CAIB 2 Ch 6 - Sept 2024 Crime Insurance PDF

CAIB 2: Chapter 6 Crime Insurance CAIB  CAIB 2 Section 1 Crime: A Major Source of Loss to Property  Overview of Crime-Related Property Losses Criminal acts are a...

CAIB 2: Chapter 6 Crime Insurance CAIB  CAIB 2 Section 1 Crime: A Major Source of Loss to Property  Overview of Crime-Related Property Losses Criminal acts are a significant cause of property loss. Nearly 2 million crimes involving property occur annually. Approximately 40% involve commercial property. Over 75% of property crimes remain unsolved. Crime losses contribute to business failure, with 25% of bankruptcies attributed to crime. CAIB Property Types Susceptible to Crime Losses Real Property: Commercial buildings, fixed structures. Vandalism, malicious acts, burglary, and arson result in millions of dollars lost annually. Personal Property: Business stock and equipment. Thieves often target personal property due to its value and ease of transport. CAIB Target Items and Sources of Crime Losses Target Items: Convertibility: Ease of converting property into cash. Value: Higher value increases theft risk. Portability: Ease of transport influences crime vulnerability. Damage to premises often exceeds the value of stolen goods. Importance of recognizing crime methods to prevent losses. CAIB Forced Entry into the Building Key areas of vulnerability for building entry: Doors Windows Roof Walls Heating and air conditioning vents Other openings CAIB Forced Entry into Protected Enclosures Protected enclosures include: Safes, chests, vaults. Methods of forced entry: Mechanical Thermal Explosive CAIB Unforced Entry into Building or Protected Enclosures Unforced entry occurs when the criminal has access to: Key Combination Code This type of crime is common with insiders or trusted personnel. CAIB Forced Opening of Building and Protected Enclosures Criminals may use violence or threats to force access. Forcing employees to open safes or vaults. Kidnapping owners or employees to gain access. CAIB Vandalism and Malicious Acts Vandalism often accompanies theft attempts. Damage to buildings and contents may exceed the value of the stolen property. Statistics on vandalism and property damage: 450,000 cases reported annually. 15% involve damage exceeding $1,000. 90% of perpetrators are never caught. CAIB  Espionage Industrial espionage is a growing concern. Targets include proprietary information, designs, and prototypes. Common in high-tech and manufacturing industries. CAIB Shoplifting Shoplifting statistics in Canada: Retailers lose $3 billion annually. Average theft value: $80-$85. CAIB  Employee Theft Employee theft statistics: Annual loss: $1 billion. Average theft: over $200. Employees steal more in value compared to shoppers due to ease of access. CAIB Safeguarding Against Loss Overview of safeguarding methods. Importance of restricting unauthorized access. Physical and electronic protection methods. CAIB  Physical Protection Physical protection involves setting up barriers: Steel doors High-security locks Window locks, bars, and screens Tempered glass Safes and vaults Showcases CAIB Electronic Protection Electronic protection involves technology-based barriers: Magnetic door and window contacts Motion detectors and infrared detectors Pressure sensors under mats or stair treads Hold-up alarms, vibration detectors, and shock sensors Glass breakage alarms Closed-circuit television cameras (CCTV) Wire lacing CAIB Importance of Alarm Systems Alarm systems deter crime by: Triggering alerts upon unauthorized entry. Creating psychological deterrents for criminals. Enhancing protection with a layered defense strategy. Early mechanical alarms vs. modern electric systems. CAIB Insurance Rate Credits and Security Measures Insurers offer rate credits for installed protection devices: Physical and electronic protection. Monitored alarms and security guards. Poorly protected properties may be denied coverage. CAIB Perimeter, Area, and Point Protection Effective security systems cover three components: Perimeter Protection: Securing the building’s outer boundary. Area/Space Protection: Monitoring the interior areas. Point Protection: Securing specific high-value items or locations. CAIB Importance of Broker Knowledge Brokers must understand security devices: Assist clients with property protection. Refer technical questions to specialized security firms. CAIB  Definition of perimeter protection. Importance of securing Perimeter premises when the business is closed. Protection Two levels of perimeter protection: Partial and Complete. CAIB Partial Perimeter Protection Protects only openings like doors and windows. Weaknesses of partial protection: Does not detect forced entry through walls or ceilings. Stay-behind thieves may go undetected until they leave. Adequacy of partial protection for low-risk businesses. CAIB  Complete Perimeter Protection Full coverage against all perimeter access points. Secures: Doors and windows. Walls, ceilings, and floors. Combination of physical and electronic protection. CAIB  Physical Protection - Locks Locks as the first line of defense. Deadbolt locks: Superior protection compared to standard locks. Penetration into the door frame for extra security. Resistance to jimmying and sawing. CAIB Physical Protection - Bars and Screening Basement and ground floor windows are high-risk areas. Use