Discovery basis

~3 min read

Category: Crime and fidelity insurance · Reviewed by the Apex broking team · Last reviewed 2026-08-20

In short: On a discovery basis, a crime policy responds to losses discovered during its policy period, whatever the date of the dishonest acts that caused them. Because employee fraud typically runs for years before it surfaces, the discovery trigger fits crime risks better than an occurrence trigger — but it makes continuity of cover critical when switching insurers, since the new policy inherits responsibility for old, undiscovered losses only on the terms it chooses to offer.

Category: Crime and fidelity insurance Also known as: losses discovered basis, discovery form Related concepts: commercial crime insurance, management liability insurance

Definition

A discovery basis policy is triggered by the discovery of a loss during the policy period. Discovery is usually defined as the point when a director, officer or other specified person first becomes aware of facts that would cause a reasonable person to assume a covered loss has been, or is likely to be, sustained — even if the amount and the culprit are not yet known. The contrast is with a losses sustained or occurrence basis, under which the policy in force when the dishonest acts took place is the one that responds.

Why crime cover uses discovery

Employee dishonesty is a long-tail risk in a particular sense: the classic fraud is a series of small manipulations — false invoices, diverted payments, adjusted ledgers — sustained over several years and concealed by the person best placed to conceal it. By the time it surfaces, the acts span multiple policy periods, possibly multiple insurers. A discovery trigger puts the whole loss into one policy: the one in force when the fraud comes to light. That avoids the near-impossible exercise of carving one course of dishonest conduct into slices by policy year.

Continuity when switching insurers

The discovery trigger has a sharp edge at renewal. If you move from insurer A to insurer B, a fraud that began years ago but is discovered under B’s policy is B’s claim — but only within B’s terms. Points to check before moving:

Retroactive or prior-loss dates. Some wordings exclude losses sustained before a stated date. A new policy with a retroactive date at inception covers nothing that has already happened — which, for crime, is most of the live exposure.
Continuity of cover clauses. Better wordings pick up losses that would have been covered under the expiring policy, preserving the position as if cover had continued unbroken.
Discovery windows on the old policy. Some expiring policies allow a limited period after expiry to discover and notify losses sustained during the period; this softens, but does not remove, the gap risk.
Known circumstances. Suspicions that exist at the switch must be disclosed; a loss already suspected is unlikely to be covered by the incoming insurer, and non-disclosure jeopardises the whole policy under the Insurance Act 2015 duty of fair presentation.

How it works in practice

Discovery also starts clocks: policies require notification within a stated period after discovery, and the definition of whose knowledge counts (often senior management only) determines when that clock starts. Businesses should treat the first credible sign of internal fraud as a notification event and involve their broker immediately, before internal investigation hardens into delay.

Why it matters

Crime cover bought carelessly at renewal can be continuous on paper and broken in substance. The question to ask when moving insurer is simple: if a five-year-old fraud were discovered tomorrow, which policy would pay, and on what terms? If the answer is unclear, the placement needs work.

References

Insurance Act 2015 — https://www.legislation.gov.uk/ukpga/2015/4

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