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| Commercial Crime Risk Control |
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Crime insurance coverage forms and policies exist for virtually any kind of crime related loss you can imagine. When considering crime coverage, you probably think of burglary, safe burglary, robbery, and employee dishonesty. However, there are many other crime coverages, some that are more exotic in nature (i.e. extortion coverage), some tailored to the needs of a specific business (i.e. jewelers block coverage) and others that are simply not yet well known or purchased often by most businesses (i.e. computer fraud coverage).
Insurance Services Office (ISO) and Surety Association of America (SAA) completely revised their commercial crime coverage program in 2000. Adoption of the new forms and policies, first by the various states and then by the insurers, is not automatic. It's more a process of transition. However, given the sweeping changes in the program, this may be a good opportunity to plan ahead and review your Crime coverage needs with your agent to determine if any changes are, or will be, needed in your program.
Transferring the financial risk of crime loss from you to your insurance carrier via Crime insurance is only one method of dealing with it. The most effective way to manage this financial risk to your business is through implementation of crime risk control techniques. These techniques differ significantly from those used to prevent or minimize other losses such as property, auto, general liability, etc. The reason for this is that losses related to those lines of coverage are primarily accidental in nature. Crime losses typically result from the intentional criminal acts of others.
With this important distinction in mind, we will provide some tips to help you with protecting business, property, and people from crime loss resulting from theft including burglary, safe burglary, and robbery. We will also address loss resulting from employee dishonesty also known as employee theft. This is typically insured separate and apart from other crime coverages and poses its own unique challenges with regard to effective commercial crime risk control.
Theft is very broadly defined as any act of stealing. Under the Crime 2000 policies, the definition remains very broad but has been made a little more specific. The ISO and SAA forms add the word "unlawful" and now define theft as: "...the unlawful taking of money, securities, or other property to the deprivation of the insured." In essence, unlawful acts involving burglary, safe burglary, robbery, and employee dishonesty are all very specific sub-categories of theft. Protecting against loss from each of these unlawful acts presents unique challenges so we will address them separately, rather than try to deal with theft in general.
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| Burglary |
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Burglary Risk Analysis 
Definition: Policies define burglary as the unlawful taking of property from inside the premises by a person unlawfully entering or leaving the "premises" as evidenced by marks of forcible entry or exit.
Protection as a function of demand: The level of protection you need depends, in large part, on what you are trying to protect. Jewelry, precious metals, consumer electronic goods, cameras, prescription drugs, cosmetics, and upscale clothing for example are all "target" items. All are in high demand, have relatively high values per unit item, and are relatively easy to transport and sell. Often they are the target of professional criminals and require the most protection. Textbooks, frozen food, and air conditioning equipment typically have low demand, usually requiring less protection. Furniture, large appliances, and carpet are likely somewhere in between because, though attractive, they are large, difficult to transport and not as easy to sell.
Protection as a function of neighborhood crime rate: In addition to demand, it's also prudent to factor in the crime rate for the neighborhood your business is located in when determining the level of protection you need. If the crime rate is high, it's probably best to assume that the police are less likely to receive reports of burglaries in progress or that such reports will be delayed.
Protection as a balance between physical security and alarm systems: Ultimately, when determining the level of burglary protection you need, you will need to provide balance between the physical security measures and alarm systems. You cannot rely too heavily on just one or the other. The best alarms are of little value if they are not heard by someone who is capable of responding to them promptly and either disrupting the burglary attempt or apprehending the burglar in the act. Because of this, local alarms have little or no value. By the time anyone even thinks about calling the police, the burglars are usually long gone.
When alarms are monitored by a central station alarm service company or the local police department, it's important that they have sufficient time to respond. This means delaying unlawful entry via substantial locks, doors, impact resistant glass, gates, grilles, etc. If the burglars can gain quick entry and make off with valuables all within a matter of 5 to 15 minutes, the police will have no opportunity to stop or apprehend them.
Since the majority of entries take place through doors and first floor windows, this may be a good place to focus your efforts. The following Burglary Risk Control section provides information regarding the types of safeguards you should be considering when designing burglary protection for your business. The Crime Prevention Checklist (Appendix G1) should also be helpful.
