Monday, April 20, 2009

"My employees would never steal from me...we're a family!"

Sadly this is the common philosophy that permeates most small business owners today and unfortunately nothing could be further from the truth.

The Real Risk

One of the leading areas of loss to small business today is from employee theft. This includes thefts of money, equipment, intellectual property or merchandise. Government statistics show the cost to business for these loses to be in the billions every year, and some indicate growth of 15% or more every year. In today’s economic climate the growth rate is even higher.

One insurance industry study showed that an average of 1 out of every 3 employees steal from their employer. For a retailer the loss do to employee theft is actually many times more costly in value of goods than a shoplifter. Employee Dishonesty losses not only threaten the profit of the business but perhaps even its very existence; employee theft is responsible for over 30% of business bankruptcies.

The Solid Solution

The biggest reason for these staggering statistics is lax procedures related to bookkeeping, inventory controls and general employee oversight. There are some simple strategies that may be implemented in order to mitigate your chance for losses of this type risk.

  • Prevention starts at the TOP. As the owner/manager you establish the ethical standards and practices of the business. Employees will look to you as the “moral compass” of the organization. So set the standards high and lead by example!

  • Implement and communicate a clear “Zero-Tolerance” policy on Employee theft. Anyone who violates the policy, including managers, will be terminated. Follow through on the policy!

  • Audit your accounting and record keeping procedures. Limit access to accounting functions to only those that really need it. Closely monitor whoever is responsible for accounting functions, utilize surprise audits. Individuals who process accounts payable or reconcile accounts should not have signature authority. Vacations of more than 5 days should be required of key people so that their work can be audited.

  • Establish strong and consistent supervision strategies of all employees. Perform spot audits, if possible by people from other departments. Consider the use of video cameras, especially in retail or warehouse situations.

  • Examine and establish good hiring practices. Have consistent and thorough interview procedures. Perform thorough reference and background checks, including criminal

Following some simple strategies as outlined above can go along way to preventing losses do to employee dishonesty. There are many resources relating to employee dishonesty on the web that can help a business set up a system of checks and balances to aid in the prevention of these and other crime losses.

Coverage for these types of losses is often included or available on your standard Property Insurance policies. Your agent can help you structure a crime policy to cover not only Employee Dishonesty, but a wide range of Crime related exposures; including – Computer Fraud, Wire Fraud, Theft of Money & Securities, Counterfeit Money or Money Orders and Forgery. Such policies can provide the resources to help uncover and replace the losses from employee theft; without the claims experience affecting your other coverage.

The most surprising acts of dishonesty comes from the employee you trust the most...yourself! It happens when you deceive yourself into believing the risks outlined above do not apply to your business. Always remember my 1st bullet point "Prevention starts at the TOP...lead by example!"

Wednesday, April 8, 2009

"I don't need insurance, for my home based Homeowners Insurance covers me, right?"


Sadly the above statement is a common misconception by most insured’s, or should I say uninsured’s, who have a business they operate out of their home. In today's economic climate, with massive layoffs and corporate downsizing, many individuals are turning to self-employment as a means to earn a living. This brings in new challenges for them, including insurance exposures.

Since each homeowners policy is unique, the following are general statements about the possible coverage problems faced by a business operating out of a home.

  1. The standard Homeowners policy provides, in general, NO LIABILITY coverage for any business activities

  2. The standard Homeowners policy provides very limited coverage, usually up to only $2,500 for business personal property while ON the premises. OFF premises exposures are even more limited

  3. If the business is operated out of another structure on the premises, the other structure is not covered on the standard Homeowners policy

  4. The definition of and "INSURED" in the standard Homeowners policy does not include corporations, non-resident “partners”, or employees thus there is no coverage.

  5. You may be able to add by endorsement certain “incidental business” activities to your policy. However, the coverage is very restrictive and usually limited to ON premises activities, virtually no OFF premises activities are covered.

  6. The standard Homeowners policy does not provide any coverage for professional liability. This is especially troubling as many in-home businesses are of a professional or service type nature providing consultation and/or professional advice to thier client. Therefore there is no coverage for these activities.

  7. There is no coverage for business income on the homeowners policy.

  8. Other coverages to be considered are potential Automobile Liability exposures if personal vehicles are used routinely in the course of the business operation and Workers Compensation if you have your own employees.

  9. Your Homeowners Insurance Carrier has a right to know what you are doing and you have a duty to keep them informed. Failure to disclose the business exposure could jeopardize the personal coverage as well.

The bottom line is there are large and ominous coverage gaps facing individuals operating ANY type of business out of their home. The business should be treated as any other regardless of where it is operated.


Start with a detailed conversation with your independent insurance agent. Many coverage options are at your disposal and surprisingly affordable. Many insurance companies specialize in writing small packages which bundle together necessary general liability and property coverages to protect these In-Home operations.

As with anything communication is key. By lettting your agent know what your plans are ahead of time, you can avoid an expensive uninsured loss.