What is Forgery & Alteration Coverage? Crime Insurance explained
Welcome back to my ongoing series on commercial crime insurance. Today I’m going to talk about Forgery & Alteration coverage and give you tell you a story of how this personally hit my firm.
In this video series and post, I’ll cover what crime insurance is
Why it’s needed by many types of businesses,
How coverage gaps often occur and how to avoid them, coming right up.
Okay, commercial crime insurance – and specifically forgery and alteration. This is a coverage that’s often misunderstood by clients and by insurance agents, so let’s start with
What does it cover?
As a stand-alone policy, the commercial crime coverage form typically contains 8 to 10 coverage parts covering specific crime perils.
There are different forms and endorsements used in different industries, but generally speaking, they all track very similarly to the standard crime policy.
Generally speaking, crime insurance focuses on protecting your company’s money, securities, and other negotiable financial instruments.
Forgery & Alteration covers as its name implies the forging or altering of checks, drafts, notes, or similar promises, orders, or directions to pay certain sums of money.
Forgery is pretty simple – it’s when someone forgers your signature on a check, draft, note, or similar document causing you to suffer a financial loss.
An Alteration is when someone takes a legitimate check, note, or draft and alters the amount.
You’ve probably heard of simple alterations like making a $50 check into a $500 check by adding a zero, but more sophisticated schemes involve washing the ink from a check and re-writing it entirely for an amount different than the original.
Now some crime coverages including Forgery & Alteration can be found in most business owners or BOP policies.
The BOP policy is geared for small to medium-sized businesses and combines property and liability plus many other fringe coverages such as Forgery & Alteration into one package policy.
It’s important to know the limits of Forgery & Alteration will be different from one policy to the next
In my experience, most BOP policies will provide forgery & alteration limits of $2,500 to $25,000 depending on the insurer and applied endorsements.
In some situations, this may be sufficient, but in some, it won’t be.
Here’s what I experienced recently with a forgery situation.
Our controller was noticing some strange activity on one of our checking accounts and while looking online at the account our banker called to indicate that something was up.
Our bank’s fraud department had flagged our account because several checks had been presented that looked suspicious.
After some investigating, we found that a check paid to a vendor looked to have been replicated in a few different formats.
The checks all looked a bit different but the signature line and memo line exactly matched the check we issued a week or two earlier to our vendor.
What we suspect is that someone scanned that check and used it to pilfer money from our checking account.
The amounts on the first 5 or 6 checks on day one were relatively small – all under $2,000 and all were not paid by our bank.
The next day another 4 or 5 checks came through and these were a bit larger this progressed for several days with the forgers getting bolder trying to steal larger and larger amounts ultimately getting to checks of $25,000.
I think if you totaled all the checks presented and not paid they would have amounted to almost $200,000!
All checks presented to our bank were denied and we didn’t lose any money. But what if the fraud unit at our bank didn’t catch these forgeries?
Our banker said that their customers have 60 days to dispute a check and have it reversed with the proper documentation. After 60 days it’s too late, the customer is on the hook.
That means if you don’t reconcile your business accounts regularly or watch your online banking you could be at risk of suffering a loss and this is where forgery & alteration coverage steps in.
Now, this doesn’t mean that if you have crime insurance you can be lackadaisical about controls over money. You still need to be, but crime insurance provides a safe backstop when things go bad.
What does Forgery & Alteration Insurance Cost?
That’s a good question and the answer is based on several factors, including:
- The type of business you’re in.
- The number of employees you have.
- The number of employees who have money-handling responsibilities.
- Your total revenue,
- The security controls and financial audit processes you have in place for money handling,
- and of course the limit of coverage you purchase.
To find out exactly what Forgery & Alteration and crime insurance would cost a short application is generally required.
We then take that application and go out to the marketplace to find you the right underwriter who can provide us with the broadest protection and the lowest cost.
Have other questions regarding crime insurance or Forgery & Alteration?
Give me a call, or drop me an email.
I promise – no hardcore selling – just some conversation to answer your questions and see if we’d be a good fit for you and your company.