of steel bars or wire mesh screening for added security. Rear or side doors can also be reinforced with bars. CAIB  Electronic Protection - Magnetic Contact Switches & Glass Breakage Alarms Magnetic contact switches: Attached to doors and windows. Trigger alarms when openings are tampered with. Glass breakage alarms: Detect broken glass in windows, doors, and display cases. Use of metallic foil or window tape to trigger alarms. CAIB  Area Protection Definition and purpose of area protection. Importance of restricting unauthorized access to valuable areas. Overview of physical and electronic protection methods. CAIB  Physical Protection Use of metal doors secured with quality locks or bars. Importance of robust physical barriers within the building. CAIB Electronic Protection - Interior Trapping Devices Definition and purpose of trapping devices. Common types of trapping devices: Single beam photo-electronic devices. Magnetic contact switches on interior doors. Pressure-sensitive mats. CAIB Electronic Protection - Motion and Heat Detectors Overview of motion and heat detectors. Motion Detectors: Function and principle of operation. Common issues like false alarms. Heat Detectors: Infrared detectors and their advantages. CAIB Area Protection During Normal Business Hours Importance of area protection during business hours. Devices used for protection: Hold-Up Alarms Cameras and CCTV Scanning Devices CAIB Hold-Up Alarms Description and purpose of hold-up alarms. Placement and activation methods. Importance of rapid response. CAIB Cameras and CCTV Benefits of CCTV surveillance. Implementation considerations: Coverage and placement. Integration with other security systems. Advantages in crime prevention and investigation. CAIB Scanning Devices Role of scanning devices in retail environments. Operation of electronic scanning systems. Benefits in reducing merchandise loss. CAIB Point Protection Definition and purpose of point protection. Types of items requiring point protection. Measures for ensuring effective point protection: Safes and Vaults Chests and Filing Cabinets Display Cases and Expensive Equipment Importance of deterrence and delay in access. Role of alarm systems in enhancing point protection. CAIB Alarm Control and Signalling Overview of alarm control and signalling systems. Importance in safeguarding premises and responding to breaches. Categories covered: Alarm Control, Alarm Signalling, and ULC Approved Ratings. CAIB  Alarm Control - Overview Definition: Control mechanisms for alarm systems. Two Main Categories: Locally Supervised Alarm Controls Central Station Supervised Alarm Controls CAIB  Locally Supervised Alarm Controls Description: Control by owner/employees via a digital keypad. Features: Access through pass-codes. Keypads installed inside to prevent tampering. Weaknesses: Risk of system not being activated due to human error. CAIB Central Station Supervised Alarm Controls Description: Owner/authorized users manage activation, with central monitoring. Features: Central station ensures proper operation. Regular monitoring and verification. Benefits: Ensures system is active as scheduled. Provides immediate response if an alarm is triggered. CAIB  Alarm Signalling - Purpose and Methods Purpose: Detect breaches in physical security. Provide warning signals for immediate response. Methods: Leased telephone lines for signal transmission. Monitoring and detecting tampering. CAIB Receiving Point of Alarm Signal Types: On-site alarms Alarm control centre signals Impact: On-site alarms may not prompt timely responses. Control centre signals ensure immediate police notification. CAIB Central Station Service Features: Monitors all premises' opening/closing times. Automatically activates/deactivates the system. Immediate police notification and dispatch. Advantages: Comprehensive monitoring and quick response. On-site representative for immediate access. CAIB  Monitoring Station Service Features: Similar to central station but without guard dispatch. Owner may need to provide keys to police. Advantages: Provides monitoring and alerts but less comprehensive than central station service. CAIB  Features Owner controls No notification of Central system opening/closing monitoring of activation. times. alarms. Emergency Station Service Suitability: Best for low-risk environments. CAIB Digital Communicator Service Description: Telephone dialler system. Features: Transmits encoded messages via standard telephone lines. Immediate police notification. Optional on-site alarm sounding. CAIB  Local Alarms Features: Alarms sound only on-site. Dependent on neighbors or passers-by for police notification. Weaknesses: Tampering risk. Limited response capabilities. CAIB  ULC Approved Ratings Definition: Standards set by Underwriters' Laboratories of Canada (ULC). Importance: Provides minimum standards for alarm systems. Used for assessing alarm effectiveness and reliability. Limitations: ULC approval indicates minimum standards; actual performance may vary. CAIB Conclusion and Best Practices Summary: Importance of choosing the right alarm control and signalling systems. Evaluating options based on risk level and requirements. Best Practices: Regularly test and maintain alarm systems. Ensure prompt and reliable monitoring and response. Stay updated with ULC standards and best practices. CAIB  CAIB 2 Section 2 The