Corporate Crime: How Fidelity Bonds May Reduce Its Impact on Your Business

This post is part of a series sponsored by Old Republic Surety.

Fidelity bonds differ from liability insurance and errors and omissions insurance. They protect against corporate crime. Does your commercial client’s business own valuable assets or expensive equipment? Maintain a large inventory? Have employees who can access their customers’ assets? Consider talking about fidelity bonds. We also offer tips to deter employee theft.

The industry refers to employee theft as white-collar crime — or corporate crime. It is a financially motivated, nonviolent crime committed by professional or government employees.

Data from the U.S. Justice Department shows that corporate crime prosecutions were up 4.1% in February over January 2021, but overall, corporate crime prosecutions are down 35.8% since 2016. Still, in 2021 the average business will lose 5% of its revenue to employee fraud or misuse of company resources. Small businesses suffer most, according to the National Federation of Independent Business, which reports that two-thirds of small businesses are victimized by their employees.

What is the one tool that businesses may use to mitigate their financial loss? A fidelity bond.

What is a fidelity bond?

Fidelity coverage, sometimes referred to as a fidelity bond, is actually an insurance coverage – the parties to the coverage are the named insured and the surety or the insurance provider. It is different from errors and omissions insurance, which protects against honest mistakes. It’s also different from liability insurance, which protects against claims caused by injuries to others.

Standard fidelity coverage is first party coverage for the named insured to protect them from financial loss due to employee theft and fraud. It is written to protect the business entity.

Why are fidelity bonds important?

Employee theft is a concern for all business types. Fidelity bonds may protect the business against financial loss due to employee dishonesty and theft.

Common types of fidelity claims

Fidelity bonds may help ensure some solvency for businesses should they fall victim to a financial loss due to employee dishonesty. Many business owners trust their employees, but real-life loss scenarios, unfortunately, tell a different story.

Here are some real-life examples of fidelity claims:

In these examples, the thefts were discovered. Think about all of those that were never discovered or have yet to be discovered. How can you reduce the impact of theft like this on your business? A fidelity bond.

Fidelity bonds can mitigate your risk

It’s important to note that there are many types of fidelity bonds to choose from. A standard fidelity bond offers first party coverage for the business as discussed above. There are also bonds that provide third party coverage for clients of the Insured. For example:

ERISA bonds are required by the Employee Retirement Income Security Act (ERISA). These types of fidelity bonds protect the assets in employee pension plans from the dishonest acts by people managing them. This is a first party coverage as the plan would be reimbursed under the bond.

Third party bonds include:

Business services bonds protect companies or individuals that you’re providing with services from theft of client property by one of your employees. This has often been referred to as a “janitorial” bond, but may be written for many types of businesses.

Specialty outside services bonds protect customer property when your employees are handling it. For example, if you run a courier service and an employee steals something from a delivery, the specialty outside services bond may cover the damages.

All businesses should be concerned about employee theft. It’s a common problem, but businesses can protect themselves with the right type of fidelity bond.

Your business should consider a fidelity bond if:

Theft Deterrents in the Workplace

There are a few workflow enhancements that a business can implement to help reduce the likelihood that a theft could occur.

Fidelity bonds are extremely useful tools to help protect businesses from employee misconduct. They are imperative for today’s business world.

For more information about fidelity bonds and how they may protect your business and your customers, please contact your independent insurance agent. If you would like to be connected to an agent that Old Republic Surety is appointed with, please email us at ORSCManagement@orsurety.com, and we can get you connected.