The Financial, Executive & Professional Risks (FINEX) team of Willis, a WTW business, collaborates with professionals across the fidelity/crime insurance space to better understand the many facets of our industry. We aim to shed light on how shifting business and economic trends are impacting fidelity/crime risk and the industry at large.
In this edition, we feature Tory Mucci and Patrick Shannon from Great American Insurance Group.
Willis: Based on your experience, what is the most frequent cause of loss in the gaming industry?
Tory Mucci: Gaming operations are multi-dimensional risks. Consequently, this industry faces various types of losses and schemes, including slot machine manipulation, payroll schemes, expense account fraud, improper awarding of reward points, vendor fraud, robbery, dealer collusion, social engineering, forgery and more.
The most common cause of loss is employee theft, which encompasses various schemes committed by employees. Due to the substantial amount of money handled by casinos, employees may discover opportunities to commit theft. This can involve various methods, including skimming cash, vendor fraud, payroll schemes, dealer collusion with patrons, manipulating financial records, employee theft from the count room, or misappropriating assets. The varied operations and substantial cash flow in casinos create opportunities for employees to misuse their positions for personal gain. Implementing stringent internal controls, segregation of duties, regular audits, and monitoring systems is essential to mitigating these risks.
Due to the significant cash exposure inherent in gaming operations, these facilities are highly susceptible to robberies. These incidents can range from isolated schemes to more sophisticated, orchestrated robbery rings, where multiple locations are targeted within a short timeframe. The high volume of cash transactions and the bustling environment of gaming facilities make them attractive targets for criminals, necessitating robust security measures to mitigate these risks.
Willis: Based on your experience, what is the costliest (catastrophic) cause of loss in the gaming industry?
Tory Mucci: Vendor fraud is often the costliest scheme affecting both the gaming industry and the crime industry at large. It is the largest and longest running employee theft scheme. Examples of vendor fraud include vendor kickback schemes, ghost vendor schemes and bid-rigging schemes.
To prevent vendor fraud, businesses should perform thorough background checks on vendors to verify their ownership and financial stability, and to identify any connection between the vendor's employees and their own staff. It's also crucial to separate duties: one person should handle background checks; another should add new vendors to the master list. Regular reviews and purges of the master vendor list are also essential.
Willis: When underwriting a gaming risk, what controls/procedures are paramount?
Patrick Shannon: Underwriting a gaming risk is essentially underwriting a number of different business operations under one policy. For example, there is traditional employee theft exposure within corporate departments, robbery exposure on the floor, computer crime exposures within e-commerce or online gaming, guests’ property exposure within the hotel and cash exposure within a restaurant or retail store. Each of these can be approached with common crime underwriting methods, but underwriters must account for each facet of the operation. This is why supplemental applications specifically intended for gaming operations are necessary.
The most unique exposure would have to be the cash and how to protect it against losses perpetrated by employees and outsiders. Physical security measures surrounding cash will be scrutinized by underwriters. Vaults/safes, alarms, surveillance cameras, and even tracking technology for valuable securities or property are common safeguards that get asked about. These measures will help mitigate the risk of dishonest acts committed by employees and theft by outsiders.
Another very important security measure to mitigate loss is the use of a reputable armored car company for cash transportation. This will transfer the risk and provide robust cash in transit protection. While this is standard practice for larger casinos, some smaller ones rely on employees to make deposits. This approach is not only unsafe for employees but also creates an opportunity for employee theft during large cash deposits.
Certain casino employees will inevitably have access to cash, especially dealers, those involved in servicing machines, employees working in the cashier’s cage and counting room staff. Specific controls underwriters look for include strict shift change procedures, frequent accounting/recording of cash with multiple levels of approval and supervision, changing of dice and cards, restricted access to sensitive areas and uniform requirements, i.e. jumpsuits with no pockets.
In addition to controls over cash, separation of duties within corporate financial transactions is paramount to prevent severe, long-term embezzlement schemes. Multiple levels of approval and oversight over employees handling funds are fundamental controls that casino operations cannot take for granted either. Finally, the vendor fraud controls discussed earlier complete all the types of controls and procedures that casinos should implement to help prevent crime losses.
Gaming operations take their security controls very seriously and the casino security industry is always developing new products and technology. It is really interesting to see the new ways to combat crime!
Willis: There is a misconception in the market that because a crime was committed, the crime policy should respond. Can you help debunk this misconception?
Patrick Shannon: The word “crime” is broad and encompasses many different acts and circumstances. It is subjective in many ways. For those who are not familiar with the line of insurance, it is understandable to assume a crime policy would cover losses associated with any type of crime or fraud. Like with any insurance policy, there are certain losses that the policy is intended to cover. A phrase we commonly repeat is that “a crime policy is not a general fraud policy, but instead is a specified peril policy where coverage is triggered by specifically identified risks.” While each claim is thoroughly examined to determine coverage, the facts and circumstances must meet the requirements stated in the policy wording.
Standard crime policies in the market cover a policyholder’s direct losses of “money,” “securities” and “other property” as a result of the defined terms and conditions of specific insuring agreements. Some common misconceptions are that a data breach, a ransomware event, legal expenses, illegal acts committed by the insured, or even a disagreement over a business deal where one party felt defrauded would be covered. While crime policies are not intended to cover these occurrences, there are other lines of insurance which can. Please consult with your broker who can help address specific exposures you’re concerned about.
Crime insurance will continue to evolve as new threats leading to financial losses in casinos due to illegal activity emerge. Nevertheless, insurers continue to see loss activity within the traditional policy language. Due to the diverse operations within a gaming risk, the types of losses tend to span the entire list of standard insuring agreements previously discussed.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
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Tory Mucci serves as Divisional Vice President in Fidelity/Crime at Great American Insurance Group, the third largest crime insurer in North America. Tory leads the Specialty Products & Programs group, overseeing a diverse portfolio that includes insurance solutions for the gaming industry, security guards, check cashers, and kidnap, ransom & extortion (K&R) coverage. This group also manages the division’s program business. With over 17 years of underwriting experience in fidelity and K&R, Tory offers deep expertise across both specialty and standard crime products. In addition to her U.S.-based responsibilities, she also oversees the Division’s Canadian Crime operations.
Patrick Shannon serves as a Director with the Fidelity/Crime Division at Great American Insurance Group and currently manages a team handling commercial crime, financial institution bonds and governmental crime coverage for New England and other various territories within the U.S. He has over 15 years of experience underwriting fidelity/crime with a concentration on the gaming industry from the start of his career. During his career, he has managed program business with a specialization in crime for community associations and has assisted with the development of a proprietary crime policy form. Outside of crime insurance, he is also an accomplished kidnap, ransom & extortion (K&R) underwriter and is a member of the Hartford Professional Liability Underwriting Society (PLUS) Committee.
