Check forgery losses on personal accounts can be minimized by risk management advice
McCormick, Roy C
The American Bankers Association and the FBI have sounded an alarm because of a sharp increase in check forgeries in recent months, a worrisome situation for which insurance agents are uniquely qualified to lend a helping hand and provide an appreciated service to buyers of personal insurance in the process. Guidelines for preventing such fraud are of prime importance. Being informed of how insurance protection would apply in the event of such loss will alleviate concern, but not take the place of loss control measures.
Most of us are lax in guarding our bank accounts and bank checks. The chairman of the American Bankers Association check fraud task force has some earnest advice for us that emphasizes:
*Reconciling bank accounts that include check writing privileges promptly and routinely. This should be done as soon as possible after a monthly bank statement is received. There is far more to be concerned about than a few pennies difference between the balance shown in the bank statement and that written in the checkbook (check register). An undetected counterfeit check can have serious consequences for the account holder.
*Guarding checks, both blank and canceled. A favorite ploy of thieves who are specialists in check forgery is the removal of blank checks from the center of checkbooks.
The account holder may not be aware of the situation until checks that he or she has written have bounced. Spoiled checks should be effectively destroyed and not thrown away intact, so that they or data on them cannot be utilized.
*Refusing to furnish account information over the phone to someone who is not known. Particulars that may seem inconsequential to the uninitiated can be the missing link that will enable a crook to carry out his criminal intent.
*Notifying the bank without delay when it is apparent that checks are lost or stolen. Bank officials will know what to do, including the possibility of closing an account.
Personal insureds will be interested in a new problem associated with the rapid development of desktop publishing technology. Businesses have been alerted to it because the target has been payroll checks and the large sums that can be realized from their forgery. However, personal checking accounts are not immune.
Computers, scanners and high quality paper are basic equipment for these new professional forgers. They obtain a copy of a company check, the company’s logo and the signature that goes on the company’s payroll checks.
Using the latest computer techniques, they produce a quantity of payroll checks that can bring about large forgery losses. Banks and check printing companies are developing features to make legitimate checks harder to fake and systems to readily spot the fakes, but we can all help by being careful with our own accounts.
There is no substitute for loss prevention, but the client who regularly pays premiums for homeowners insurance will be glad to learn of, or be reminded of, the specific coverage included in his or her homeowners policy for loss that might arise from the contingency with which we are concerned.
The important backup protection is found under “Additional Coverages” in some policies; “Incidental Property Coverages” in others. It covers loss to an insured caused by forgery or alteration of any check or negotiable instrument. “Negotiable instruments” include demand deposits, drafts, notes, bills of lading and similar instruments.
The basic amount of insurance provided for check forgery in many policies is $1,000. However, it may be less, such as $500, or more. The basic amount would seem adequate for most people but the limit of insurance may be increased for a modest charge. People who maintain large bank accounts are especially vulnerable to forgery, and could sustain losses substantially in excess of the basic limits. They would be better protected by a higher amount of insurance.
A banker of our acquaintance asks our indulgence if a bank employee, to whom we might not be known, appears to be checking on us or refers our transaction to a bank officer. He said that they have been trained to be courteous, polite and efficient in serving our needs but that, for our protection, have also been taught to be cautious in cashing checks. Most of us do understand this and do not register impatience or feel miffed as we would if our integrity were clearly questioned.
The banks are certainly on the right track in exercising caution in accepting checks and in recommending proper checking account procedures to their customers. These are risk management procedures that will help to control forgery losses.
Insurance agents can make a big contribution to the cause and earn Brownie points in the process by discussing the loss prevention measures with insureds. Avoiding the hassle that people must contend with when their checks are forged has the highest priority. Being assured that insurance is in force that is applicable to a potential loss is reassuring but secondary insofar as emphasis is concerned.
Roy C. McCormick is consulting editor of the Policy, Form & Manual Analysis Service (PF&M) published by Rough Notes.
Copyright Rough Notes Co., Inc. Feb 1995
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