Fidelity Insurance (Vertrauensschadenversicherung)
Fidelity insurance covers financial losses suffered by the policyholder as a result of intentional wrongful acts by its own employees or other persons in a position of trust.
Comparison profile
- Trigger
- Claims-made
- Insured interest
- The policyholder's own financial loss resulting from intentional dishonest acts – such as fraud, theft, embezzlement, or forgery – committed by its own employees or other persons in a position of trust.
- Rating basis
- Turnover or balance sheet total, Internal control environment, e.g. the dual-control principle, Number of employees with access to assets, Claims history
- Typical limits
- A per-loss and annual aggregate limit, often set relative to cash flow through payment processes and overall balance sheet size.
- Typical deductibles
- A per-loss deductible, often set higher than standard property deductibles given the nature of the exposure.
- Target segments
- SME, Financial institutions, Retail and cash-intensive businesses, Multinational groups
Insured events
- Embezzlement or theft by employees
- Fraud or forgery of documents and cheques
- Computer and internet crime committed by an insider
- Social-insurance or payroll fraud
- Collusive fraud involving both insiders and external third parties, where included
Key exclusions
- Losses not discovered during the policy or discovery period
- Acts committed by senior management or owners with the insurer's knowledge
- Purely civil disputes without proven dishonest intent
- Consequential or indirect losses, unless separately bought back
- Cyberattacks by external parties without any insider involvement
Concept
Fidelity insurance covers financial losses suffered by the policyholder as a result of intentional wrongful acts committed by its own employees or other persons in a position of trust – such as breach of fiduciary duty, fraud, theft, forgery, or embezzlement. Unlike conventional liability insurance, which covers losses suffered by third parties as a result of the policyholder’s actions, fidelity insurance protects the policyholder’s own assets against losses caused by its own personnel.
Covered Persons
The circle of covered persons in a position of trust typically includes all employees of the policyholder, but depending on the policy design can also include external persons who, due to a special position of trust, have access to the policyholder’s assets, such as external accountants or IT service providers with administrative system access. In German-speaking markets the cover is also referred to as Manipulationsversicherung; typical modules beyond classic employee embezzlement include computer and internet crime, check and bill-of-exchange forgery, and losses arising from social-insurance fraud.
Modular Cover Structure
Market-standard fidelity policies are increasingly built on a modular basis: alongside the core cover for embezzlement by the policyholder’s own staff, insurers frequently offer separate optional modules such as fraud and espionage by third parties, gross negligence by persons in a position of trust, investigation and defence costs, and indirect losses (consequential losses arising from a breach of trust). This modular structure allows policyholders to tailor the scope of cover to their individual risk profile, for example where payment processes are particularly exposed or where the company operates as part of an international group.
Relevance for Corporate Risk Protection
Because financial losses caused by internal breaches of trust are often only discovered after a considerable period of time and can be substantial in total, particularly in the case of systematic embezzlement practiced over years, fidelity insurance is an important component of corporate risk protection; in return, many insurers require compliance with certain internal control mechanisms, such as the dual-control principle for payment authorizations, in order to limit the insured risk. Given rising cybercrime and increasingly complex payment processes (e.g., CEO fraud, payment diversion fraud), this cover has gained additional importance and is frequently purchased as a complement to cyber insurance.
Comparison and delineation
Fidelity insurance is complemented by, and delineated from, cash shortage insurance and cyber insurance. Cash shortage insurance covers the same cash-handling environment from the employee’s perspective, protecting an individual against personal liability for unexplained shortfalls that need not be dishonest, whereas fidelity insurance protects the employer against proven intentional wrongdoing. Cyber insurance, meanwhile, responds to losses from external attacks and data/system compromise; the boundary blurs in cases such as CEO fraud or payment diversion fraud, which combine social engineering with an internal payment failure, so many buyers hold both covers together with a clear claims protocol on which policy attaches first.