Burglary Risk Control
- Physical Security - try to discourage burglars or at least make unlawful entry more difficult, time consuming, or easier to discover by using:
• Perimeter barriers, such as fencing or walls, to deter and delay both casual intruders
and professionals. When selecting fencing, consider construction, height, top guard
(barbed or razor wire), maintenance needs, gates and locks. A chain link fence, six
feet tall with a razor wire or barbed wire top guard, presents a formidable obstacle
and also allows police or security patrols unobstructed view of your yard area. If
you're situated in or near a residential area, the razor wire or barbed wire may be
unacceptable because of exposure to neighborhood children.
• Security lighting acts as a psychological deterrent for unlawful intruders. It also aids
police during patrols and enhances visitor safety. Lighting considerations should
include, the premises perimeter, vehicle/pedestrian entrances and approaches,
parking areas and sensitive areas or structures within the perimeter. When installing
and locating lights be sure to avoid glare that handicaps guards, annoys neighbors
and/or affects passing traffic. Also consider the need for battery or generator backup
and need for convenient maintenance. Parking lot type lighting attached to the
building and/or poles to light all the parking area and the exterior of the building is
an effective deterrent.
• Surveillance cameras, directed on the points of entry or on expensive items,
monitored regularly, with videotapes recorded and maintained, will often ward off the
casual intruder. Signs saying your premises is protected by cameras may
discourage burglars, making them more likely to burglarize a business that is not
as well protected.
• Accessible Openings (doors, windows, etc.):
- Exterior doors should be solid wood or metal with hinge pins that are on the
interior or otherwise non-removable.
- Spring-loaded locks are easy to defeat and only appropriate for interior doors
(i.e. within your premises not leading into it.
- Single cylinder deadbolt locks (i.e. those requiring a key to open from the outside
only, can be ineffective on glass doors and hollow core wood doors.
- Double cylinder deadbolt locks (i.e. those requiring a key to open from both sides
of the door) provide the best security. However, they should be locked only when
the premises is unoccupied in order to assure ready egress from the premises in
an emergency.
- Decorative ironwork/bars, wire mesh screening, sliding or roll-up shutters, and/or
impact resistant glazing materials can prevent intrusion through windows.
- Change or re-key locks after an employee who carries keys or combinations has
been terminated.
- Burglar Alarms serve to detect unlawful intruders and signal their presence to others. Since the objective is to do this as soon as possible, hopefully during the attempt, protection strategies begin with the perimeter of your property and work inwards as follows:
• Exterior Perimeter Protection: Includes alarm protection such as fence mounted
sensors, buried pressure sensitive sensors for unfenced boundaries or in yard areas,
and volumetric microwave, infrared or photoelectric sensors for yard areas.
• Interior Perimeter Protection: Provides protection for point of entry (i.e. building
walls, roof, windows, doors, skylights, transoms, etc.). Magnetic contacts, electro-
mechanical switches are used on movable openings such as doors and windows.
Metallic foil is most commonly used to protect glass but is also used for walls,
floors, and ceilings, as are vibration detectors.
• Area Protection: Detects an intruder who somehow eludes perimeter protection or
who hides inside until the premises is closed to business. Motion and sound
detectors are examples.
• Object Protection: Provides special protection for likely targets such as safes,
display cases, or works of art. Pressure mats, and contact switches are commonly
used detection devices.
- Alarm Service & Installation: An Underwriters Laboratories (UL) certified central station alarm system is regarded as the most reliable and effective. UL certification says that the system design, equipment, method of installation, alarm transmission, and alarm service company standards all meet very specific quality and performance criteria. They are also subject to very specific quality assurance and audit requirements. Issuance of the UL certificate provides property owners, tenants and their insurers evidence that the premises is protected by an alarm system that meets UL requirements for installation, operation and maintenance. Without it you are, to some extent, "in the dark" and should give greater consideration to hiring your own independent security specialist to help design your security systems. For more information about UL certified alarm systems refer to the Underwriters Laboratories website, or call (847) 272-8800.
| Safe Burglary |
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Safe Burglary Risk Analysis
Safe burglary is essentially defined as the unlawful taking of property from within a locked safe or vault by a person unlawfully entering it, as evidenced by marks of forcible entry upon its exterior. It also includes the unlawful taking of the safe or vault from inside the premises. It is important to understand that under a policy that specifically covers safe burglary and does not provide broader theft coverage, there would be no coverage for property taken from an unlocked safe or vault.
