Back-To-Basics on LOSS PREVENTION

Preventing loss and detecting fraud – if the formula for achieving these two goals could be found, the insurance industry would be out of business. However, the knowledge insurers gain from experience can be used effectively to help clients reduce the potential of loss.

The technological advances of recent years only serve to increase the potential for loss and multiply the techniques fraud artists can turn to their use. While the healthy economic climate of the last few years has kept more businesses in the black and minimized owner-initiated fraudulent activities, it is always of prime importance for an insurer to safeguard against false claims and help honest customers to protect themselves against loss.

When an underwriter can provide effective loss prevention guidance and reduce the risk to both client and company, it becomes a “win-win” situation. Although every customer’s needs are unique, here are a few good-sense basics that have proven to be almost universally useful for the types of businesses most commonly insured:

Safeguarding the small retailer. The most common cause of losses for small retail store operators is break-in theft followed closely by shoplifting, employee theft and robbery. The best protection strategy is to increase physical security. While a video surveillance camera complete with a video recorder located in a secured area is a valuable tool for providing evidence after a break-in loss has occurred, it is important that the business owner invests in prevention first. Installing steel shutters or bars at all access points, steel doors with high security deadbolts, and bright lighting inside and out are all steps that will significantly reduce the likelihood of a break-in.

There are even new smoke-generating systems, specifically made for retail protection, that obscure visibility in large, enclosed areas, almost immediately upon alarm activation. Sophisticated inventory control systems should be used for valuable stock to prevent “shrinkage” from any number of sources.

Securing a family business. In small businesses that are family-owned and operated, there is a lower incidence of first party loss and crime related to employee dishonesty. The risks, therefore, are often greater for the insurer than for the client, and the underwriter needs to be careful to protect his company. In these instances, the most common risks are the possibility of other types of losses and third-party fraud such as padding of inventory and loss lists following a reported break-in, theft, fire etc. Running careful credit checks, ICPB records and reviewing financial statements to ensure that the client is in a solid financial position are important before issuing a policy.

Once a clean bill of financial health has been established, the underwriter should verify the accuracy of inventory, property and income values and value statements and then arrange for an inspection and photographic record of the property. This is best done prior to binding of coverage but is often obtained shortly after, with photos to be taken when the policy is issued. While this is a time-consuming approach, it produces records that will be invaluable in the event that a claim is made.

Protecting against corporate loss. The larger the size of the business, the more likely it is that administrative responsibilities involving money management will be downloaded through the ranks – and the greater the loss exposure will become. Before issuing a policy, the underwriter should investigate carefully who has the authority to set up accounts, sign cheques and handle money, and should ascertain how frequently the company books are audited. Underwriters should encourage larger business owners to take the following steps to protect themselves against loss:

Run background checks before hiring new personnel. Look for gaps of unemployed time on resumes as these may indicate incarceration, etc;

Ensure that the company’s off-site back-up of data is carried out daily;

Set up computer network “firewalls” to protect against outside “hackers”;

Develop and enforce strict rules for employees regarding Internet use and downloading of information or software;

Hire an e-commerce security expert to review the company website and network;

Establish and monitor inventory, cash controls and signing authority systems;

Prevent collusion by ascertaining that no two people in a single department (or in a relationship) share signing authority;

Insist that staff take regular vacations and be wary of those unwilling to do so. Refusing to leave one’s post may indicate that an employee has set up a fraudulent system and can not afford someone else discovering it.