General Insurance Fidelity Guarantee Insurance

Fidelity guarantee insurance was devised in United Kingdom, during Victorian times to replace the age old system of private surety. Formerly anyone who sought to position of trust, such a post in the civil service, a bank, or a commercial firm was required to furnish the names of one or more guarantors or sureties who would the names of one or more guarantors or sureties who would undertake to make good monetary loss, arising from dishonesty on the part of the employee. The old system worked badly because every honest man had to provide sureties and the sureties themselves, whose circumstances might worsen over a period, could easily find themselves financially embarrassed by being called on to perform their bond. Further the employees, when they sought to recover from a surety, may find that he had died or disappeared or had not been the means to meet this liability. Deflations were fairly frequent in times when accounting practice was far from water fight and when amateur auditors were the rule rather than the exception. Indeed, one large insurance company in mid Victorian time lost over 50,000 by the peevilations of a subordinate clerk in its own office. Even with modern accounting practices large losses are not un-known. For example, in 1956, a woman in the USA was charged with converting to her own use of sum of more than a million dollars from her employers.

Since 1840 a number of insurance companies have granted commercial fidelity guarantee insurances. In consideration of a premium the insurers undertake to reimburse to the employers, loss caused by the dishonesty of one or more employees up to stated amounts. Where the guarantee is given in respect of several employees, it is known as collective. The amount of the guarantee may be stated either with a separate limit for each employed name, or else as a single sum for all concerned, it is described as a floating guarantee.

When an individual employee is proposed for guarantee insurance, the insurance company customarily makes full inquiries in to his reputation and past employment record, requiring him to show, how he has been occupied over a number of year. Bitter experience has taught that once a man has defaulted, it is much more hazardous to guarantee his fidelity in the future. For this reasons companies require that all default discovered by an employer should be notified to them, even where the employee makes restitution, or the employer decides to give the man another chance.

In considering whether to grant insurance, the company usually requires full details of the system of check operated by the employer, and can often suggest means of improving this system. No system can be entirely proof against dishonesty, but a good system should ensures that too much responsibility for monetary transactions is not left without counter check, in the hands of one employee and that if default, occurs, they are to be discovered within a short time. Dishonest employees usually start by taking money in a small way, after they have found a loophole in the system of check. Their success encourages them to increase step by step , the size of sums they take, trusted employees may be surprised if an employer is wise to be without such cover, as the largest defaults are perpetrated by employees, because they have shown themselves trustworthy over years, are given important responsibilities. A high amount of guarantee is desirable, because it is the large losses for which insurance is particularly necessary.