Commercial Crime Insurance Policy (IBC 6000)  Overview: Physical and electronic protection devices are not foolproof. The Insurance provides an essential additional layer of security. Necessity of Key Points: Limitations of Intrusion Protection: Insurance No system guarantees 100% effectiveness. Beyond Devices can be bypassed or fail due to various factors. Intrusion Role of Insurance: Complements physical and electronic Protection safeguards. Covers losses that protection devices may not prevent. CAIB  Limitations of Standard Commercial Property Forms Scope of Standard Coverage: Covers damage from riot, vandalism, and malicious acts. Basic theft coverage for stock and equipment. Coverage Gaps: Exclusions Include: Money and Valuables: Cash, bullion, precious metals, securities, stamps, tickets, tokens. Personal Items: Furs, jewelry, pearls, precious stones (with some limited exceptions). Sales Representatives’ Property: Property in the custody of sales representatives. Impact: Standard forms may not fully address all crime-related risks. CAIB Benefits of Commercial Crime Insurance Comprehensive Coverage: Types of Coverage: Theft, burglary, employee dishonesty, forgery, robbery, and extortion. Why It's Important: Covers risks not addressed by standard property insurance. Provides broader protection for a variety of crime-related exposures. Action Steps: Evaluate Current Coverage: Identify gaps in existing insurance. Consult Experts: Work with insurance professionals to find appropriate coverage. Purchase Additional Coverage: Ensure comprehensive protection with a Commercial Crime Insurance Policy. CAIB Structure of the Commercial Crime Insurance Policy Components of the Policy: Declarations: Identifies named Insured, policy period, and limits of insurance. Lists nine crime coverage options, with the option to select multiple coverages. Displays limits for each chosen coverage. General Conditions: Outlines basic rules and operational guidelines for the policy. Governs the execution and management of the insurance contract. General Definitions: Defines various types of crimes covered by the policy. Essential for understanding what specific criminal acts are insured. CAIB Detailed Analysis of Coverage Riders Insuring Agreement: Details the specific coverages provided under each rider. Ensures clarity on what is insured. Limit of Insurance: Outlines any special provisions for loss recovery. Specifies the maximum amount of coverage according to the Declarations. Exclusions: Lists what is not covered under the rider. Important for understanding limitations and gaps in coverage. CAIB Analyzing Crime Coverage with the Four Key Areas Four Key Areas of Analysis: 1. Property Covered: Defines the types of property insured under each rider. Important for knowing what physical assets are protected. 2. Perils Insured: Specifies the types of criminal acts covered by the policy. Clarifies the risks against which protection is provided. 3. Location of Property Covered: Indicates where the insured property must be located for coverage to apply. Helps determine if property in different locations is protected. 4. Persons Causing the Loss: Identifies who can commit the crime that the policy covers. Crucial for understanding who is considered an insider versus an outsider. CAIB This Photo by Unknown Author is licensed under CC Property Covered in Crime Insurance Overview of Property Covered: Defines the classes of property insured. Specific definitions for unique categories, like: Jewelry: Watches, gems, pearls, precious stones. Money: Defined as currency and coins in current use with face value. Securities: Negotiable/non-negotiable instruments representing money or other property. Definition Variances: Definition of property (e.g., money) varies between insurers. Some policies use broader terms like "currency, coins, bank notes." Comprehensive policies expand to cover items like cheques and money orders. CAIB  Perils Insured Coverage of Perils: Definitions vary; specific perils like: Kidnapping, robbery, burglary, forgery are well-defined. Broader coverages such as: Theft, destruction, disappearance, wrongful abstraction are not always clearly outlined. Uncertainty in Broad Coverage: Broader terms leave room for interpretation and may require additional clarification. Some policies may provide a more general or vague description of the covered perils. CAIB Location of Property Covered Location-Specific Coverage: On-Premises Coverage: Losses originating from within the insured premises. Some policies may cover losses only in specific locations, like safes, vaults, or chests. Off-Premises Coverage: Losses occurring away from the insured premises are strictly controlled. Varies widely in terms of extent and conditions. Coverage Restrictions: On-premises coverage might be limited to non-business hours or when a guard is present. Off-premises coverage could have stringent conditions for claims approval. CAIB  Persons Causing the Loss Losses Caused by Outsiders and Insiders: Outsiders: Most crime insurance policies focus on losses caused by external parties. Insiders: Many policies exclude losses caused by insiders, including: Employees: Fraudulent or dishonest acts by employees. Insured or Partners: Excludes losses caused by the insured or any business partner. Exclusions in Crime Policies: Common exclusions include losses resulting