Commercial insurance policies are crucial to protect businesses from a range of risks and liabilities, but they also play a vital role in society. Although these policies offer extensive coverage for numerous incidents, criminal acts are explicitly excluded.

This blog will take a closer look at the reasons for this exclusion, and what could happen if it was absent.

Protecting the insured business

The fundamental objective of commercial insurance is to safeguard businesses against unforeseen losses and liabilities, but not at any expense. It’s crucial for insurance providers to avoid endorsing or encouraging illegal activities.

Incorporating coverage for criminal acts within insurance policies inherently introduces a moral hazard, as it could promote dishonest conduct among policyholders. By excluding criminal acts from coverage, insurers uphold their policies’ integrity, and prevent themselves from facilitating unlawful behaviour.

Promoting lawful conduct

Commercial insurance helps to promote lawful behaviour and risk management. By excluding criminal acts, insurers send a clear message that businesses must operate within the confines of the law.

It encourages companies to adopt appropriate security measures, internal controls, and ethical practices, thereby reducing the likelihood of criminal activities within the organisation.

Fraudulent claims

Allowing coverage for criminal acts could open the floodgates for fraudulent claims. If criminal acts were covered, unscrupulous individuals might intentionally engage in illegal activities to benefit financially from insurance payouts.

Excluding criminal acts helps to mitigate the risk of fraudulent claims, ensuring that insurance policies serve their purpose of providing legitimate protection against unforeseen losses.

Insurance affordability

Including coverage for criminal acts in commercial insurance policies would significantly impact premium costs for all policyholders. The increased risk exposure faced by insurers due to potential claims arising from criminal activities would necessitate higher premiums across the board.

By excluding criminal acts, insurers can maintain more affordable premiums for businesses, ensuring coverage remains accessible and fair for law-abiding policyholders.

The legal system

Criminal acts should be addressed by law enforcement agencies and the judiciary – not by an insurance organisation.

When insurers exclude such acts from their policies, they acknowledge the proper channels for addressing illegal activities, and emphasise the importance of upholding the legal system’s principles and processes.

Are there any exceptions?

As always, there are exceptions, such as when claims involve extortion and ransom. Certain insurers continue to pay ransoms within their policies for either the physical kidnap and ransom of individuals, or crypto payment demands following ransomware.

This is economical for insurers in the short term, but is questionable in the long term. It also comes with a definite moral issue, as by paying these amounts they’re essentially funding criminal, and sometimes terrorist, activity. Whether ransoms will always be paid, or this practice will eventually be prohibited, remains to be seen.

Reliable business protection from RiskBox

Ultimately, by adhering to these exclusions, commercial insurance policies can continue to provide reliable protection for law-abiding businesses, ensuring their sustainability and mitigating financial risks in the face of unforeseen circumstances.

If you’d like to discuss your commercial insurance policy, or you have a question about something mentioned in this blog, don’t hesitate to get in touch. You can reach us by calling 0161 533 0411 or filling in our online contact form.

Photo by Wesley Tingey on Unsplash