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Rising white collar crime sees demand for fidelity gaurantee insurance increase

Friday, October 4, 2013

The tough economic climate that has pervaded for the last seven years in South Africa, combined with the country’s high unemployment rate, has seen a marked increase in the need for ‘Fidelity Guarantee’ insurance cover by local businesses in order to mitigate the risk of theft committed by employees. More than two-thirds of South African companies polled in a 2012 ITWeb survey reported that they had discovered cases of fraud committed by their own staff over the past three to five years. The survey showed that white-collar crime was on the increase and that most cases of fraud were committed by companies' internal staff members.

Lisa Teixeira, COO at CIB Insurance Administrators (CIB), says that while employee theft rarely makes headlines unless it is on a grand scale, this kind of crime can have a very negative impact on a business, both in monetary terms as well as the possible repercussions to a company’s reputation.

"A Fidelity Guarantee, as issued by an insurer, is a contract of insurance indemnifying the insured for money they have lost due to theft by an employee. According to a recent survey conducted by CIB, over half of the brokers surveyed currently offer Fidelity Guarantee insurance, with another 13.6% intending to offer it within the next year.

"The clear inference is that, with another 13.6% intending to bring this offering on board next year, this would bring to a total of about two-thirds the number of brokers surveyed who see the need for this kind of insurance being offered in the present climate.”

Teixeira says that CIB takes pride in advising its brokers on how to write Fidelity Guarantee cover correctly. "How to write the cover depends on the risk itself. There are various options available depending on the type of business. A blanket policy covers all employees, while a position basis policy covers employees who hold specific positions within the company or who have specific titles, for example, the financial manager.”

Teixeira says there are a number of other factors which can impact on how to write Fidelity Guarantee cover, including the risk management processes, which include detection and prevention processes; performance management and disciplinary processes; and ensuring that all employees follow the correct processes. "A company’s standard operating procedures need to address this risk and make sure that controls are put in place to mitigate the risks. A company with a more stringent and robust risk management strategy in place is less likely to experience losses of this nature.”

Teixeira notes that there are extensions available on this cover, as well as implications if the cover is incorrectly written. "As with anything that is written incorrectly, a business owner would not get the necessary indemnity at claims stage. In other words, the client would be exposed.”

She adds that Fidelity Guarantee cover is often confused with Professional Indemnity or Mismanagement of Funds cover.

"While we would not want our clients to treat all of their employees as potential criminals, the reality is that there is always an element of uncertainty when dealing with people and for this reason, our clients as business owners need protection from this kind of crime. The broker therefore needs to understand his client’s business processes to identify where losses of this nature could occur. Once this understanding is in place, suitable risk mitigation measures and insurance measures can be considered,” she concludes.

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