Business Crime Insurance

Business Crime Insurance

Investopedia / Jiaqi Zhou

What Is Business Crime Insurance?

Business crime insurance, also known as commercial crime insurance, is a type of insurance policy that a business can buy to protect itself from losses from business-related crime. Protection through the policy can cover cash, assets, merchandise, or other property loss when someone perpetrates fraud, embezzlement, forgery, misrepresentation, robbery, theft, or any other type of business-related crime on the company.

Key Takeaways

  • Business crime insurance provides coverage for losses due to fraud, embezzlement, theft, forgery, or any other business crime.
  • Business crime policies need to be purchased separately as business crimes are not covered under commercial property insurance.
  • Businesses that deal in cash or online payments are the most susceptible to business crime.
  • Business crime insurance covers losses in cash, assets, merchandise, or other property when a crime occurs.

How Business Crime Insurance Works

Business crime insurance is available because most commercial property or business policies do not cover crime-related losses. Companies can purchase business crime insurance as part of an industrial package policy, also called "special multi-peril insurance," which is a package of different policies to protect the business from crime, property loss, liability, and other types of potential loss situations a business could encounter.

A business can also purchase business crime insurance as a standalone policy to add to the other insurance policies or packages it has purchased. Purchasing a standalone policy allows the business to specify which types of crimes it wants the policy to cover, which can be useful for businesses that are vulnerable to certain types of business crimes but not others.

Through whatever means they purchase insurance, companies should be aware that business crime insurance isn’t automatically covered in a commercial business package policy unless they specifically include it in the package.

Examples of when a business insurance policy would payout to a business would be 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 when inventory walked out the door during a busy time of day without being accounted for, or any other similar situations.

Impact of Business Crime

Business crime is a significant liability for companies. According to the Association of Certified Fraud Examiners (ACFE), U.S. organizations are liable for more than $400 billion every year, from fraud and abuse alone. The problem is widespread, although small businesses are most vulnerable to business crimes, in part because they have less personnel to enact safety and auditing procedures and in part because the small sizes of these businesses mean that owners and managers tend to trust their employees personally since they are in more contact with the employees every day.

Considering that the average across the companies studied by the ACFE was a loss of $9 per employee per day, this loss is more significant and damaging to smaller companies with fewer resources than to larger companies.

As innovations in business technology explode exponentially, these innovations create more opportunities for small business owners to be defrauded with this technology, either by employees or outsiders.

Business crime insurance protects the assets, operations, and reputation of businesses of all sizes, and is especially important for businesses that deal in cash or in online payment systems, whether those that use credit cards or other types of payment methods. A business crime insurance policy will usually have different limits of coverage for losses incurred on the property of the business versus off-property.