After More Than $700,000 Disappeared, They Launched the World’s First Embezzlement Insurance. One summer dayin 2007, Suzanne Foglio made a discovery no one wants to make: Her partner had been stealing company money to use for personal expenses. She’d later find out thats embezzlement amounted to more than $700,000 over the course of three years. Foglio, her husband Jim, and a third partner were running a payroll business, Kaibobo, as a side venture of the couple’s health insurance company.
The year before, shehad received a tip from a friend and manager at Kaibobo: The finances didn’t look right, the books were a mess and the Foglio’s third business partner might beto blame. Every time Foglio called a meeting with the partner, she recalls, he’d explain away the discrepancies or promise to follow up with more information and fail to deliver. Months later, while the partner attended a payroll convention in Las Vegas, Foglio decided to pursue the answers for herself by taking a meeting with the company bookkeeper.
Across the desk, she recalls, he told her ofthe partner’s missteps: using the company checking account as his personal account. Writing a $50,000 check “payable to cash.” Buying a new kitchen for his house with company money. Buying a new house! Foglio felt physically ill. There’s somuch shame and embarrassment when you’re a victim of embezzlement,” Foglio said.
She andher husband took drastic measures to keep clients at both companies from finding out about their partner’s misdeeds, including taking out a $700,000 personal loan, refinancing their home and selling their stock options. The incident cost them their own money and peace of mind, but as decades-long veterans of the insurance industry, they knew a hole in the market when they sawone.
In January 2019, the Foglios and a new partner — Travus Pope, who had hundreds of thousands of dollars embezzled from him — launched the world’s first embezzlement insurance. What todo when you suspect embezzlement. When you discover someone may be embezzling from you, the first thing you’ll likely do is call an attorney. Foglio’s corporate lawyer charged about $500 an hour, and although she and her husband had a significant nest egg, she knew this was the beginning ofa long, drawn-out court battle.
The next step: law enforcement. After reporting the incident, the prosecutors’ office told the Foglios they’d need to prove it. She hired an accounting firm to do a forensic audit and chart their partner’s alleged crimes via recreated bank statements. It took three years to come upwith the proof they needed, resulting in her former partners’ indictment and conviction. He served a year and a week in jail.
Even if an embezzler is convicted, there’s no guarantee you’ll recover the stolen funds. The courts can award a judgment against the person, but there’s no automatic wage garnish or other steps to certify your repayment — instead, you’d likely need to hire a specialized law firm tomake sure the embezzled money is returned. Capital Shield’s policy costs $1,500 per $1 million per year, and eligible insurees must have between $1 million and $10 million in invested assets.
As soon asan insuree suspects embezzlement, they contact the insurance carrier, which then investigates on their behalf and pays out the claim after an indictment. There’s a caveat here: The policy covers any investment advisor registered with the Financial Industry Regulatory Authority (FINRA), but it doesn’t cover business partners or anyone else with access to company funds — meaning even the Foglios’ own insurance product couldn’t have protected them from their former partner’s embezzlement.
They’re hoping to work up to expanded coverage. “We would hope that within the next five years,” said Foglio, “that would be something that we’d be able to do.” The concept of insurance is easy enough to understand. You make payments now so you can receive compensation in the future if an adverse event occurs. We all know we need insurance, yet 75 percent of businesses inthe United States are underinsured by 40 percent or more, according to Marshall & Swift/Boeckh.
What’s more, 40 percent of businesses never reopen after a disaster, based on data from SCORE. So why aren’t small-business owners getting proper insurance? Is it because the small-business products are difficult to understand? Do Ineed general liability, professional liability or errors and omissions? Or is it because the value is often unrealized? Will I have a significant hazard? Will the product I bought cover that hazard?
For whatever reason, we know small businesses are woefully unprotected from hazards and catastrophes, should they take place. Based ona survey from Insureon, at least one in three small-business owners experienced an event in the last 12 months that could have led to an insurance claim. Clearly, the likelihood that small-business owners need insurance is quite high.
How SMBs think about insurance. According to new research by FreshBooks that surveyed 1,100 small-business owners in the U.S., 63 percent say they’re generally aware of the risks to their business. These risks often include theft, getting sued, car accidents and contract disputes. A full 60 percent of small-business owners say they have insurance. Yet morethan 40 percent believe their personal insurance is sufficient coverage — even for business claims.
Putting itall together, more than 80 percent of small-business owners don’t have small-business insurance or rely solely on their personal insurance for business protection. If you use a personal vehicle for work purposes, such as hauling tools and equipment, you won’t be covered by personal auto insurance. The insurance industry is catching up to many new types of jobs — a growing number of insurers now offer ridesharing insurance to Uber and Lyft drivers.
Another example: Small businesses account for 71 percent of all cyber attacks, yet 42 percent of small-business owners admit they don’t know what cyber liability insurance is. Given the various small-business risks, its no surprise that less than half say they’re confident that they’re properly insured.