Practical FG Insurance Nuggets by Alson Nhari

Below is a discussion I had with Alson Nhari, Senior Broker at Alexander Forbes []:-


On 10/17/11 10:01 PM, Caleb Mutsumba wrote:



I am researching the prospect of my company introducing a new fidelity guarantee-related service. I require and appreciate your help.

A Fidelity Guarantee (FG) Insurance claim must establish the “act of infidelity” committed by the particular employee. I take this to mean a forensic audit or investigation is necessary. Ordinarily the cover extends to the Forensic Auditors’ fees incurred in establishing and substantiating the amount of loss.


Please fill me in on the practical modalities of how the recovered assets and the asset recovery process impacts the parties, namely, the insurer, the insured, the investigator, and the suspect/accused.







On 11/08/11 8:51 AM, Alson Nhari wrote:



Hi Caleb,


I hope you well.


As you have rightly said, some kind of forensic investigation has to be conducted in deciding whether a particular claim is a valid under an FG policy. The ordinary insurance policy states that following the forensic audit there has to be conviction in the courts of law of the persons found to be at the wrong side of the law.


However modern insurance practice came up with a clause that’s called the ‘reasonable proof of loss clause’, and states that only reasonable proof of the insured’s loss is required in order for one to claim successfully under an FG policy.


Now getting to the impact of the recovered property to the parties, all insurance policies have what’s called a subrogation clause, which states that the insurer will gain ownership of the rights of the insured following payment of a claim.


So should an insurer owner up and pay an FG claim, they will then in the event of successful recovery of the stolen property pay the excess (initially charged to the insured) back to the insured and retain ownership of the balance.


In other words say an insured had lost USD10 million and the policy has an excess of USD1 million. The insurer pays USD9 million to the insured, but should the lost USD10 million be recovered after the forensic audits and staff, the insurer will give USD1 million which was the excess back to the insured and take back the balance of USD9 million. Its important to note that even if the insurer recovers say USD5 million out of the loss of USD10 million they will still give the insured the USD1 million excess and retain the balance of USD4 million.


There is not much effect on the investigator from the recovered assets side; this is because the investigator will be paid by the insurer even if no recovery is made. The investigator has no share on the recovered assets.


The effect on the accused or suspect is that if found guilty the insurer will seek to recover the lost money from his personal assets.


This brings us back to the clause i spoke of above (REASONABLE PROOF OF LOSS) when i spoke of the modern FG policy as opposed to the traditional FG policy that requires conviction of the suspect in order to pay a claim. The reason why this clause is now part of the modern FG cover is because with conviction of the persons at fault recovery of the stolen assets may be difficult and sometimes its damaging to the insured’s image if issues are taken to the courts and all, especially if is the insured is in the financial services sector. So repayment agreements may be reached between the insured, the insurer and the persons at fault out of court to enable recovery of assets to be an easy process and not to taint the insured’s image.


I hope this is helpful, should you require more information please do not hesitate to get in touch.







On 11/09/11 7:12 AM, Caleb Mutsumba wrote:



This is wonderful Alson.


Thanks a million. I ‘m much wiser now.


Do you mind if I post this onto my Blog, credited to you of cause. You can send me an edited version for publication if you wish.


Regrads Caleb



On 11/08/11 8:51 AM, Alson Nhari wrote:



Hi Caleb,


You’re welcome man. Sure you can go ahead and post it onto your blog.


I’m still a young man being 2 years out of college and have a lot to learn in the business world. I think with guys like you around me i can become a better business person with everyday that comes.


Lets keep in touch please.


Kind regards,




What do you think? What strategies do you, or your company, use to manage the risk of fraud and error in your organisation? Are you primarily proactive or reactive in your approach to risk management? Share your experience in the Comment box below.

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