Research

Marketplace Realities 2018: Fidelity/crime

November 6, 2017

    The one thing

    While affirmative grants of coverage are being offered for social engineering (impersonation fraud), each market offers the coverage differently and at varying amounts, so buyers should choose carefully
  • Social engineering (impersonation fraud) remains by far the most common method of direct fraud, and the insurance buyer’s mindset is shifting from “it can’t happen to me” to “when will it happen to me.”
  • Organizations often assume, incorrectly, that coverage for the peril exists in unendorsed fidelity/crime policies. Companies should weigh the options for explicit coverage through the various endorsements now available.
  • As social engineering fraud claims are contested in the courts, policies and policy language
    will evolve.
  • To date the vast majority of social engineering losses have impacted the middle market rather than the Fortune 1000, due in part to the absence of a dedicated risk manager at many smaller companies. Risk managers can help with training employees in avoiding fraud as well as implementing authentication and other security measures.
  • Due to the potential intersection of coverage between fidelity/crime policies and other (cyber, K&R) policies, organizations are looking to their brokers to evaluate their exposures and determine which policies are the most likely to respond. In general, for loss of funds or tangible property, insureds should look to their fidelity/crime policy first. For loss of intangible assets, such as data, clients should look to their cyber policy first. For ransomware attacks and the like, a K&R (special crime) policy may provide some coverage as well.
  • Price prediction

    Flat, with small increases for expanded coverage
  • Coverage  remains  quite  broad  for  traditional  fidelity/crime  exposures,  including employee  theft  and  non-employee  losses  involving  burglary,  robbery,  forgery  or alteration of checks. Underwriters still move cautiously when affording coverage for the new social engineering (impersonation fraud) risks, but we find several leading markets now willing to underwrite the exposure and offer more meaningful limits. For those insureds
    demonstrating good internal controls, underwriters are now offering seven- and eight-figure limits. Coverage limits up to $100 million have been placed (in layered programs), but only when meaningful deductibles are used.
  • Market capacity remains relatively static, but several newer market entrants continue to put up significant capacity on a primary basis for Fortune 1000 clients, including large regional financial institutions (FIs), challenging the traditional market leaders.
  • Historically a leading market for primary FI bond placements, London is also aggressively quoting mid to large commercial accounts, resulting in competitive pricing and aggressive coverage grants.
  • Overall pricing remains flat, with increases for the addition of meaningful impersonation fraud coverage limits.