Fidelity guar­an­tee in­sur­ance

– an ab­so­lute ne­ces­sity for businesses

RISKSA Magazine - - SHORT-TERM -

The so­cio- eco­nomic sit­u­a­tion in South Africa has caused many job losses. With bread­win­ners strug­gling to feed their fam­i­lies, many are forced, in the ab­sence of a reg­u­lar in­come, to turn to crime in des­per­a­tion and in the hope of not be­ing dis­cov­ered.

But the un­em­ployed are not the only ones who re­sort to crime. Some em­ploy­ees turn to crime to en­rich them­selves, by mis­ap­pro­pri­at­ing from their em­ploy­ers. Then, there are those who, in or­der to main­tain a cer­tain stan­dard of liv­ing or, as the say­ing goes, “to keep up with Jone­ses”, have to sup­ple­ment an in­suf­fi­cient in­come.

There are also those who strug­gle with an ad­dic­tion and can­not af­ford a habit that needs feed­ing, be it al­co­hol, drugs or gam­bling. Even­tu­ally des­per­ate and with no way out, they turn to il­licit so­lu­tions, gen­er­ally pil­fer­ing from their em­ploy­ers. In­evitably they are caught and land up with a crim­i­nal record. In an at­tempt to mit­i­gate against these losses, em­ploy­ers gen­er­ally in­sure and claim un­der a fidelity guar­an­tee pol­icy. But, as the morals, val­ues and prin­ci­ples of both white and blue col­lar work­ers of South Africa have steadily de­te­ri­o­rated, so has the cost of, and dif­fi­culty risen, in ob­tain­ing fidelity cover.

The pur­chase of fidelity guar­an­tee in­sur­ance has tra­di­tion­ally been a means of com­fort and peace of mind to em­ploy­ers which they gain from trans­fer­ring the risk to their in­surer. Whether there is the theft of cash, stock or goods by em­ploy­ees, em­ploy­ers can be re­im­bursed for their losses by their in­surer.

In for­mer years it was the ex­cep­tion rather than the rule to pur­chase fidelity guar­an­tee in­sur­ance. The pre­mi­ums were low and terms not pro­hib­i­tive be­cause there was not a great de­mand for this in­sur­ance. A la­bo­ri­ous pro­ce­dure by in­sur­ers pre­ceded the plac­ing of such cover. In­sur­ers of­ten re­quired ref­er­ences from pre­vi­ous em­ploy­ers, fam­ily and friends for em­ploy­ees join­ing a com­pany; or from schools and church lead­ers for those leav­ing school who were join­ing the work­force for the first time.

Cover was usu­ally re­quired only for em­ploy­ees in a re­spon­si­ble po­si­tion such as cashiers, book­keep­ers, ac­coun­tants and for those who made de­liv­er­ies in ve­hi­cles and who could be act­ing ne­far­i­ously in col­lu­sion with other em­ploy­ees.

Over the years and in more re­cent times, theft, fraud, cor­rup­tion and dis­hon­esty by em­ploy­ees has be­come a great con­cern of em­ploy­ers. Pre­mi­ums charged for, and terms for the pro­vi­sion of fidelity guar­an­tee in­sur­ance by in­sur­ers and rein­sur­ers alike have be­come in­creas­ingly oner­ous and many em­ploy­ers have been forced to self- in­sure for this class of in­sur­ance. How­ever, self- in­sur­ance also comes at a price. Em­ploy­ers are forced to take very strin­gent and of­ten costly se­cu­rity mea­sures, to pre­vent losses.

Re­spon­si­ble em­ploy­ees, such as risk man­agers, must be en­gaged to mon­i­tor bank­ing pro­ce­dures and the rec­on­cil­i­a­tion of bank state­ments; to en­sure reg­u­lar stock tak­ing in stores and de­part­ments of stores; to per­form spot checks on a reg­u­lar ba­sis; and to en­sure reg­u­lar au­dit­ing of records both in­ter­nally and by in­de­pen­dent au­di­tors at least an­nu­ally. In­sur­ers re­quire sub­mis­sion of fully com­pleted pro­posal forms which con­vey to them how em­ploy­ers con­duct their businesses, es­pe­cially the mea­sures they take to pre­vent theft, fraud, cor­rup­tion and dis­hon­esty by their em­ploy­ees. With the in­for­ma­tion tech­nol­ogy ex­plo­sion of the past few decades and the util­i­sa­tion of com­put­erised sys­tems, the chal­lenge to in­sur­ers to keep abreast of the com­pa­nies they in­sure is like­wise bur­geon­ing.

To al­le­vi­ate the as­so­ci­ated in­crease in risk, in­sur­ers must now in­sist on be­ing pro­vided with an in- depth in­sight into the modus operandi of the IT de­part­ments of their prospec­tive clients so that they may as­sess whether the checks and bal­ances that are in place to avoid com­puter fraud are ad­e­quate. All of these fac­tors have con­trived to in­crease the risk as­so­ci­ated with fidelity cover and, in the ab­sence of a com­men­su­rate im­prove­ment in in­ter­nal con­trols and risk man­age­ment gen­er­ally of em­ploy­ers, to drive up the cost fidelity cover.

How­ever, with ris­ing crime rates, mod­ern businesses have no choice but to pur­chase fidelity guar­an­tee in­sur­ance even though the pre­mi­ums may ap­pear to be ex­or­bi­tant and the terms oner­ous.

Jimmy Fer­mor risk ad­min­is­tra­tor at Re­nasa In­sur­ance Com­pany Ltd

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.