What is the Difference Between Crime Coverage and Bonds?
There are a couple of different ways to protect a company from crime, more specifically employee theft. The traditional method is to purchase a bond from a surety coverage. A more modern form of protection that allows a company to elect broader coverages, while still covering employee theft, is called Crime Coverage insurance. It’s important to note the differences between bonds purchased through a surety and crime coverage insurance which we will cover below.
A company can protect their financial assets from employee theft by purchasing bonds on designated employees through a surety (these are the bonding companies, which are not insurance companies). The company requests that the surety company cover any financial loss due to theft by the employee in exchange for a payment. If the employee ends up stealing from the company the loss must be reported to the bonding company. This is the point where bonds and crime coverage insurance start to differ. Many times bonding contracts have a provision called a “Conviction Clause”. This clause states that the bond will only reimburse the stolen amount if the individual who stole from you (potentially your former employee at this point) is convicted of the crime in the court of law. While taking an employee to court and getting them convicted of their theft is achievable it isn’t always easy and practical. Many times jumping through the hoops of the legal system can be frustrating and taxing when attempting to retrieve reimbursement for what some may consider lower-level crimes due to the amount stolen. What can be even more frustrating is the risk the company still faces if, after all the work they may have put into helping get the person convicted, including reporting the loss, researching the events, and navigating the legal system, the court may decide to acquit the individual of charges, thus leaving the company without reimbursement from the bonding company. However, if a conviction does occur the bonding company will reimburse the company for the convicted amount stolen. Afterward many of times the surety company will attempt to collect the debt from the convicted individual. This can get complicated quickly and potentially cause more unnecessary headaches for a company that is simply trying to move on after receiving their reimbursement.
Crime Coverage Insurance
Crime coverage is provided by an insurance company and is a far more practical process, at least in our opinion, when reporting claims. If an employee steals funds from the company that has current crime coverage insurance, the employer must report the loss to the insurance company. At this point, the insurance company works with the business in question to investigate the claim. This may include the insurance company sending in a forensic accountant to verify the loss. When the loss is verified by the insurance company the amount of loss is reimbursed, subject to any deductible and limits. Crime Coverage Insurance offers other coverages, in addition to employee theft that a company can choose from. Some of these coverages include:
Forgery and Alteration
Inside the Premises: Robbery, Safe Burglary, or Other Property
Inside the Premises: Theft of Money or Securities
Outside the Premises Coverage
Money Orders & Counterfeit Paper Currency
Funds Transfer Fraud
This is a small glimpse into methods for protecting your company from employee theft. If you would like more information on crime coverage insurance or your policy, please call Bancorp Insurance at 1-800-452-6826.