Bankers Blanket Bond: A shield against rising occupational fraud

Global financial institutions recorded a staggering 40% increase in occupational fraud between 2018 and 2022*  while worldwide occupational fraud losses topped $42 billion** last year.

Occupational fraud, perpetrated by employees within the organisation, poses a significant threat to the banking sector. Such misconduct, if left unchecked, can have far-reaching consequences, potentially leading to substantial financial losses and reputational damage.

To safeguard against these risks, a Bankers Blanket Bond (BBB) policy offers a robust insurance solution for banks. This comprehensive coverage protects financial institutions against a wide range of employee-related fraudulent activities, including theft, embezzlement, forgery and fraud. By transferring the financial losses of such incidents to the insurers, BBBs empower banks to mitigate risks and maintain operational resilience.

Rising bank employee dishonesty

The roots of BBBs can be traced back to the early 20th century, when banks began to face increasing risks of employee dishonesty and theft.

To mitigate these risks, fidelity bonds were introduced, which covered losses caused by specific named employees. However, as the complexity of banking operations grew, so did the need for broader coverage.

Bankers Blanket Bonds emerged as a comprehensive solution, providing blanket coverage for all employees of a bank, regardless of their position. This shift from individual to blanket coverage significantly enhanced protection against a wider range of risks faced by banks.

The development of BBBs has been driven by the evolving needs of the banking industry (including the broader financial services industry) and the increasing sophistication of financial crimes. As banks expand their operations and adopt new technologies, the potential for losses continues to grow. The good thing is that BBBs provide a flexible and adaptable solution to address these emerging risks.

Over the years, BBBs have continued to evolve, adapting to the changing landscape of financial crime. Today, they remain an essential tool for banks to protect their assets and mitigate the financial impact of employee dishonesty and other financial risks.

What is a BBB policy?

BBB is a fidelity bond that guards banks against losses from various criminal acts carried out by employees. Some may call it a blanket fidelity bond or a comprehensive crime policy, it is a combined policy purchased by financial institutions to protect against the direct financial losses from employee fraud, theft/robbery, forged documents and the physical loss of or alteration to property, whether on the premises or in transit.

Why banks need this cover

The majority of all fraud is committed by a company's own employees - an estimated 33% by management and 50% by employees who have been with the bank for five years or more.

The main categories of fraud experienced by banking institutions in 2023 included ATM fraud, electronic fund transfers, credit and debit card fraud, mobile application fraud, and theft of cash.

Banks are at risk because they hold large sums of money and valuables, which makes them a prime target for thieves. This includes cash in vaults and ATMs, as well as customer deposits and other financial assets.

Financial institutions and their complex financial systems also have multiple access points involving multiple parties and digital platforms. This creates vulnerabilities that can be exploited.

Despite robust systems, banks are vulnerable to the ever-evolving threat of employee fraud. To protect their financial health, banks must implement a layered risk management strategy, including utilising insurance through having a BBB policy.

While employee dishonesty (occupational fraud) is a significant risk covered by a BBB policy, it is not the only one. Employee Dishonesty is the main Insuring Clause on a BBB policy, with the other key insuring clauses including:

• On premises: Protects against losses due to theft, burglary or robbery that occur on the bank's premises.
• In transit: Provides coverage for losses incurred during the transportation of funds or valuables, whether by bank employees or third-party carriers.
• Forgery and alteration: Covers losses resulting from forged or altered documents, such as cheques, drafts or securities.
• Securities: Covers losses arising from the theft, disappearance or destruction of securities, such as stocks, bonds or certificates of deposit.
• Counterfeit currency: Protects against losses resulting from the acceptance of counterfeit currency.

Banks are also increasingly vulnerable to computer fraud and system breaches, which can result in significant financial losses. To address this growing threat, a companion policy to the BBB is available: Electronic Computer Crime (ECC) insurance.

ECC coverage specifically protects banks against financial losses arising from computer fraud, such as unauthorised access to computer systems, data destruction or manipulation, and fraudulent electronic fund transfers. By providing comprehensive protection against these threats, ECC insurance helps banks mitigate risks, safeguard sensitive information, and maintain operational continuity.

As the banking industry continues to grapple with the increasing sophistication of financial crimes, a robust BBB policy remains an indispensable tool for mitigating risks. By providing comprehensive coverage against a wide range of threats, including employee dishonesty, theft and forgery, BBBs help banks protect their assets and safeguard their operations from financial ruin.

Reinsurance Solutions, as a leading broker, possesses the expertise to structure tailored BBB policies that effectively address the unique needs of each financial institution. By leveraging our deep understanding of the industry and our strong relationships with specialist underwriters, we can help our clients secure the optimal coverage to navigate the complex risk landscape for banks.

As the threat of occupational fraud persists, banks must remain vigilant and proactive in their risk mitigating strategies. By investing in a well-structured BBB policy, banks can bolster their defences and ensure their long-term sustainability.

*PwC study, 2023 

**Association of Certified Fraud Examiners report, 2023