Funds Transfer Fraud coverage is available on most crime insurance policies, and is one we highly recommend. Most firms are concerned about someone initiating a fraudulent transfer on their behalf. However, there is a relatively new phenomenon we are seeing – social engineering fraud. This is the deceptive gain of an employee’s trust to induce him or her to part with money or securities.
Here is an example of social engineering fraud. Your firm is handling a closing for a residential real estate client. Right before closing, you get an email from the realtor providing you new wiring instructions for the funds. You work with this realtor often, and don’t think to question this request. You wire the funds only to later find out that the realtor’s email was hacked, and the money is gone.
Would standard Funds Transfer Fraud coverage cover this event? No, for Funds Transfer Fraud coverage to apply, the instruction must have appeared to come from the insured firm. In this case, the firm actually sent these instructions to the bank, so coverage would not apply. If a hacker had sent them to the bank, coverage would apply.
Enter Social Engineering Fraud Coverage. This relatively new product is designed to cover situations in which deception is used to induce your firm to voluntarily part with money. Anyone handling large sums of money, such as real estate attorneys, should consider this coverage. Only a few carriers provide this coverage, and the additional coverage increases the price somewhat, but also provides much greater protection.