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Fidelity Guarantee
Monday, May 1, 1989
Inadequate cover

Recent investigations have found existing fidelity guarantee policies have serious shortcomings.
These include:
*basic cover excludes hackers, ex- employees, the contract programmer, the maintenance engineer, and temporary staff - in other words, all high risk categories by virtue of either motive or opportunity;
*most policies require the culprit to be named, which can be quite impossible sometimes because the user is able to remain anonymous;
*often, fidelity guarantee claims are rejected because of changes or lapses to the systems disclosed to the underwriter; it is very difficult to keep the computer related questions on the proposal form updated; the insurer is also entitled to avoid claims by using either the “reasonable care” clause, or by arguing that there has been non-disclosure of a material fact; and,
*only a handful of insurers extend their fidelity guarantee covers to include third party fraud.
Because of the inadequacy of the fidelity cover, other covers are being developed and used to an increasing extent. For example, Lloyd’s of London introduced the Treasury Management Systems (TMS) in 1988. Restricted to six Lloyd’s brokers, there are two variants, one covering both employees and third parties and one confined to third parties. The sums of money that can be covered by TMS are much greater than the limits on most company’s general fidelity covers. Crime bonds are also available in the UK. In their basic form the cover is similar to the fidelity guarantee policy. It is restricted to employee fraud, but extends to cover loss which the insured sustains from theft of any insured property by computer fraud.
It also covers the theft of funds from the insured’s transfer account at a financial institution through fraudulent transfer instructions communicated to them.

Copyright © Insurance Times and Investments® Vol:2.5 1st May, 1989
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