Business Crime Insurance: What it is, How it Works, Impact

Business crime insurance, also known as commercial crime insurance, is a form of insurance coverage that a company can purchase to protect itself from losses resulting from commercial crime. When someone commits fraud, embezzlement, forgery, misrepresentation, robbery, theft, or any other form of business-related crime on the company, the coverage can cover the loss of cash, assets, merchandise, or other property.

How Business Crime Insurance Works

Because most commercial property or business policies do not cover crime-related damages, business crime insurance is available. Companies can purchase business crime insurance as part of an industrial package policy, also known as "special multi-peril insurance," which is a collection of policies designed to protect a company from crime, property loss, liability, and other types of potential loss situations.

A company can also get business crime insurance as a stand-alone policy to supplement the other insurance policies or packages it has. Buying a standalone policy allows the company to pick which sorts of business crimes it wants the policy to cover, which can be advantageous for companies that are exposed to certain forms of business crimes but not others.

Companies should be aware that business crime insurance is not automatically covered in a commercial business package coverage unless it is specifically included in the package, regardless of how they obtain insurance.

When cash was stolen from a cash register by an employee, money was embezzled by an employee through an electronic payment system, merchandise was stolen by a robber, money was lost by forged checks or payment authorizations, or inventory walked out the door during a busy time of day without being accounted for, or any other similar situation, a business insurance policy would pay out.

Impact of Business Crime

Companies face huge liabilities as a result of business crime. According to the Association of Certified Fraud Examiners (ACFE), organizations worldwide lose roughly 5% of their revenue to fraud each year. The problem is widespread, but small businesses are particularly vulnerable to business crimes, in part because they have fewer personnel to implement safety and auditing procedures, and in part because the small size of these businesses means that owners and managers tend to trust their employees personally because they have more contact with them every day.

Given that organizations with the fewest employees experience the biggest median losses—typically approximately $150,000 in 2022—these losses may be more severe to smaller businesses with fewer resources than to larger businesses.

As business technology advances at an exponential rate, so does the potential for small business owners to be deceived by this technology, whether by workers or by outsiders.

Business crime insurance protects the assets, operations, and reputation of organizations of all sizes. It is especially critical for businesses that deal with cash or online payment systems, whether they accept credit cards or other payment methods. A business crime insurance policy will typically have differing coverage limitations for damages sustained on the business's property vs losses incurred off-site.