from insider dishonesty or fraud. Specialized policies or riders are needed for employee dishonesty coverage. CAIB Application Process for Specialized Risks Standard vs. Specialized Coverage: Application Requirements: Standard Crime Coverage: When insuring specialized property or Provided with little information (e.g., theft higher risk areas, insurers may demand of stock or damage to buildings). detailed applications. Specialized Crime Coverage: Insurers may require information on Requires more extensive underwriting security measures, prior claims history, information. and risk assessments. Applicable when insuring more complex risks like jewelry or high-value securities. CAIB Key Differences Between Criminal Law and Insurance Policy Definitions Criminal Law vs. Insurance Definitions: Criminal law defines crimes like burglary, robbery, and theft. Insurance Policy: Definitions in policy forms may be more restrictive. Broker's Role: Ensure clients understand when insurance definitions are more limited than criminal law. Highlight coverage gaps based on insurance policy language. CAIB This Photo by Unknown Author is licensed under CC  Burglary - Criminal Law vs. Insurance Criminal Law Definition of Burglary: The wrongful taking of property from a closed premise. No need for visible signs of forcible entry or exit. Insurance Definition of Burglary: Insurance Rider: Requires "unlawful taking" with signs of forcible entry or exit. No visible force = No coverage. Premises must usually be closed for burglary claims. Burglary Riders & Force: Force must be evident, even if minimal (e.g., marks from pry-bars or lock damage). Stay-behind thieves: Exiting without force turns the crime into theft, not burglary. CAIB Robbery - Expanding Beyond Criminal Law Criminal Law Definition of Robbery: Taking of property through force or fear from a person. Insurance Rider Definition of Robbery: Expanded to include other acts beyond the criminal law meaning. May include robbery from employees, customers, or those legally on premises. Force or Fear Element: Force/fear must still be present, but broader circumstances qualify as robbery under insurance policies. CAIB Theft - Aligned with Criminal Law Criminal Law Definition of Theft: Any unlawful taking of property without the owner's consent. Insurance Rider Definition of Theft: Consistent with criminal law: No force or fear is required for the claim. No need for visible damage to safes, vaults, or premises. As long as property is taken without consent, it is considered theft under insurance policies. CAIB  Coverage Includes: Actual or attempted burglary Robbery of a watchman Stock and Vandalism or malicious acts occurring during the same event Equipment Conditions: Coverage applies when the premises are closed, except for stock or equipment in show windows not opening into Burglary the premises (e.g., "smash and grab" incidents). Additional Protection: Coverage Damage to the interior of premises, showcases, or show windows is covered if related to the covered perils. (IBC 6009) Losses caused by anyone other than the Insured, their partners, employees, or authorized representatives. Exclusion does not apply to burglary/robbery involving a watchman. CAIB Definition of Safe Burglary Definition of safe burglary (IBC 6007) Unlawful taking of property from a locked safe/vault. Forcible entry into a safe or vault required. Must have visible evidence of forcible entry. Coverage applies to safes/vaults listed in Declarations. The safe or vault must be on the premises. CAIB  Property Insured & Safe/Vault Requirements Types of insured property: Money, securities, or stock. Property within locked safes/vaults. Coverage only for combination lock safes/vaults. Key-access safes or unlocked containers are excluded. CAIB  ULC Classifications & Quality of Safes ULC ratings for safes/vaults. Classifications determined by resistance to explosives, torches, and tools. Class 1 rating: highest classification. All safes must have combination locks. CAIB Additional Coverage Conditions Visible signs of forcible entry required for coverage. Removal of safe from premises also covered. No need to show forced entry if safe is stolen. Covers damage caused by attempted burglary. Damage to premises or other property (e.g., from explosives). CAIB Damage to Building by Burglary or Robbery (IBC 6002) Coverage insured damage to premises caused by: Actual or attempted burglary or robbery. Vandalism or malicious mischief committed during the event. Applicable to tenants or building owners responsible for damage. Covers damage to the building and permanent fixtures. Excludes damage to glass, lettering, or ornamentation (covered by a separate Glass Rider). CAIB Inside/Outside Robbery (IBC 6003) General Definition in Insurance: Robbery: Taking insured property from a custodian involving: Bodily Harm Threat: Threat or actual harm to the custodian. Overt Unlawful Act: Witnessed by the custodian. Custodian Unconscious/Dead: Property taken from an incapacitated custodian. Beyond Criminal Law Definition: Includes acts not necessarily fitting criminal law’s strict interpretation. CAIB Types of Robbery Covered Violence or Threat of Violence: Example: Cashier threatened or harmed. Witnessed Wrongful Acts: Example: Theft observed by custodian. Custodian Unconscious or Dead: Example: Money taken if custodian is incapacitated in