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Retail businesses work with the public every day, exposing themselves to many risks that could result in serious losses. To make things even more difficult, many of the exposures faced by retailers are not covered by standard insurance policies in the marketplace.
A particular consideration for retail entities is product recalls, which have been on the rise in recent years. The first Canadian Recall Index, created by Stericycle ExpertSOLUTIONS, showed that while there was a reduction in 2014 and 2015, product recalls have increased significantly since 2016. Recalls affect retailers worldwide and can tarnish the reputation of a business and cause a significant financial impact.
Retailers also face unexpected incidents that can lead to premise liability claims. Slip-and-fall cases are common, and retailers without appropriate protection risk shedding thousands, if not millions, should a neglected wet floor or trip hazard cause an injury to a customer or a member of staff.
"In a lot of those types of cases, retailers end up being shut down because the costs related to court cases and legal battles can escalate rapidly," says Tyson Peel, director, property and casualty, at Burns & Wilcox. "A lot of retailers are operating on slim margins right now, and additional costs really take a toll on the bottom line."
Given the proliferation of online banking and card transactions, policies with cyber features have become a must for retailers. They provide protection should a customer lodge a liability claim if their personal information or credit card details are stolen.
"A lot of retailers buy a standard policy with premises liability but are not encouraged to consider cyber or product liability," Peel says. “Those companies face a real risk should they face a claim.”
It has also become a necessity for retailers to buy policies that protect them from unforeseen risks such as property damage due to natural disasters, fire or water.
"You can lose all of your products in those situations, and it can cost millions to replace the damaged stock if you don't have insurance," says Peel.
A solid retail insurance policy should include comprehensive property coverage that not only includes the building and its contents but also loss of rents and outside signage. Protection of business income is also vital. It gives retailers a buffer after a loss, preventing a financial meltdown and safeguarding the company until operations return to normal. This feature often covers payroll expenses, utilities service interruption and mortgage rate guarantee.
The most common property exposure risk facing retailers is theft, which leads to both inventory losses and business interruption. It is one of the many business-related crimes that a comprehensive retail insurance policy should cover.
"A lot of policies nowadays feature coverage endorsements that would not have been available until recently,” Peel said. “The majority of retail-focused insurance policies have readily available expansions that retailers need. It’s up to the client to make sure they actually purchase all of the endorsements needed to effectively protect their business, but brokers have an important role to play in making sure clients are fully informed about their exposures and their coverage options.”
