In the retail industry, with its incredibly tight margins, protecting the bottom line is critical. And building a General Liability (GL) program that helps prevent and effectively manage claims is one of the key ways large retailers can maximize earnings.
Major retailers are often in a great position to actively prevent GL claims because, working with their brokers, agents and insurers, they possess the necessary risk-management sophistication, understanding and resources.
Here are six best practices that brokers and agents can work with their large-retailer clients to implement to help them avoid GL claims:
1. See the big picture. A close partnership between buyer, intermediary and insurer will help identify all of the GL risks faced by a retailer—the first step in protecting against these claims. Understand the retailer’s specific focus, geographic footprint and product mix. An electronics retailer that sells, installs and repairs high-end equipment faces a different set of GL risks than a sporting-goods store.
For example, the electronics retailer must have solid hiring and training criteria to ensure that employees are taking the appropriate precautions when installing equipment in customers’ homes, while a sporting-goods retailer may face bodily injury claims if customers slip and fall on in-store equipment and displays (or if a customer is hit by an errant football toss).
2. Learn from the past. Understand the types of GL claims the retailer has faced in the past, both from a frequency and a severity perspective. Identify the types of accidents or injuries that drive the bulk of the retailer’s GL claim costs. Are claims and costs driven by issues related to Coverage A or Coverage B—or a mix of both? Since legal expenses can have a significant impact on GL claim costs, look beyond loss payouts to track the cost of defense.
3. Plan for the future. Work with the retailer to develop the training and procedures needed to prevent the claims that drive—or have the potential to drive—the retailer’s total GL claim costs.
Have overzealous security personnel injured suspected shoplifters or led to claims for false arrest? Are the proper record-keeping practices in place to minimize exposure in the case of a product recall?
Beyond developing training and procedures to prevent claims, understand if there are actions that front-line supervisors can quickly take to avoid small issues from growing into large claims: A sincere apology and on-the-spot discount may go a long way. In addition to preventing claims, new training and procedures may be helpful should a claim go to trial, by showing that the retailer took appropriate steps to safeguard the public.
4. Understand risk transfer. Are contracts clear that Product Liability exposure remains with upstream suppliers/product manufacturers, and do they feature appropriate Hold Harmless and Indemnification clauses? Is the retailer named as an Additional Insured to the GL policies of its counterparties when appropriate? Are liabilities appropriately transferred to contracted maintenance, landscaping and security providers? If the retailer is a tenant, do the contracts spell out who is responsible for common areas, parking lots and points of access or egress?
The ability for a retailer to transfer risk is only as sound as the counterparty to the contract. If the retailer imports goods, what is the recourse against the foreign supplier? If the foreign supplier has no U.S. presence or U.S.-issued insurance policy, recourse may be challenging, if not impossible.
5. Keep the program fresh. Continually update the GL program to respond to new threats and opportunities. How will a single retail location respond to a “flash mob” or “flash rob” promoted online? Can the retailer address the latest cyber risks to protect shoppers’ personal information?
Beyond threats, new stores or initiatives may present new challenges. If a retailer of adult clothing opens a chain of children’s stores, review the existing program to make sure it works with younger, smaller shoppers.
Or if a chain decides to offer groceries, understand the possible risks of new equipment and the potential for wet floors.
And should a retailer plan a major expansion, ideally it will involve the intermediary and insurer in the planning, enabling them to help select the designs and materials that will help prevent GL claims.
6. Fight fraud. Making fraudulent GL claims is big business. Professional fraudsters seek the easiest path. Developing an effective program to prevent, investigate and defend liability claims helps a large retailer avoid becoming a target.
With a little partnership and planning, larger retailers can keep shoppers safe and protect their bottom lines from the potentially significant financial impact of GL claims.