an accident. CAIB  Definition of Custodian Custodian: Includes: Insured, partners, authorized employees. Excludes: Guards, janitors, porters, watchmen. Broker’s Responsibility: Ensure clarity on who qualifies as a custodian. CAIB Property Insured & Coverage Limits Types of Insured Property: Money, Securities, Property. Optional Coverages: Securities only, or other specified property. Coverage Limits: Separate Limits: Inside vs. outside robbery. Adjustable Limits: Increased coverage for high-risk periods. CAIB Inside Robbery - Coverage Overview Actual or Attempted Robbery on Premises: Covers robbery of a custodian on the premises. Includes damage to premises caused by the robbery. Definition of Premises: Interior of the portion of the building occupied by the Insured. Excludes showcases/show windows not directly opening into the interior. Excludes public entrances, halls, or stairways. CAIB Inside Robbery - Kidnapping and Theft from Window Display Kidnapping: Coverage for property taken when a custodian is compelled by violence or threat to provide access to insured property. Applies when premises are closed. Theft from Window Display: Coverage for theft from window displays inside the premises. Applies when premises are open for business and involves breaking the window. CAIB Outside Robbery - Coverage Details Robbery Away from Premises: Coverage for actual or attempted robbery of a custodian outside the premises while handling insured property. Applies within Canada or the U.S. Theft from Custodian’s Home: Covers theft of insured property from a custodian’s home. Maximum coverage of $500, or the limit of insurance, whichever is less. Increased coverage available for additional premium. CAIB Outside Robbery - Night Depository Safe and Exclusions Theft from Night Depository Safe: Covers theft of money from a night depository safe provided by a bank or trust company. Includes loss due to: Forcible removal of the safe. Unauthorized entry into the safe. Theft by dishonest bank employees. Exclusions: No coverage for damage to glass, lettering, ornamentation, etc. No coverage if the custodian or accompanying guard is criminally implicated. CAIB  Purpose: Govern how the policy and attached riders operate. Overview of Total Conditions: 18 conditions in General the Commercial Crime Insurance Policy. Conditions Focus: Summary of selected conditions for discussion. CAIB Condition 1 - Canadian Currency Payment in Canadian Funds: All losses under the policy are paid in Canadian dollars. Rationale: Premiums are also charged in Canadian funds. CAIB Condition 2 - Cancellation Notice Period:30 Days Notice: Required for general cancellation. 15 Days Notice: Required for cancellation due to non-payment of premium. CAIB Condition 3 - Change of Interest No Extension of Coverage: To new owners without insurer’s consent. Automatic Consent: Provided for legal representatives in cases of death, insolvency, or bankruptcy. CAIB Condition 4 - Changes Policy Agreements: All agreements between insurer and insured are contained within the policy. Changes: Effective only with insurer’s consent, evidenced by an endorsement. Broker Authority: Does not include changes to existing crime coverages. CAIB  Condition 4 - Changes POLICY AGREEMENTS: ALL CHANGES: EFFECTIVE ONLY WITH BROKER AUTHORITY: DOES NOT AGREEMENTS BETWEEN INSURER AND INSURER’S CONSENT, EVIDENCED BY INCLUDE CHANGES TO EXISTING INSURED ARE CONTAINED WITHIN THE AN ENDORSEMENT. CRIME COVERAGES. POLICY. CAIB Condition 5 - Discovery Period for Loss Claim Reporting Window: Up to one year after policy expiry. Reason: Theft or loss may not be immediately detected. CAIB Condition 6 - Duties in the Event of Loss Notification: Notify insurer as soon as possible. Proof of Loss: Provide sworn proof within 120 days. Securities: Prevent negotiation, sale, or conversion. Legal Notification: Notify police for law violations. Examination Under Oath: If required, provide signed statements. CAIB Condition 7 - Insurer’s Right: To inspect premises at reasonable times. Inspection Purpose: Confirm property protection systems and underwriting information. CAIB Condition 9 - Legal Action Against Us Time Limit: Action must be taken within two years from the discovery of the loss. CAIB Condition 10 - Loss Prior Insurance Coverage: Sustained Losses not covered due to late discovery by previous During insurance are deemed to have occurred at the start of Prior the current policy. Insurance CAIB  Condition 13 - Policy Period and Territory Coverage Area: Losses must occur within the policy period and within Canada or the U.S. CAIB Condition 14 - Records Importance: Records are crucial for verifying loss amounts. Requirement: Maintain records to substantiate claims. CAIB Condition 18 - Valuation Securities Valuation: Limited to actual cash value at close of business before loss discovery. Settlement: Insurer can pay the value or replace with a lost securities bond. Other Property: Settled on an actual cash value basis. Disputes: Settled by arbitration. CAIB  CAIB 2 Section 3 Comprehensive Dishonesty, Disappearance & Destruction Policy (IBC 5000)  3-D Policy Overview – Insuring Agreements Agreement I - Employee Dishonesty Coverage Form A: Provides protection against theft or dishonest acts by employees. Coverage Form B: Offers enhanced protection or different limits, potentially tailored to specific scenarios