You trust your employees to take care of your business, assets and customers – but what if they violate that trust? Employee dishonesty insurance can help protect your business from the financial impact of employee wrongdoing.
What is employee dishonesty coverage?
Employee dishonesty coverage, sometimes called employee theft coverage, helps protect businesses in the event of employee theft, forgery, fraud or embezzlement. It is typically part of a commercial crime insurance policy, which may also provide coverage for crimes committed by third parties, such as robberies and social engineering scams.
Why do businesses need employee theft coverage?
Standard commercial general liability and commercial property insurance policies do not cover acts of employee theft or dishonesty. If businesses want coverage for this risk, they need a crime insurance policy that covers employee dishonesty.
This is important because employee dishonesty is a common type of workplace crime and is often costly for businesses. In fact, the U.S. Department of Justice says internal theft occurs at a rate 15 times greater than external losses like shoplifting and burglary.
Employees often have access to cash, inventory and financial information. As a result, they are in the perfect position to commit acts of theft and forgery. While many employees would not do this because they are honest or because they do not want to get into legal trouble or lose their jobs, it only takes one dishonest employee to hurt a company and cause financial harm.
What does employee dishonesty coverage cover?
Usually, employee dishonesty insurance covers scenarios when an employee:
- Steals cash from the till. Retail employees often have access to cash, and it may be easy for them to pocket this cash when no one is looking. Similarly, employees could steal cash from a safe or money that is supposed to be deposited into the company’s bank account. Businesses that handle a lot of cash, such as retail stores, are particularly vulnerable to this type of employee theft.
- Steals inventory or supplies. Cash isn’t the only asset that employees could take. Inventory and supplies (including electronics and other valuable items) may also be targets for employee theft.
- Steals from a client or customer. Employees don’t just have access to company assets. In many cases, they also have access to property belonging to clients or customers. Theft of client property could be especially harmful since it may bring reputational damage in addition to liability. The good news is that many employee dishonesty policies provide coverage for this.
- Embezzles funds. Employees with access to financial accounts sometimes divert funds for personal use. The amount of money employees steal through embezzlement could be substantial, especially if they commit repeated acts of theft over a long period of time before being discovered.
Understanding Employee Dishonesty Coverage
Since the details of employee dishonesty coverage may vary, it’s important to review your policy terms with your insurance broker to ensure that you understand exactly what coverage you have in place. Some questions to ask as you review your policy are:
- What are the limits? Employee dishonesty insurance limits can work in different ways depending on the policy. For example, a limit may be based on a per employee basis or a per loss basis.
- What are the exclusions? For example, your policy may not cover acts committed by certain individuals, such as volunteers or workers with a criminal history.
- How does the policy handle theft of a client’s property? Review your policy to see whether it provides coverage for property belonging to clients.
- What are the requirements? To make a successful claim, your employee dishonesty policy may require you to prove that an employee committed a crime. Simply knowing that shrink has occurred and suspecting employee theft may be insufficient for a claim. You may need to know exactly what happened and file a police report regarding the incident for the event to be covered by your policy.
- What is the coverage period? You may not discover losses immediately. This could create complications, particularly if you change coverage. Review your policy to understand when incidents must occur and when you must report them to qualify for coverage.
Protecting Your Business from Dishonest Employees
If one of your employees commits theft or fraud, your business could face major financial losses, along with operational disruptions and reputational damage. These steps can help you reduce your risk:
- Conduct background checks. Checking employee references and running a criminal background check could alert you to employees who have a history of dishonest behavior and could pose a threat to your business. This is especially important for employees who will have access to cash, valuable goods, client property, sensitive information or financial systems.
- Monitor operations. Installing security cameras in places where theft is likely to occur may deter both employees and third parties from committing crimes. It’s also important to monitor inventory and financial records to look for discrepancies that may point to employee theft and allow you to correct the problem before further damage occurs.
- Establish a clear policy on employee theft. Create a written policy on acts of employee dishonesty and make sure all employees are aware of this policy. Include the consequences of theft, such as termination and criminal prosecution.
- Investigate and report incidents. If you suspect theft, a prompt and thorough investigation may identify the source of the crime, which can help you avoid additional losses. Identifying the culprit through an investigation and reporting the incident to the police may also be necessary to make a successful employee dishonesty claim.
- Foster a positive workplace environment. It’s important to establish clear, zero-tolerance policies regarding employee theft, but this does not mean employers should treat all workers with suspicion or accuse them of criminal behavior. Employees may be less likely to steal if they feel valued and respected.
- Secure employee dishonesty insurance. Even with good risk management practices in place, an employee may commit an act of dishonesty. Employee dishonesty insurance can provide protection against such occurrences.
Do you need employee dishonesty insurance?
If you have employees, you may benefit from the protection provided by employee dishonesty insurance, particularly if your employees have access to cash, inventory, supplies, financial systems or client property. Higginbotham can help you secure a commercial crime policy that includes employee dishonesty coverage. Talk to one of our business insurance and risk management specialists to learn more.
