can be subjected to repeated attacks by their own employees or outsiders.

Who is Financial Crime Insurance for?

Businesses of all sizes from SMEs (who may lack the security and resources of larger firms) to major financial institutions.  

Fidelity Insurance (Internal Financial Crime/Fraud)

Rowlands & Hames provides insurance protection for your business against the criminal behaviour of a dishonest employee (whether working alone or perhaps colluding with a dishonest third party).

Employees and Directors have stolen and committed fraud against their employers since commerce began. Fortunately, it’s only a minority who turn bad, but there are many reasons why they do.

Often the usual financial pressures of life lead to such actions such as debt, divorce, impending retirement or redundancy or simply management resentment, although too often it’s a result of addiction to drink, drugs or gambling. In poor economic times such risks are increased.

Unfortunately, the truth is that it may be the most trusted and senior staff who have the knowledge to skirt round security and set up insidious, well-concealed fraud systems.

It’s often a pattern repeated over years; sometimes on their own, sometimes in collusion with outsiders such as suppliers.

Theft of stock/contents is generally excluded from standard business theft insurance policies, hence Fidelity/Internal Crime Insurance is often required where high value goods could be taken by employees: for example theft of copper cut-offs or portable electronic goods are easily achieved, but can be a very costly loss to the business.

Commercial Crime (Fraud) Insurance

Crime Insurance provides coverage for loss of money, securities, or other assets as a result of certain types of third party financial crime / fraud and social engineering (impersonation fraud). 

Why do you need Crime insurance?

• The Annual Fraud Indicator puts the cost of fraud to the UK economy at £193 billion a year – that’s more than £6,000 per second. The private sector accounts for £144 billion of this, with £8 billion disappearing to payroll fraud, and £127 billion lost to procurement fraud.
• The charity or ‘third sector’ suffers to the tune of nearly £2 billion per year.
• The average organisation loses approximately 6% of its total annual revenue to fraud and abuse committed by its own employees.

What does the policy cover?

An ‘All Risks’ insuring clause, which includes cover for:

• Theft of money, securities or property belonging to an insured organisation;
• Theft of money, securities or property belonging to a client of an insured organisation;
• Social engineering fraud;
• Forgery;
• Extortion;
• Expenses arising from crime.

What limits are available?

Generally £5m per insurer, occasionally up to £10 million for any one claim, with other insurers taking excess-capacity if required.

Deductibles tend to be at least £5,000, if not £10,000 but £25,000 is common.

Claim Examples (courtesy of MPR Underwriting)

1. Company Activities: Provision of General Construction Services
   Turnover: £6,000,000
   The policyholder was the victim of two social engineering fraud events. The first fraud followed receipt of payment requests purportedly sent via email by their Commercial Director. A member of the accounts team made the payments without independently confirming the validity of the instructions, as this was a relatively common practice. The second event was a supplier mandate fraud, where the accounts team made payments on receipt of an emailed invoice. Whilst the work invoiced had been undertaken, a closer inspection of the emails received showed they were sent from a generic webmail account rather than the suppliers own email/domain.
   Total Fraud Value £66,000

2. Company Activities: Retail Property Investment
   Turnover: £72,000,000
   A whistleblowing event led to the discovery of an employee collusion fraud. The fraud itself involved the emptying of car park machines outside of the stipulated collection process. It was discovered that inadequate segregation of duties led to certain employees having access to all machine keys and those collecting funds were also undertaking the reconciliation of the accounts. This allowed ledger anomalies to be hidden from management.
   Total Fraud Value £92,000

3. Company Activities: Restaurant Operator
   Turnover: £50,000,000
   A genuine email chain with a supplier arranging payment of an outstanding invoice was intercepted by a third party who amended the supplier account details to their own. As the policyholder was unaware that the change had been made they made the payment in good faith to what they believed to be the suppliers account.
   Total Fraud Value £130,000

4. Company Activities: Air Conditioning Contractor
   Turnover: £10,000,000
   A long serving employee in the accounts department was discovered to have been diverting policyholder funds to their own bank account using fake invoices they had created to reconcile the payments against. The fraud was perpetrated over a 5 year period with just under one hundred fraudulent transactions made.
   Total Fraud Value £400,000

5. Company Activities: Industrial Contractors
   Turnover: £16,000,000
   The email account of an employee was hacked and monitored for purchase orders. When the hacker saw that a legitimate order for new machinery was being made they created a spoof email address and commenced correspondence with the employee regarding the purchase. As the hacker had access to the account of the employee, they were able to convince the employee they were the legitimate supplier and the payment for the machinery was made to the wrong party.
   Total Fraud Value £50,000

6. Company Activities: Drinks Bottler and Distributor
   Turnover: £20,000,000
   Following an external audit, a company director was discovered to have been making recurring fraudulent payments to both employees and third parties who had colluded with the director over a seven year period. The seniority of the director, together with the length of time the payments had been made to the same recipients meant that the accounting team failed to question or interrogate the fraudulent fund transfer requests.
   Total Fraud Value: £1,200,000

7. Company Activities: Civil Engineer
   Turnover: £35,000,000
   A contract required the procurement of portable buildings for use on site. An employee mentioned that a reputable supplier of these products had been advertising such buildings and passed details to the purchasing department. Introductions were made and an order was placed with payment made upfront. Only after making payment and whilst following up when the delivery did not take place, did the purchasing department discover that the correspondence and subsequent order were made with a third party who was using a spoof email address
   Total Fraud Value: £150,000

8. Company Activities: Audio Equipment Manufacturer
   Turnover: £10,000,000
   A director falsified an order for a bulk purchase of products to improve sales figures, which in turn would increase their performance bonus. As the order was fake, payment for the order was never received from the customer, leaving the insured with a significant stock of products that were highly specialised and of no use to any other customer. This left the company with a significant loss due to the valueless product.
   Total Fraud Value £900,000

9. Company Activities: Pet Food Wholesaler
   Turnover £15,000,000
   Three employees colluded to falsify stock levels at one of the warehouse locations belonging to the policyholder. The location manager, along with two supervisors, manipulated figures within the stock management software, allowing them to remove stock from the warehouse and sell it privately. The fraud was only discovered when a head office inventory review that was undertaken at the location revealed significant stock discrepancies.
   Total Fraud Value: £200,000

10. Company Activities: Design and Manufacture of Clothing
    Turnover: £9,000,000
    A new Finance Director was appointed. Following the appointment, the incumbent Finance Team Manager was found to have defrauded his employer over a four year period. The fraud consisted of multiple methods of misappropriation of company funds, including the creation of fake invoices, changing payee account details in the online banking system to his own and using the company credit card to make personal purchases whilst amending the statements to hide the payments. The employee initially admitted to misappropriation of funds to the value of £70,000. The final loss was discovered to be significantly greater.
    Total Fraud Value £1.3m

Policy limits and exclusions may apply, please see policy wording for full terms and conditions.