Safes are used to store money, securities and other valuable items or property including valuable papers and records. Underwriters Laboratories classifies safes as burglary resistant if they have been built in accord with standard UL 687 Standard For Burglary Resistant Safes. This means they have been built and tested to this very specific and exacting standard and should always have a UL label. Older burglary resistant safes may also have an SMNA label. If your safe has neither, it's most likely not a burglary resistant safe. At best it may have value as a fire resistant safe.
Since safes are intended for protecting valuables, the demand for such items is typically high to begin with, with the possible exception of valuable papers and records. Given this high demand, the required level of protection from safe burglary is primarily a function of value at risk and the neighborhood crime rate. As these factors increase so does the level of protection needed.
Ideally, the building in which the safe is located will have its own effective burglary protection with a proper balance of physical and burglar alarm protection in place. If so, the burglar may opt to find an easier target elsewhere. If not, then at least your alarm system will have signaled the burglar's unlawful entry to others and your physical security measures will have delayed entry sufficiently for the police to arrive before the burglar has had opportunity to try to open your safe.
If the burglar has somehow overcome these protective safeguards, you will need to rely more heavily on protection for the safe itself. Safe alarms are certified by UL as either "complete" or "partial" (i.e. they protect the door and all sides, or protect the door alone).
UL classifies safes according to: the type of attack they are rated for (i.e. by tools, torch, and/or explosives), whether only the door or all six sides are rated, and the length of time it will take a professional safe burglar to gain entry. For example, a classification of "TL-15 " means the door is rated to resist penetration by tools for 15 minutes. A classification of "TRTL - 30X6" means all six sides are rated to resist penetration by torch or tools for 30 minutes. A classification of "TXTL-60" means the door is rated to resist penetration by explosives and tools for 60 minutes.
The following section provides helpful safe burglary tips.
Safe Burglary Risk Control
• Make sure the safe is UL listed for both the fire resistive and burglary resistive protection
you require.
• Look for the required UL label, or SMNA label for older burglary resistive safes.
• If there is no UL label there are characteristics that can help you identify a burglar resistive
safe including: steel in the body is at least 1 inch thick, steel in the door is at least 1 1/2
inches thick, they never have wheels, weigh at least 750 pounds unless equipped with
anchors to secure to floor or inside a larger safe or vault, have a combination lock or time
lock, and have a UL Listed re-locking device.
• Protect with a UL certified central station monitored alarm system.
• Keep the safe door(s) locked.
• Place the safe where it can be easily seen from outside the building. (The old "out-of-sight,
out-of-mind" does not apply to safes.)
• Focus a spot light on the safe and the surrounding area, especially at night.
• Bolt it, secure it to the floor, or bury it in the floor in reinforced concrete.
• No more than two (2) employees should be entrusted with the safe combination. The
combination should be memorized and should not be written down.
• Keep valuables in the safe to a minimum.
Refer to the UL Standards InfoNet for more information.
| Robbery |
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Robbery Risk Analysis
Robbery, also known as "hold-up," is defined as the unlawful taking of the property from another by causing or threatening to cause harm to that person or by committing an obviously unlawful act that is witnessed by that person. There are approximately 1.3 million robberies committed annually according to recent crime statistics. Most robbers are likely to use a gun and thus risk of death or serious injury is high and a major reason why violence in the workplace is now the 2nd greatest cause of death on the job.
Cash is obviously the number one target of robbers. Other high demand items include precious jewels and drugs. Many of the items of high demand for burglars, as discussed under the Burglary Risk Analysis section, are also in demand by hijackers. This discussion does not deal with robbery of goods in transit.
Given the high demand nature of items targeted by robbers, the required level of protection is primarily a function of business location and values on hand. When looking at location, factors for consideration include neighborhood crime rate, ease of access to and from your business (i.e. nearby expressway), visibility, public traffic and business hours.
Though the so-called "daring robbery in broad daylight" is becoming more common, it is not the norm. Robbers still prefer stealth (i.e. locations that are either not visible to people passing by, or businesses open during late night or early morning hours when there are few passers by with few witnesses other than the hold-up victim). They also prefer a quick getaway with ready access to an expressway when possible.
