DEFINITION of Commercial Forgery Policy

A specific type of banking liability insurance coverage. A commercial forgery policy protects the insured from any counterfeit checks that are passed to it. Retailers often take out this type of coverage in order to protect themselves from check kiters.

BREAKING DOWN Commercial Forgery Policy

Commercial forgery policies are sold by property and casualty insurers. Retail merchants are some of their biggest clients, but other types of merchants use them as well. This type of coverage can be especially valuable for merchants located in high-crime areas.

Checking Crimes

A Commercial Crime insurance policy generally includes losses resulting from forgery or alteration of checks, drafts and promissory notes that are made or drawn upon the insured or one acting as the insured’s agent; forgery or alteration of documentation related to commercial credit, debit or charge cards; and theft via forgery or alteration of funds within personal accounts of executives.

For many businesses today, this coverage can include computer fraud such as a loss resulting from the use of any computer to fraudulently cause a transfer of funds/property from inside the premises (or one’s bank) to an outside party, and funds transfer fraud, or loss resulting from a fraudulent instruction directing a financial institution to transfer or otherwise pay money out of an account. Note that most policies won't cover phishing or identity deception types of fraud, where an outsider tricks an employee into transferring funds or shipping merchandise fraudulently.

The nation’s banks stopped nearly $17 billion in fraudulent transactions in 2016 — a figure that represents a substantial increase since 2014 in attempted fraud, when the industry stopped $11 billion — according to ABA’s 2017 Deposit Account Fraud Survey Report. Fraud against bank deposit accounts cost the industry $2.2 billion in total losses, an increase from $1.9 billion in 2014. 

Check-writing volume has fallen to an all-time low - just 13.7 billion in 2015 compared with 38 billion in 2003, yet the loss per check has doubled over that time, according to Bluepoint Solutions, which estimates that actual check fraud losses for 2015 totaled around $648 million, while attempted losses topped $13 billion.

The introduction of more secure EMV chip-enabled debit and credit cards has likely prompted some fraudsters to instead concentrate on easier targets, old-fashioned checks. In May 2018, postal authorities noted a sharp rise in mailbox fishing, where crooks drop something sticky like a mouse trap into a mail box chute to pull up items such as checks in transit.