Loss prevention insurance protects against unexpected loss of property value due to specific events, particularly theft. It is often purchased as part of a business insurance policy to cover instances of theft that exceed the industry standard. This type of insurance is important for businesses as money stolen by employees is often never fully recovered. Corporations and banks also purchase loss prevention insurance to protect against asset misappropriation and diversion.
Loss prevention insurance protects the policyholder against unforeseen and uncontrollable loss of the value of the covered property from the occurrence of specific events. While any type of casualty insurance is technically designed to compensate the policyholder against losses, the term “loss prevention” has a commercial context that refers to the risk of loss through theft. This type of coverage is typically purchased as part of a company’s comprehensive business insurance policy and is counted as an expense of doing business.
In retail, inventory is turned into cash when sales are made to customers in the ordinary course of business. There is a certain percentage of inventory that will not show up as cash on the books when the sales transactions are eventually reconciled with the remaining inventory. This missing inventory or missing money represents a loss to the business commonly known as shrinkage. The retail sector has a standard percentage of contraction that is considered an expected part of business activity, while anything above that standard percentage is considered an unusual loss.
Shrinkage can be the result of any number of things, such as a vendor or an administrative error in tracking inventory. The majority of a percentage of loss is often theft from a combination of internal and external sources. Employees develop schemes to steal merchandise and cash, and shoplift customers, as well as commit check and credit card fraud. A business purchases loss prevention insurance as part of its comprehensive coverage to indemnify itself against unusual instances of theft that fall outside the usual industry standard loss rate.
For example, if an employer discovered that an employee had managed to steal tens of thousands of dollars over time, despite the company’s controls in place to prevent such activity, loss prevention insurance would reimburse the company up to the amount of the policy. This is an important protection for a business because money stolen by employees is often spent and never fully recovered. Theft of employees of a specified amount of money is considered a catastrophic incident that is possible but unexpected, in the same way that theft of a car is knowable but never anticipated, so insuring the risk is good business practice.
Corporations and banks also buy loss prevention insurance. Against this backdrop, insurance typically protects against major cases of asset misappropriation and diversion, particularly by senior management. A bank policy also often protects you from robbery and fraud by third parties and employees.
Protect your devices with Threat Protection by NordVPN