The following Robbery Risk Control section provides some tips that will help you minimize your robbery exposure.
Robbery Risk Control
• Minimize cash on hand by increasing frequency of bank deposits.
• Stagger timing of deposits to avoid developing a pattern.
• Avoid using bank night depository drops if possible or send two persons to make them.
• When values are high consider using an armored car service to transport money,
securities, jewelry, and precious metals.
• Use bullet resistive enclosures at all 24-hour businesses and at locations where large
amounts of cash are handled.
• Have more than one employee on duty if open during late night or early morning hours.
• Remove cash from registers periodically and place in fortified cash drops that cannot be
opened by employees.
• Post signs that show limited cash amounts that employees have access to.
• Keep premises well lighted inside and out.
• Have surveillance cameras directed on the points of entry, on expensive items, monitored
regularly with videotapes recorded and maintained.
• Use UL certified central station hold-up alarms with buttons in multiple key locations and
silent alarms.
• For certain types of businesses, physical barriers can be used.
• Stamp all checks "For Deposit Only" immediately upon receipt.
Employee Dishonesty
Employee Dishonesty Risk Analysis
The most significant crime exposure that most businesses face involves employee theft also known as employee dishonesty. The amount of employee theft may range from stolen office supplies to large-scale theft of inventory by an employee acting with an outside party in collusion. Embezzlement is the principal cause of employee dishonesty losses. Embezzlement is theft by a person in a position of trust. It is often committed by the corporate officers, managers, or even the President of an organization resulting in the loss of hundreds of thousands or millions of dollars.
Employee theft has some unique characteristics which include:
• Can extend for many years before being noticed
• Often involves property instead of money
• Often involves a most trusted and long term employee (i.e. bookkeeper)
• Often involves employees who rarely take time off
• Often involves people with money problems created by gambling or drugs
• Often involve employee(s) and outside people in collusion
Employee Dishonesty Risk Control
Employee theft can be prevented by a good system of internal controls that minimize the opportunities for employee dishonesty. Starting with the hiring process there are a number of easily achievable risk control techniques that can be undertaken to protect your business, property and people from employee theft losses.
Internal Controls
• Develop thorough hiring, screening, and employee selection procedures.
• Strive to hire and retain individuals truly interested in the company's future.
• Require countersignatures on all checks.
• Reconcile bank accounts monthly.
• The person(s) reconciling bank accounts and/or making deposits and withdrawals should
not maintain bank records.
• Keep securities in a safe deposit box.
• Securities should be under joint control.
• Perform stock inventory annually.
• Investigate all inventory shortages carefully.
• Maintain inventory control records.
• Check employees who arrive early or stay late when there is no need to do so.
• Employees and officers with exposure to money should be required to take an annual
vacation of at least five consecutive business days.
• Do not allow employees to make sales to themselves.
• Salespeople should not be involved in shipping or receiving activities.
• Sale or purchase orders should be reconciled with the shipping or receiving activities.
Internal Audits
• Written audit procedures should be in place.
• Employ a full-time staff auditor.
• Audits should be performed annually.
• Randomly check financial records.
• If inventory is a high theft target, include it in the audit.
• Audit reports should be delivered directly to the owners or directors not employees covered
under the policy.
• Wide variations in accounts should be tracked and reported to the owners or directors.
• Bank accounts should be reconciled monthly by someone not authorized to deposit or
withdraw funds.
Outside Audits
• Financial records should be audited by a certified public accountant at least annually.
• Audits should be unannounced and at irregular intervals.
• Audits should include all interests and locations.
• The audit results should be reported directly to the owner or Board of Directors, not
employees covered under the policy.
• All recommendations made by the CPA should be adopted.
• The CPA opinion should be unqualified.
Supervision
• Require all payments be made in a non-cash form.
• Verify countersignatures.
• Check and reconcile petty cash periodically.
• Clear cash registers frequently throughout the day.
• Monitor shipping and receiving activities.
• Control the inventory process.
• Use surveillance cameras and card access systems that monitor traffic at hidden
doorways.
• Use care about allowing employees free access to storerooms.
• Give special attention to employees who appear to have financial or other personal
problems including drug and alcohol use or excessive gambling.
• Have fixed and firm policies about discipline for dishonesty.
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