Employee Theft Coverage and Deductibles: A Complete Guide for Small Business Owners

As a small business owner, protecting your company from employee theft is crucial. Let's explore everything you need to know about employee theft coverage, including deductibles, requirements, and best practices for safeguarding your business.

Understanding the Scope of Employee Theft Risk

The threat of employee theft is more significant than many business owners realize.

According to research, businesses lose billions annually due to professional fraud, with companies losing approximately 5% of their revenue each year. Small businesses are particularly vulnerable, with up to 28% having experienced some form of fraud [1].

What is Employee Theft Coverage? Employee theft coverage is a crucial form of protection for businesses.

While often referred to as fidelity bonds, these are actually insurance policies that protect employers from employee-dishonesty losses. They cover losses of company money, securities, and other property from employees who show clear intent to:

Cause the company to sustain a loss
Obtain improper financial benefit for themselves or others

Types of Coverage Available [2] Crime insurance comes in various forms to protect your business.

The market is generally divided into two main categories:

Financial institution bonds (for banks, stockbrokers, insurance companies)
Commercial crime policies (for non-financial institutions)
Each category has different policy forms designed for specific types of institutions [2].

Understanding Policy Deductibles Crime insurance deductibles are an important consideration.

For most policies, the coverage typically comes with:

Sublimits between $25,000 and $250,000
Most policies offering $100,000 or less in coverage
Retentions (deductibles) of $25,000 to $100,000 before coverage applies

Modern Threats and Coverage Evolution [3]

The landscape of employee theft has evolved with technology.

One emerging threat is social engineering fraud, also known as business email compromise (BEC) or impersonation fraud. This typically involves someone impersonating a person close to the insured company and tricking them into transferring funds. These funds are often quickly moved offshore, making recovery extremely difficult. The FBI estimated that between January 2015 and February 2017, companies worldwide lost over $3 billion to this type of scam [2].

Coverage Options and Policy Types

When selecting coverage, it's important to understand the available options.

Several forms of coverage are available:

Individual policies or "floater policies" for named employees
Collective policies covering groups of employees
"Blanket policies" covering generic categories of employees, such as those handling company cash

The Business Owner's Policy Connection [2]

A Business Owners Policy (BOP) typically includes property, liability, and business interruption coverage. However, [4]

most commercial property and general liability policies don't cover cyber risks, and policies are highly customized for clients [5].

Risk Management and Prevention

Insurance companies have responded to increasing risks by:

Increasing rates significantly
Tightening terms and conditions
Increasing deductibles
Implementing sub-limits within policies

This has resulted in improved underwriting processes and better cybersecurity hygiene [6].

Comparing Employee Dishonesty Insurance vs. Crime Coverage

Different regions may use varying terms for this type of coverage:

In the United Kingdom, it's called fidelity guarantee insurance coverage
In Australia, it's typically referred to as employee dishonesty insurance coverage
Other names may be used by specific insurance agencies or brokers

Best Practices for Small Business Owners [2]

To maximize your protection, consider these key steps:

Implement effective risk management strategies:

Use advanced cybersecurity tools
Maintain up-to-date software
Follow best practices for minimizing cyber incidents

The market outlook is stabilizing, supported by:

Continued demand
Increasing take-up rates
Continual improvements in cyber hygiene

Financial Impact and Coverage Limitations [6]

Be aware of potential coverage limitations.

Important considerations include:

Cyber insurance contracts may not cover all losses after a breach
Companies may face indirect and intangible losses
Litigation expenses and reputational losses can persist for years
Many firms increase their cash holdings and liquidity after cyber incidents to prepare for unforeseen expenses

Conclusion [7]

Employee theft coverage is an essential protection for small businesses in today's complex business environment.

The demand for such insurance is rising among small and medium-sized enterprises, particularly as the cyberthreat landscape becomes more volatile and complex. Businesses of all sizes are experiencing an increase in cyber incidents. By understanding your coverage options, managing deductibles effectively, and implementing strong security measures, you can better protect your business from employee theft and related risks [6].