or higher-risk areas. Agreement II - Loss Inside the Premises Covers losses of money, securities, or property occurring inside the insured's premises. Agreement III - Loss Outside the Premises Covers losses of money, securities, or property occurring outside the insured's premises. Agreement IV - Money Orders and Counterfeit Paper Covers losses resulting from accepting counterfeit money orders or paper currency. Agreement V - Depositor’s Forgery Provides coverage for losses due to forgery or alteration of financial documents such as checks. CAIB Coverage Selection and Declarations Endorsements for Coverage Selection: Declarations Page: Additional Coverage: Customizable Summary of Adding Coverage: Protection: Coverages: Allows for additional Insured can select This page provides a protections to be any or all coverages clear summary of the included via based on their coverages selected. endorsements. specific needs. It serves as a Useful for covering Insurance limits must reference for specific risks or be set for each understanding which exposures not selected coverage, coverages are active included in the base allowing tailored risk and their respective policy. management. limits. CAIB  Policy Issuance: Policy Continuous Coverage: Although issued for a specific term, the policy is typically endorsed for continuous coverage. Issuance Ensures ongoing protection without gaps, which is crucial for risk areas like employee dishonesty. Importance of Continuous Coverage: and Avoiding Gaps: Continuous coverage helps prevent lapses that could expose the insured to potential losses. Continuit Particularly important for areas with high-risk exposures, ensuring uninterrupted protection. Employee Dishonesty Focus: y Significance: Continuous coverage is vital to avoid gaps, especially for employee dishonesty. Ensures that the insured is protected at all times, minimizing the risk of exposure to financial loss. CAIB Insuring Agreement I - Employee Dishonesty Coverage Overview Insider Fraud Risks: Major cause of loss for businesses; significant financial impact. Long-time and senior employees often involved. Insiders know business vulnerabilities and can cover their tracks. Statistics: KPMG survey: 63% of Canada’s top 900 businesses reported fraud in the past two years. 50% of these frauds had losses exceeding $25,000. Employees responsible for 84% of corporate frauds. CAIB Unique Aspects of Employee Dishonesty Insurance Challenges in Predicting Types of Undocumented Losses: Losses: Losses from employee dishonesty are Theft from cash registers or pocketing difficult to predict accurately. unrecorded money. Values for insurance are hard to estimate Padding of expense accounts. compared to physical assets like buildings or Overcharging for services. stock. Unrecorded assets and fraudulent activities complicate valuation. CAIB Delayed Discovery of Losses Detection Challenges: Employee dishonesty losses are often discovered long after the initial act. Delays in detection can lead to higher total losses. Impact of Delayed Discovery: Additional losses may accrue over time before the fraud is uncovered. The extended period between the act and discovery can complicate recovery and mitigation efforts. CAIB  Employee Dishonesty Coverage - Form A: Coverage Details: Covers loss of money, securities, and other property. Coverage Maximum limit specified in the Table of Limits of Liability. Options - Applicable to fraud or dishonest acts committed by employees, alone or with others. Form A Key Points: Comprehensive coverage for employee dishonesty. Set limit applies to the aggregate of all fraudulent acts. CAIB Coverage Options - Form B Employee Dishonesty Coverage - Form B: Coverage Details: Covers loss of money, securities, and other property. Limit specified for each employee. Applies to fraudulent or dishonest acts by employees, alone or in collusion. Key Points: Coverage tailored to individual employees. Specific limit applies to each employee’s dishonest acts. CAIB Definition of Employee Employee Defined: Includes natural persons in the regular service of the insured. Covers directors or trustees actively involved in business operations. Includes individuals hired through employment agencies if directed and compensated by the insured. Not Covered: Brokers, factors, commission merchants, and similar agents. CAIB Exclusions and Special Considerations Persons Not Deemed Employees: Exclusions Include: Brokers, factors, commission merchants, and similar representatives. These individuals operate on a margin basis and are not under the direct control of the insured. Special Considerations: Coverage for individuals through mergers or asset purchases requires notification and additional premiums. CAIB Coverage for Specialized Businesses Specialized Business Coverage Differences: Coverage: Types of Businesses: Specialized coverages Financial institutions, designed for specific risks securities dealers, and faced by these industries. other specialized Details not covered in operations. standard employee dishonesty policies for non-specialized businesses. CAIB Risk Management and Mitigation Risk Management Strategies: Preventative Measures: Implement strong internal controls and monitoring systems. Conduct regular audits and background checks on employees. Mitigation Techniques: Response Plans: Develop clear procedures for reporting and