Criminal charges

Everyone knows the old saying that "crime doesn't pay". But when it comes to crime against businesses, insurers are paying out millions.

A report from AXA earlier this year found that the average cost of a crime-related business insurance claim rose 6% to £4,179 in the first three months of this year. It said that business crime is costing small and medium-sized enterprises (SMEs) well over £700m a year.

While many businesses have to deal with the unpleasant, but not financially destructive claims of car theft and vandalism, others are coping with more significant risks such as arson and fraud.

More than half (57%) of businesses have been the victim of crime on at least one occasion in the past year, a recent survey for the Federation of Small Businesses found.

The hotel and restaurants sector experienced the highest rates of crime, and by region it found that Northern Ireland, Yorkshire & Humberside and the North East were the most likely to be at risk.

Unreported crimes

However, the report said that up to 40% of crimes against small businesses are not reported to police, and therefore to insurers. It said: "Most small business owners are of the opinion that reporting the crime would not achieve anything."

Business insurance is unlike car insurance, where motorists who lose their no claims bonus see their premiums rocket. Even so, David Williams, claims director at AXA, admits that many SMEs are reluctant to report crimes to insurers as while one claim would not impact premiums, rates could increase if a pattern of crime emerges.

For example, John Heaney, UK commercial underwriting manager at Hiscox, says claims against loss or theft of laptop computers is becoming increasingly common from small businesses. In one instance, he says a company reported 18 cases of lost laptops, and the insurer worked with the company to apply a higher excess.

"The employee would be responsible for that excess so it does take a lot more care," he says, adding that the claims had reduced from 18 to zero over the following year.

On the whole, small businesses have not seen their insurance premiums increase over the past couple of years, despite the rising value of claims. Heaney says: "Market pricing has reduced over the past 12 months because of capacity. There are more insurers chasing after business."

Higher premiums

Phil Bird, director of non-motor and SME at Groupama, says: "Ultimately increased costs of crime that result in higher insurance claims are paid for in higher premiums, as over an insurance cycle insurers have to deliver underwriting profits.

"However, insurance prices are generally segmented to a high degree and so an increase in crime at national level will not necessarily mean that an individual client will pay more if their area has not suffered so significantly, or if they have been active in taking action to reduce risk."

Businesses can keep the cost of their insurance down - and make insurers happier about taking on the risk - by doing what they can to improve security.

Williams says: "We cannot be complacent, but the economy is reasonably buoyant. If we have the slightest downturn in the economy, we know from previous experience that crime levels will rocket, so companies need to be thinking about security now."

Brian Newbury, technical director at Corporate Health & Safety Solutions (CHSS), says new legislation coming in during October will require all employers to carry out a fire assessment risk, which will include looking at the possibility of arson.

"Companies will have to look at how they can minimise risk and this could bring premiums down," he says.

The biggest cause of arson is a waste bin left outside the business premises, Williams says. "Moving that bin can make the world of difference."

A business continuity plan, and potentially a second site that can be used if there is disruption to the main business premises, are also important.

Allister Smith, risk manager at Norwich Union (NU), says: "A disaster, no matter what kind, can have a serious impact on a business, and small to medium-sized businesses are often the hardest hit. Statistics from NU in the past reveal that without business continuity capability companies may only have a one-in-10 chance of survival."

He adds: "The preparation of a business continuity plan should also be regarded as a priority for any business."

In fact, Matthew Knowles, a spokesperson for the Federation of Small Businesses, said some companies prefer not to take additional measures such as installing CCTV on their premises.

"If a small business invests in a security system the premises have a higher rateable value, and the business rates it pays would increase," he says. "It is ironic - the company ends up paying more for protecting itself. It's a vicious circle."

Identify risk

Brokers can play a key role in finding the right kind of insurance for an SME and potentially bring the cost down, Heaney says. "Brokers have local knowledge and understand what the client environment is, and brings that across to the insurer to make sure the insurer fully understands the risk."

Williams agrees: "The vast majority of SMEs use brokers. Small businesses know they can benefit from technical advice. Brokers can also give advice on doing certain things to reduce premiums."

Bird adds: "A broker can help an SME business in a number of ways. First, they can help identify risk and recommend appropriate insurance cover and then search the market for a reputable insurer offering the right price.

"As part of this process they can then work with the insurer and the client to put in place risk management/mitigation programmes to minimise the impact on the business of relevant criminal acts.

"Additionally, intermediaries can usually offer very valuable advice on business continuity and disaster recovery programmes too."

He adds: "Sometimes issues such as disaster recovery and business continuity receive less attention from intermediaries because there is no obvious connection to their core broking business or any obvious route to remuneration."

However, he says a broker is in an almost unique position to offer expert advice on matters of risk and with access to insurers support can add value in helping to effect individual programmes.

"Brokers' understanding of an SMEs business is almost unrivalled and can be absolutely critical in ensuring quality advice for busy SMEs."