A disappointing holiday sales season has retail store risk managers expanding their concept of risk and re-examining business relationships in an effort to reduce their exposures in the face of shrinking consumer demand, according a recent survey.

Specifically, said Len Churnetski, managing director of Aon brokerage's retail practice, retailers are broadening their definition of what constitutes risk to include their manufacturers and other vendors as they struggle to remain viable. The newest emerging area of scrutiny for risk managers at retail concerns is lowering their insurance costs as companies reduce their store count, inventory and headcount.

These and other emerging challenges were identified in a survey undertaken at a recent Aon symposium on risk issues specific to the retail industry. Those attending the symposium included risk managers from 25 major retailers, Aon retail risk experts and a number of large insurance carriers that underwrite risk in the retail sector.

Mr. Churnetski said every decision to reduce locations or close down clusters of stores as a means of staying profitable should involve risk management. That's because closing stores or clusters of stores can yield immediate premium “release,” specifically because risk from workers' compensation, automobile use, general liability and property is reduced, he explained.

Another big area is increasing scrutiny of workers' comp and liability claims. Employers are likely to see increased claims during periods of downturns, and risk managers must take more care in scrutinizing them, he said.

But dealing with a suddenly shrinking economy is just the latest emerging issue for risk managers in the retail category. Upper management, as well as risk managers, is scrutinizing other potential risk areas, such as cyber risk and environmental risk.

These areas are now seen as effecting a retailer's profitability or even viability, Mr. Churnetski said, adding that risks such as cyber and environmental risk are defined as “enterprise risk.”

Besides personnel and overall costs, a retailer's business risk also includes its supply chain, computer systems, directors and officers liability potential, employment practices and business interruption liability, among others, Mr. Churnetski said.

In the survey, nearly one-third of the retailers who participated noted that they experience a 76 to 100 percent turnover in store employees annually.

This turnover, along with increasing external threats and evolving data security regulation, has led many retailers to increase their focus on cyber risk management, the survey found.

However, 59 percent of those polled in the survey do not currently have a cyber liability insurance policy in place. Instead, they have chosen to allocate those resources to loss prevention to thwart potential data breaches.

A growing concern is network–cyber risk, which involves both professional hackers and former employees worming their way into a computer system.

High turnover rates exacerbates the problem, because of the need to constantly screen new employees, make sure they communicate with each other and understand the corporate mitigation risk programs the company has in place.

The economy only exacerbates the problem, Mr. Churnetski said. “How can we cut our salary and expenses while dealing with higher shrinkage [theft and unrecorded loss of merchandise] problems that always grow during an economic downturn?”

Another trend, he said, is that securing products from around the world raises the potential for environmental and business interruption risks–merchandise could be late in arriving, which could lead to environmental problems.

“As a result, retailers are trying to push the problems back to the manufacturers,” he said.

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