Fidelity guarantee

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Fidelity guarantee
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Fidelity guarantee (or fidelity bond) – is a type of insurance that protects employers from any financial losses they may suffer as a result of the dishonest behaviour of their employees. The insurance policy can cover all employees (e.g.blanket bond) or separate individuals. Depending on the scope of the contract, the insurer requires full information about the procedure the organization implements when recruiting and selecting new employees; it usually reserves the right to decline inclusion of a specific person in the contract without any explanation[1].

Protection against financial loss

Companies suffer significant financial losses each year as a result of crimes committed by employees. It has been recently reported that fraud is aggravating due to the increasing use of electronic data and vulnerability of assets transfer operations. Thus, the financial losses have become more difficult to prevent as well as more struggling to recover from. Fidelity guarantee insurance is mostly applied in the corporations where employees, having a constant access to cash, stocks or other material assets, are prone to be involved in fraud and embezzlement. The era of computer crime and data leaks also defines fidelity guarantee insurance as a risk management lever[2].

Сoverage conditions

Insurance companies have the right to define specific guidelines for the company's procedure of hiring employees. Their service is valid until the company's management remains the same. To meet these requirements and continue benefit from the coverage, companies may have to carry out reference checks, checks of criminal records, and previous employee enquires for new employees. Companies are also required to inform the insurance company prior to changing employee duties or position. Otherwise they may face suspension of the insurance agreement[3].

Types of fidelity guarantee insurance

There can be distinguished four types of fidelity guarantee[4]:

  1. Individual Policy - this policy concerns an individual employee and covers only for his/her wrongdoings for specific amount of costs. When the fraud is revealed, the crime should be reported to the insurance company within 24 months.
  2. Collective Policy - the collective policy concerns a group of employees. Depending on the number of employees and their duties/positions, the insurance company calculates the amount of guarantee provided.
  3. Floater Policy - follows the same principle as collective one, as it covers a group of employees as well. However, the floater policy defines an even amount of guarantee for the group, instead of different amount depending on each employee's position and duties.
  4. Blanket Policy (also blanket bond) - provides guarantee for a group of employees excluding names of the people under coverage. The amount of guarantee depends on each employee as well as on the amount of financial loss. Only companies with well-established corporate culture and control are eligible to blanket policy insurance

Suspension of fidelity guarantee

Fidelity guarantee insurance has a range of exclusions:

  • When the company changes the nature of the business;
  • Unreported or unexplained changes in positions or responsibilities of employees;
  • Losses that are unsupported by evidence;
  • Unexplained expenses or losses in accounting records;
  • Losses of third parties;
  • Losses resulting from blackmail or extortions.

Businesses that are most eligible to fidelity guarantee insurance[5][6]:

  1. Retailers: due to the large number of cashiers involved in business and cash registers unobserved
  2. Restaurants and cafes: the high turnover and employee flow make it difficult to control

Insurance claim procedure

The insurance claim procedure is presented below[7]:

  1. The company must follow immediate steps against the guilty employee for obtaining the financial recovery. Depending on the case, there may be also other disciplinary action required.
  2. The company must provide evidence of the “act of infidelity” committed by the particular employee under policy.
  3. The company must not be liable any other security guarantee or insurance that covers the same loss.
  4. The policyholder must provide a “proof of loss” to the insurance company as well as carry out the forensic audit


  1. Sethi J., Bhatia N. (2012), p. 276
  2. Keeley M. and Duffy S.(2019), p. 75
  3. Keeley M. and Duffy S.(2019), p. 75
  4. Sethi J., Bhatia N. (2012), p. 276
  5. Fisher L., Andersen M., (2017), p. 9-58
  6. Gerathewohl K. (1980), p. 813
  7. Fisher L., Andersen M., (2017), p 5-3


Author: Kamil Piszczek