addressing suspected fraud. Ensure timely investigation and response to fraudulent activities. CAIB  Coverage Details: Insured Employees: All employees are covered. Automatic extension to new employees and termination for departing employees. Coverage Identification: No need to specifically identify the employee Options - Form causing the loss. Investigations required for certain businesses A: Commercial or higher limits. Blanket Bond Screening: Insurer may investigate employees, potentially refusing to bond those with questionable honesty. CAIB Coverage Options - Form B: Blanket Position Bond Coverage Details: Flexibility: Coverage can be purchased for specific identified positions rather than all employees. Increased Limits: Higher insurance amounts available for positions with higher potential risk (e.g., cashiers). Position-Based: Coverage tailored to specific roles rather than a blanket approach. CAIB Limits of Insurance - Form A vs. Form B Form A: Commercial Blanket Bond: Insurance Limit: Total limit applies regardless of the number of employees involved in the loss. Form B: Blanket Position Bond: Insurance Limit: Limit applies per employee involved in the loss. Comparison: Form A: Single aggregate limit. Form B: Per-employee limit. CAIB Basis of Settlement - Example Analysis Form A: Settlement Limit: Maximum payout is the insurance limit, regardless of the number of employees involved (e.g., $5,000 limit). Form B: Settlement Limit: Maximum payout per employee involved (e.g., $5,000 per employee). Example Scenario: Form A: $5,000 total for loss, irrespective of the number of employees. Form B: $5,000 per employee, potentially totaling more if multiple employees are involved. CAIB  Form A: Commercial Blanket Bond: Discovery Period: One year from the expiry date of the policy. Discovery Form B: Blanket Position Bond: Periods Discovery Period: Two years from the expiry date of the policy. Importance: Coverage Continuity: Time allowed to discover and report claims post-policy expiry. CAIB  Prior Fraud and Dishonesty Policy Implications: Discovery of Prior Fraud: Coverage ceases upon awareness of prior fraud by an employee. Policy Cancellation: If prior fidelity coverage was canceled, prior dishonest employees are not covered unless specifically agreed upon. New Coverage Requests: Reinstatement: Coverage may be extended to employees demonstrating long-term honesty. CAIB  Coverage for Unidentifiable Losses: Proof of Access: Coverage is provided if the circumstances indicate the loss was caused by an employee with access. Handling Limitations: Unidentifiabl Payment limited to the policy’s insurance amount, regardless of the number of e Employees employees involved. Example Scenario: Theft from a restricted area with access limited to certain employees. CAIB Handling Losses Under Previous Bonds Coverage Transition: Previous vs. New Policy: New policy can cover losses discovered after the previous policy’s expiration if the loss was covered under the previous bond. Payment Limits: Amount paid under the new policy is part of the limits of the previous policy and not additional. Claims Handling: Special Considerations: Ensure continuity of coverage and understand limits under both policies. CAIB Risk Management and Internal Controls Pre-Employment Risk Management: Practices: Written applications, personal interviews, and reference verification. Psychological testing for middle management and security checks for top-level personnel. Post-Employment Risk Management: Practices: Duplicate sensitive data, require multiple signatures on checks, engage outside consultants. Implement job rotation, mandatory vacations, surprise audits, and bank account rotations. CAIB Insuring Agreement II - Loss Inside the Premises Coverage Options: Insured Perils: Available Separately or as a Rider: Loss of Money and Securities: Insured Agreements II and III can be Actual destruction, disappearance, or purchased separately or as an IBC Money wrongful abstraction within premises or and Securities rider to the Commercial recognized safe deposit places. Crime Insurance Policy. Other Property: Safe burglary, robbery, or felonious entry affecting locked containers or the premises. CAIB Money and Securities Coverage Definition and Scope: Money: Includes currency, coins, bank notes, bullion, travelers’ cheques, register cheques, and money orders held for sale. Securities: Defined similarly across policies. Coverage: Perils: Actual destruction, disappearance, or wrongful abstraction. Includes all-risk coverage for money and securities. CAIB Coverage for Other Property Scope of Coverage: Limitations: Definition: Comparison with Broad Form Encompasses property other Coverages: than money and securities. More restricted than Broad Form Perils Covered: coverages for stock and Safe burglary or robbery within equipment. the premises or attempts thereof. Coverage for locked containers affected by felonious entry or removal. CAIB  Damage to the Premises Coverage Details: Perils Covered: Damage caused by safe burglary, robbery, or burglarious entry into the premises. Coverage Condition: Only applicable if the Insured owns the premises or is liable for the damage. Insurance Amount: Exposure: Should reflect the maximum potential loss from any single occurrence. CAIB Exclusions Key Exclusions: Vending Machines: Losses from coin-operated machines unless