Thursday, November 16, 2017

Social Engineering Fraud

Have you received any emails lately asking you for money?  We've all seen the emails from the unfortunate foreign businessman who needs your help to get back to the US.  Perhaps you've received an email from that African Prince?

Lately, though, companies have seen emails from their owners instructing them to transfer several thousand dollars to a particular client or vendor.  These emails have the CEO's signature, use his or her writing style and appear to come straight from the source.  Unfortunately, they don't.  The CFO or Controller makes the transfer.  By the time they realize this mistake, that money is long gone.  

This type of scam is called Social Engineering Fraud, and it's spreading.  I've had 3 clients hit in the past year with losses ranging from $17,000 to $44,000.  Large amounts of money vanish in the blink of an eye.

If you handle the money for a company and you receive an email like this, call the boss and verify.  Do not pass Go.  Do not transfer $200.  9.9 times out of 10 a quick call will stop this fraud.  So do it.  

That's the bad news.  Insurance policies most likely will not cover this type of loss.  In insurance terms, a victim of social engineering fraud is a voluntary participant.  Sure, they were induced to part with their money by fraudulent means, but they DID voluntarily part with their money.

Property and Crime insurance policies have exclusions for loss by Voluntary Parting or False Pretense.  A common industry property form reads:

"We will not pay for loss or damage caused by or resulting from any of the following...Voluntary parting with any property by you or anyone else to whom you have entrusted the property if induced to do so by any fraudulent scheme, trick, device or false pretense."

The insurance industry often takes a "wait and see" approach to new risks.  First, they exclude it.  Second, they give it some thought.  Third, one carrier offers the coverage and starts to make money.  Forth, other carriers follow the leader,

Right now, a few insurance companies are starting to offer Social Engineering Fraud coverage.  Travelers offers the coverage as an endorsement to their Crime policies.

You can find out more at their website.

The industry will continue to evolve on this, but the best defense is to call and verify.

If you have a similar story to share, please send it to me at


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