Understanding Fidelity Guarantee Insurance for Insolvency Practitioners

IPA Insolvency Practitioner newsletter, March 2025

Article by Thomas Fahey, Associate, Lockton.

Please note that guest content does not necessarily represent the views of the IPA.

What is Fidelity Guarantee Insurance?

Fidelity Guarantee Insurance (FGI) is a form of business protection that covers financial losses arising from fraud, theft, or dishonesty committed by employees, contractors, or other trusted individuals within an organisation. Unlike third-party fraud coverage – which protects against client losses – FGI is specifically designed to safeguard a firm’s own assets from internal threats.

Example:

A senior administrator at an insolvency firm secretly diverts funds from the firm’s operational accounts over several years, leading to a loss of £250,000. Without FGI, the firm would have to absorb the loss. However, with a FGI policy in place, the firm could seek reimbursement for the stolen funds, protecting its financial stability.

Why does the IPA recommend Fidelity Guarantee Insurance?

The IPA advises firms to have FGI as part of their risk management strategy. Although it is not a mandatory cover under IPA regulations, it plays a crucial role in protecting a firm’s financial health.

Key reasons the IPA recommends FGI:

Mitigates financial risk – fraud losses can be substantial, and FGI helps ensure business continuity
Addresses increasing fraud trends – with digital banking making fraud easier, firms are more vulnerable than ever
Provides regulatory reassurance – while not explicitly required under IPA standards, FGI complements mandatory third-party fraud cover included within Professional Indemnity Insurance (PII), ensuring robust risk protection

How to source Fidelity Guarantee Insurance

When securing FGI, firms have two main options:

1. Incorporating FGI within a Professional Indemnity Insurance (PII) policy

Many PII providers offer FGI as an additional extension to their policies. When reviewing your PII policy, ensure:

The cover explicitly includes cover for loss of the firms’ own funds
The policy wording is compliant with any regulatory or industry requirements
The limit of indemnity is sufficient to cover potential losses

2. Purchasing a separate Crime Insurance policy

If your PII provider does not offer FGI or provides limited cover, a standalone Crime Insurance policy can be a better option. Crime policies typically offer:

Higher coverage limits compared to PII add-ons
Comprehensive protection for various fraud types, including cyber fraud
More tailored policy conditions, making them suitable for firms with greater exposure to employee dishonesty

Key considerations when choosing FGI

Policy limit: Ensure coverage matches your firm’s financial exposure
Any-one-loss vs aggregate cover: Policies should ideally cover each loss individually rather than having a fixed total limit
Claims process: Ensure the policy offers clear and efficient claims handling to mitigate business disruption

Conclusion

While the IPA does not mandate FGI, it is a highly recommended safeguard against internal fraud risks. Firms should carefully evaluate their insurance policies to ensure compliance with best practices and financial protection. Whether included within a PII policy or as a standalone crime insurance policy, ensuring adequate fidelity cover is key to securing long-term business resilience.

For more information, please contact: thomas.fahey@lockton.com