Embezzlement and crime insurance covers damages caused by employee embezzlement or attempts to cause damage by third parties that are not covered by other insurance policies, such as property insurance or financial insurance.

The following coverages are included in the policy:

1. Loyalty insurance – damage to the insured by a first party (employee).
2. Employee dishonesty insurance – damage to a third party by a first party (employee).
3. Theft insurance – damage to the insured by a third party.
4. Crime and embezzlement insurance – +1+2+3 damage to a third party by a third party.

The essence of the coverage is damage caused by an employee or a third party who acts with a view to obtaining a personal benefit for themselves or their relatives and to cause damage to the company.

The policy is based on the filing of a claim and covers damage discovered during the insurance period, even if the embezzlement began months or even years before. This is a great advantage since experience shows that most of the embezzlements are not one-time acts but rather are a series of small damages carried out over time by the same person.

In addition, the policy covers the parent company and all its subsidiaries in the past, present and future. This policy is especially essential for companies that are spread over a large geographical area, are involved in different activities or carry out a large number of projects. All these make the management’s oversight and ability to control and monitor more difficult and therefore create more loopholes for employees and managers in the various activities.

Based on existing experience, embezzlement by employees is usually carried out by longstanding and experienced employees who know the company well. Usually, the embezzlement is carried out slowly  over a long period of time and in small amounts so that the accumulated damage may be large. This of course depends on the length of time between the beginning of the embezzlement process and until its date of discovery.

The risk of employee embezzlement in the company increases when the geographic distribution is wider, with a large number of subsidiaries, and especially when the subsidiaries are located in different countries around the world.

In the process of underwriting and purchasing of the insurance, the company is asked to fill out a questionnaire in which it is asked to provide information regarding their control over processes relating to inventory and financial management and internal procedures demonstrating control over recruitment and headcount management.

The premium for the liability limit of $1,000,000 will usually range between $5,000 and $30,000 for a commercial company. The premium is determined by taking into account the whole range of risks and among other things: the company’s sales cycle, their number of employees, the distribution of their subsidiaries around the world, their field of activity, damage experience in the past and more.

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The results of these attacks can be devastating to the point of stopping the activity of the victim, loss of income, damage to the company’s reputation, legal expenses and even loss of human life.

The threat of hacker attacks – whether their motive is economic, criminal, anarchist or political – is getting worse to such a degree that the experts in the field admit that nowadays it is already impossible to prevent the hacking incidents completely.

Along with credit companies, banks, mega websites such as Facebook and Twitter (“X”) or online shopping sites, the hackers do not pass on small and medium sized companies and may even be more interested in them, as they yield a high reward in relation to the efforts involved in hacking them.

According to a study by the European Risk Managers Association, cyber threats are one of the main concerns of Risks Managers in organizations, along with damage to reputation, supply chain and business continuity. The average damage can be up to NIS 400,000 for a small organization, and 75% of the hacks in the US were for businesses with less than 100 employees.

Imagine for a moment what might happen to a business, if the computing activity in it stops for an hour, a day, a week? What is the potential damage to your business, customers, employees?

As part of the existing policies in the market, the following coverages are included:

Expenses:

1. Expenses if the business causes damage to a third party, such as:

• The cost of notifying customers (or the supervisory authority) that their data was affected by a security breach.
• Reasonable expenses for training regarding identity theft and monitoring the credit activity of the individuals affected.
• Defense expenses and compensation if the business (or the firm handling its outsourced affairs) caused the hack for personal data or corporate data.
• Defense expenses and compensation if the business is harmed by the theft of a data access code by non-electronic means.
• Defense expenses and compensation if the business is damaged by the theft of hardware containing personal data.
•  Defense expenses and compensation if an employee of the business caused data disclosure.

2. Information security and privacy protection expenses, such as:

• The costs of legal advice and representation in connection with an information security investigation.
• Insurable fines and levies imposed by a regulatory authority.

Consulting services:

1. IT expert consultants who worked for the business during and after a cyber breach, which mainly includes expenses for experts to determine the ability to recover electronic data, its reassembly or recreation.
2. Consultants and experts for the protection of the company’s reputation and its restoration after a cyber hack, such as:

• Professional consulting expenses to prevent possible consequences or to reduce their impact after a publicized cyber incident.
• Professional consulting expenses to reduce the possible damage to the reputation of any private person in the company (for example, a Chief Information Officer).

Optional covers:

1. Network disruption – loss of profits (net) as a result of a substantial disruption to the insured’s network caused by a security breach.
2. Cyber ​​extortion – settlement payments (extortion damages) to third parties to be paid in order to resolve a security threat.
3. Multimedia liability – defense expenses and compensation to be paid in connection with hacking of the intellectual property of a third party or negligence in connection with electronic content.

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This is not just a theoretical risk. Recently we have witnessed a significant increase in the number of personal lawsuits filed against directors and officers of companies that the economic crisis in 2008 and in 2011 led to their collapse or created substantial difficulty for them in meeting the payment terms of their bonds.

The strengthening of the trend to impose personal responsibility on the directors and company officers places at risk their private assets!!

This personal exposure requires the construction of additional protection mechanisms, as the existing policies in the market provide a good solution, but in some cases it is only a partial solution.

As a result, a number of insurance companies in Israel have recently launched a personal policy as additional protection for directors and company officers.

Main highlights:

• The policy is intended for directors who are involved in more than one company and are apprehensive about relying on the policy existing in the company in which they serve.
• The policy is personal and covers only the specific director and is purchased by them.
• The policy allows that director to choose the specific board for which they request coverage as well as the required financial limit (between $250,000 and a million dollars).
• The policy is an umbrella policy which sits over the existing insurance, and is activated in the following circumstances: 1) liability limit exhaustion

in the company’s policy. 2) in a situation where the policy does not cover the director because of a specific exception that does not exist in the personal policy (DIC). 3) in a situation where there is no indemnity from the company and no existing policy officers on behalf of the company.

• There is no deductible in the policy!
• The wording of the policy is in simple and clear language in Hebrew.

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