money is recorded continuously. Fire Losses: Excludes fire damage to property other than money, securities, safes, or vaults. Unauthorized Electronic Transfers: No coverage for losses due to unauthorized electronic transfers outside the premises. CAIB Risk Management Considerations Protective Measures: Property Protection Systems: Coverage is usually available to Insureds with approved property protection systems. Policy Review: Regular Updates: Ensure that property protection systems are regularly reviewed and updated to meet insurance requirements. CAIB  Coverage Includes: Loss of Money and Securities: Actual destruction, disappearance, or wrongful abstraction outside the premises. Insuring While conveyed by a messenger or armoured motor vehicle. Agreement III - Within the living quarters of the messenger. Loss Outside Loss of Other Property: the Premises Robbery or theft outside the premises. Overview While conveyed by a messenger or armoured motor vehicle. Theft within the living quarters of the messenger. CAIB Money and Securities Coverage Scope of Coverage: Perils Covered: Same broad perils as inside the premises (destruction, disappearance, wrongful abstraction). Location Restrictions: Covered Locations: Conveyed by a messenger or armoured vehicle. Within the living quarters of the messenger. No Limit on Living Quarters: Unlike Inside/Outside Robbery rider, no limit restriction in the messenger’s home. CAIB Other Property Coverage Scope of Coverage: Robbery Coverage: Robbery or attempt thereat while being conveyed by a messenger or armoured motor vehicle. Theft Coverage: Theft while within the living quarters of the messenger. Comparison with Money and Securities: Different Coverage Focus: Specifically covers robbery and theft, unlike the broader money and securities coverage. CAIB Exclusions Noteworthy Exclusions: Armoured Vehicle Custody: Coverage only applies to losses in excess of recoveries from the armoured vehicle company. Example: Coverage Application: If the loss is $100,000 and recovery from the armoured vehicle company is $75,000, the insurer covers only the remaining $25,000. CAIB  Key Considerations for Insureds For Money and For Other Property: For Armoured Vehicle Securities: Use: Ensure Coverage Scope: Understand Coverage Limitations: Review Contract and Insurance: Confirm that the policy covers all Note that coverage is focused on Verify the terms of contracts with desired perils and locations. specific types of loss (robbery and armoured vehicle companies and theft) and ensure it aligns with other insurance to ensure adequate business needs. coverage. CAIB Agreement IV - Money Orders and Counterfeit Paper Currency Insuring Agreement Overview: Scope of Coverage: Protects against losses due to acceptance of money orders. Applies to post office or express money orders. Covers counterfeit Canadian or U.S. paper currency. Money Orders: Coverage Details: Losses if money orders are not honored upon presentation. Includes both post office and express money orders. Accepted in Good Faith: Coverage applies when money orders are accepted in good faith for merchandise, money, or services. CAIB Exclusions and Exclusions: Insurance Insurance Non-Existent Financial Requirements: Coverage Level: Requiremen Institutions: Losses from cheques issued by Typically minimal insurance is required. ts non-existent financial institutions Losses are generally infrequent are not covered. and involve small amounts. Returned NSF Cheques: Losses due to cheques returned for insufficient funds (NSF) are excluded. CAIB  Depositors Forgery Coverage Overview Coverage Scope: Covers losses due to forgery or alteration of: Cheques Drafts Promissory notes Bills of exchange Similar written promises, orders, or directions to pay a sum of money Types of Forgery Covered: Fictitious Payee: Cheques or drafts made in the Insured’s name payable to a fictitious payee and endorsed by the fictitious payee. Impersonation: Cheques or drafts procured through impersonation, made payable to the impersonated individual, and endorsed by someone other than the impersonated person. Payroll Instruments: Payroll cheques, drafts, or orders made payable to bearer or named payee and endorsed by anyone other than the named payee without authority. CAIB  Definition and Treatment of Forgery Definition of Forgery: Policy Treatment: Generally, forgery involves: Legal Forgery: Altering a writing without Coverage applies even if an authority. endorsement or alteration is not Making, completing, executing, or legally considered forgery. transferring a writing to falsely Mechanically Reproduced represent it as an authorized act. Signatures: Treated the same as handwritten signatures for coverage purposes. CAIB  Coverage Considerations and Risk Management Coverage Considerations: Valuable Addition: Particularly important for businesses with significant cheque and negotiable instrument activity. Coverage Limits: Should align with limits chosen for Employee Dishonesty Coverage (Insuring Agreement I). Risk Management Suggestions: Use of Safety Paper: Employ safety paper for cheques to deter tampering and forgery. Protection of Blank Cheques: Secure storage and controlled issuance of blank cheques. Controlled Use of Facsimile Machines and Plates: Limit access and use of facsimile machines and plates to prevent unauthorized reproduction of signatures. CAIB