Employee Dishonesty Insurance: Protecting Your Business from Insider Threats

Running a business requires trust. As an employer, you entrust your employees with valuable assets, sensitive information, and the reputation of your company.

But unfortunately, sometimes trust is broken. Employee dishonesty, from petty theft to elaborate fraud schemes, can cripple a business. That’s where employee dishonesty insurance comes in, acting as a safety buffer in case the unthinkable happens.

What is Employee Dishonesty Insurance?

Also known as fidelity insurance or commercial crime insurance, it a type of insurance that protects your business from financial losses caused by the dishonest acts committed by your employees, wheter they are temporary employees or full-time employees.

It’s often included within a broader commercial crime insurance policy and serves as a financial cushion against various forms of employee misconduct.

Is Employee Dishonesty Insurance the Same as Employee theft Insurance?

Employee dishonesty insurance and employee theft insurance are similar, but not identical.

While both offer protection against financial losses caused by employees, they differ in the scope of coverage they provide.

Employee Dishonesty Coverage

This type of insurance has a broader coverage and protects every business owner against a wider range of employee dishonesty, including, but not limited to, theft, fraudulent activities, extortion, and forgery.

Employee dishonesty coverage cost more than employee theft insurance due to the wider range of the insurance coverage.

Employee Theft Coverage

This insurance has a narrower coverage, which primarily focuses on physical employee theft of money and property by employees.

It is also less expensive than employee dishonesty insurance due to the limited scope of coverage.

Employee Dishonesty Insurance Coverage: Everything You Need to Know

Employee dishonesty coverage varies by insurance policy, but generally, it encompasses:

Direct Financial Losses

Theft of money and securities: This encompasses cash, checks, credit cards, and other financial instruments stolen by employees.

Employee theft of property: This includes inventory, equipment, intellectual property, and even data.

Embezzlement: Misappropriation of company funds for personal gain is covered.

Forgery and alteration: Fraudulent use of signatures, documents, or checks falls under this category.

Unauthorized electronic and wire transfers: Illicit fund transfers initiated by employees are covered.

Computer fraud and cybercrime: Data breaches, hacking, and unauthorized access to sensitive data perpetrated by employees are covered.

Indirect Financial Losses

Investigation and legal expenses: Costs incurred in investigating and prosecuting the wrongdoing employee can be reimbursed.

Restitution for damages: If an employee’s actions cause damage to customers or other third parties, the insurance may cover the cost of restitution.

Loss of income: If the dishonest act disrupts business operations and leads to lost revenue, the insurance may offer some compensation.

Additional Coverages

Extortion and blackmail: If an employee uses their position to extort money or resources from the company, the insurance may provide coverage.

Employee benefits fraud: Misuse of company-provided benefits like health insurance or retirement plans can be covered.

Errors and omissions (E&O) coverage: Some policies extend coverage to unintentional employee mistakes that lead to financial losses.

Employee Dishonesty Insurance for Business Owners

While every business is vulnerable to dishonest employees, some are more at risk than others. According to CNBC, workplace crime costs businesses $50 billion annually.

For business owners, especially for small businesses, here are some types of businesses that should strongly consider investing in employee dishonesty insurance:

Businesses that handle large amounts of cash or valuable inventory

• Retail stores: Cash registers and inventory are prime targets for theft.
• Financial institutions: Banks, credit unions, and other financial institutions handle large sums of money and sensitive financial information.
• Jewelry stores: Valuable jewelry and precious metals are highly tempting to dishonest employees.
• Pawn shops: Pawned items can be easily converted into cash.

Businesses that have employees with access to sensitive financial information

• Accounting firms: Employees have access to client financial records and bank accounts.
• Payroll companies: Employees handle confidential employee payroll information.
• Law firms: Sensitive legal documents and client financial information are often accessible to employees.
• Healthcare providers: Employee dishonesty can lead to the theft of patient medical records and billing information.

Businesses that rely heavily on trust and ethical conduct

• Non-profit organizations: Donors and volunteers rely on the organization to use their funds ethically.
• Government agencies: Public trust is essential for government agencies to function effectively.
• Educational institutions: Students and parents entrust schools with the safety and well-being of children.
• Professional service firms: Clients rely on the expertise and integrity of professionals.

Businesses in industries with a higher risk of fraud

• Securities industry: Stockbrokers and financial advisors are often targeted by fraudsters.
• Construction industry: Bid rigging and kickbacks are common forms of fraud in the construction industry.
• Healthcare industry: Medicare and Medicaid fraud are major concerns in the healthcare industry.
• Technology industry: Cybercrime and data breaches are common threats in the technology industry.

Why Businesses Should Get Employee Dishonesty Coverage

Investing in employee dishonesty coverage can be a strategic decision for businesses of all sizes, offering crucial protection against financial losses caused by dishonest employee acts.

Here are some compelling reasons why businesses should consider it:

Mitigates losses related to dishonest and criminal acts

Employee dishonesty can have a devastating financial impact, from stolen cash to embezzled funds and cybercrime. This coverage acts as a safety cushion, reimbursing losses and helping businesses recover faster from financial harm.

Protects assets

Whether it’s valuable inventory, sensitive data, or intellectual property, employee dishonesty coverage safeguards your valuable assets from theft, misuse, and other dishonest acts.

Prevents business disruption

Financial losses from employee dishonesty can disrupt operations, stall growth, and damage your reputation. This coverage helps minimize the disruption and gets your business back on track.

Builds trust with stakeholders

Having employee dishonesty coverage demonstrates your commitment to ethical practices and financial integrity, fostering trust with employees, clients, board members, and investors.

Reduces risk and uncertainty

Knowing you have financial protection against employee misconduct provides peace of mind and allows you to focus on running your business with confidence.

Attracts and retains talent

Offering this coverage can be a competitive advantage, attracting and retaining skilled employees who value a secure and ethical work environment.

Reputation management

Protecting your brand and reputation from the negative consequences of employee dishonesty is crucial. This coverage can help repair any damage caused.

Prevents larger losses

The cost of employee dishonesty coverage is significantly lower than the potential financial losses it can prevent. It’s a wise investment compared to the potential consequences.

Reduces insurance premiums

Implementing strong internal controls and employee screening measures can lower your insurance premiums over time.

Employee Dishonesty Coverage Protect Businesses and Employees

Employee dishonesty insurance may not prevent incidents of misconduct, but it provides invaluable financial protection and helps your business recover faster.

It demonstrates your commitment to ethical practices and safeguards the trust you build with your employees and clients.

For more ways to ensure trust with employees and other stakeholders of your business, explore offerings from multiple insurance carriers specializing in solutions for small businesses, not-for-profit organizations, and professional service providers with Dream Assurance.

Employee Dishonesty Insurance FAQs