Commercial Crime insurance and Fidelity Guarantee insurance are two different products that are often misunderstood in the insurance market.
Gail Carver and Gregg Smith of Commercial Crime Concepts (C3) discuss the differences and why Commercial Crime insurance may be the better option for small to medium-sized businesses.
Fidelity Guarantee is more commonly used in small to medium-sized businesses, while Commercial Crime insurance is typically used for larger businesses. However, this has created a market where many businesses are not protected, with only 5% of small to medium-sized businesses actually buying Fidelity Guarantee insurance or Commercial Crime Insurance.
One of the main issues with Fidelity Guarantee is that the wording and rating system have not changed in decades, leading to a system that does not differentiate between good and bad risks. This has led to poor risks being subsidized by good risks, creating a skewed portfolio that is not healthy for the insurer or the insured.
Furthermore, Fidelity Guarantee insurance has exclusions that do not make sense in today’s world, such as excluding computer personnel. In the past, only a few people had computers, so they were deemed high-risk. However, now everyone in the business uses a computer, and if you are not covering computer personnel, then who are you covering?
On the other hand, Commercial Crime insurance covers direct financial losses caused by fraud or theft, including those resulting from computer fraud and theft. While it is not cyber insurance, it covers losses from someone stealing from you by hacking into your system, which Fidelity Guarantee insurance does not cover. Commercial Crime insurance also covers extortion, where people are threatened with violence and are involved in theft or fraud.
The policy wording for Commercial Crime insurance is wider, better, and more modern, covering more events and situations than Fidelity Guarantee insurance. One of the biggest differences is that Commercial Crime insurance is on a discovery basis, meaning that it covers losses that are discovered during the policy period and provides retroactive cover for losses that occurred before the policy began. In contrast, Fidelity Guarantee insurance is on an occurrence basis, which only covers losses that occur during the policy period.
For example, if a loss occurs over the course of five years, Fidelity Guarantee insurance can become messy as multiple policies come into play. Commercial Crime insurance, on the other hand, covers losses discovered during the policy period and has retroactive coverage going back to a negotiated date.
In summary, it is important to understand the differences between Commercial Crime insurance and Fidelity Guarantee insurance. While Fidelity Guarantee may be more commonly used in small to medium-sized businesses, Commercial Crime insurance may be the better option. Commercial crime insurance covers direct financial losses caused by fraud or theft, including those resulting from computer fraud and theft, and has a wider, better,
and more modern policy wording. Additionally, commercial crime insurance is on a discovery basis, providing retroactive coverage for losses discovered during the policy period.