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UK retail update 2016A review of insurance market conditions for buyers and risk managers
Aon Risk SolutionsNational | Retail Practice
Risk. Reinsurance. Human Resources.
Table of Contents
Introduction – Guy Malyon Head of ARS UK Broking, London . . . . . . . . 3
Property – Is your distribution centre actually your biggest store? . . . . 5
Your employees and the public – A stable market . . . . . . . . . . . . . . . . . 7
Your vehicles – The end of whiplash? . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Your cash flow – Insurers relax on reverse credit for retail supply chain 10
Product recall and crisis management – Avoiding drama . . . . . . . . . . . 11
Cyber liability – Message getting through . . . . . . . . . . . . . . . . . . . . . . 12
The outlook for claims – Slow pace of reform . . . . . . . . . . . . . . . . . . . . 13
Aon Risk Solutions 3
Introduction – Guy Malyon, Head of ARS UK Broking, London
For a company like Aon, sectors like the retail and wholesale trade are our life blood. The industry employs 4.4 million people in the UK1 and we are proud to work with many of the trade’s leading companies.
In 2015, the Aon Global Risk Management
Survey revealed how increasing competition
remained at the top of the industry’s list of
concerns, but the potential for damage to brand
and reputation is now second, having risen up
from seventh place in the previous survey.
Like any responsible supplier, we know that the
answer to delivering a good service is to ensure
our customers are fully furnished with the facts
that may influence their buying decisions. In this
report, we consider how these factors translate
into the risk profile of UK retail and how they
may influence insurers to underwrite them at a
good price, or lower, than last time around.
Competition everywhereRetailers and insurers are to an extent navigating
the same economic waters and competition is
intense. The insurance industry is experiencing
deflation of its own as rates across motor, property
and casualty (60.7% of total retail industry
insurance spend2) have fallen on a combined
basis meaning a broadly positive picture for
buyers with many expecting stable prices in
2016 after a year in which renewals frequently
achieved discounts (see tables overleaf).
Insurers themselves are looking towards
economies of scale and 2015 was a year in which
mergers and almost-mergers took centre stage.
A surplus of capital and challenges in achieving
top line growth by insurers are considered as the
main forces which drove the likes of XL Insurance
and Catlin together in a £2.5bn takeover in March
2015. Shortly after, Ace surprised many with its
acquisition of Chubb for $28.3bn in July 2015, with
similar reasons cited as a driver for this transaction.
Arguably the most significant deal for retailers
in the UK had it happened, would have been
the acquisition of RSA by Zurich Insurance
The potential £5.4bn transaction would have
influenced the programmes of many buyers in
the UK and refreshed memories of the M&A
fever which saw names like General Accident and
Commercial Union become CGU before quickly
being swallowed up by Norwich Union (now Aviva).
Many of the same economic indicators exist today
as they did when UK insurers consolidated in the
late 1990s and early 2000s. With today’s players
struggling to push through the kinds of prices
they might prefer to charge, it seems inevitable
that partnerships will once again seem favourable.
Options for buyers?While price reductions are available, there is more
opportunity in 2016 to enhance cover and add new
products to a programme. As retailers continue to
suffer seasonal losses, these products which pay
out based on a pre-defined ‘tolerance’ to climatic
conditions are making increasing amounts of sense
to buyers and finance directors alike.
Risks on the horizonPeak period challenge
Peak period and ‘event-based’ trading have
become key issues for retailers. In 2014 Black
Friday cemented its position in the annual sales
calendar and global sporting events continued
to take on greater significance. The industry
increasingly ties its fortunes to the marketing
opportunities associated with major events
and 2016 will of course see Euro 2016 and the
involvement of four out of five home nations at
the competition in France during June and July.
One month later, Team GB will head to Rio for
the 31st Olympics.
1 Source: The retail industry: Statistics and Policy – House of Commons Library 2015
2 Source: Aon GRIP 2014
4 UK Retail market update 2016
It remains to be seen whether the government
will relax opening hours during the Brazil games,
as it did during London 2012 but sudden peaks
in demand mean a whole new collection of
stresses being placed upon retailers’ in store
operations, warehousing and logistics. Aon is
advising clients to ensure that housekeeping
remains front of mind so that everything
from the workforce and infrastructure right
through to the shop floor, is protected in
the event that something goes wrong.
The Insurance Act 2016Making a fair presentation of your risk
Our second key risk for 2016 is much closer
to home. The new Insurance Act comes into
force in August 2016 and aims to rebalance
fairness for both parties of an insurance
contract. Aon has already taken steps to ensure
that our clients have the requisite knowledge
about how the law is changing and we will
continue to work with you in this regard
Guy Malyon Head of ARS UK Broking, London guy.malyon@aon.co.uk
FY2014 - GBR Food, Agribusiness & Beverage Premium by Product
25.9%
20.7%
15.4%
10.3%
9.7%
9.7%
2.7%
5.6 %
n Automobile
n Health & Benefits
n Property
n Other
n Casualty/Liability
n Employers
Liability/Workers
Compensation
n Marine
n Other
The Insurance Act – what does it mean for you?
The Act will impose a range of new duties on us as brokers, on insurers
and also on you as buyers of insurance.
The most significant of these will require you to meet a new duty to
make a fair presentation of the risk. While the definition of ‘material
information’ has not changed, the new disclosure duty is more
prescriptive than the current law in describing from whom such
knowledge needs to be obtained and the manner of disclosure.
For example the Act states that what ”the insured knows” is deemed to
include knowledge held by the insured’s senior management (i.e. those
who make decisions about managing and organising the insured’s
activities) and individuals with responsibility for the insured’s insurance.
The definition of “senior management” is intentionally flexible so that
is suits companies of all shapes and sizes. Of course the more complex
your company structure e.g. company control is vested in several
operating divisions, the more individuals you will need to consult for
risk information.
Additionally you will be required to disclose material information
that your senior management and individuals with responsibility for
your insurance “ought to know”. This means that they will need to
carry out a reasonable search of not just information held by ‘the
insured’ but also by ‘any other person’. This includes agents and
persons covered by the insurance (e.g. a director or officer), but is
open to interpretation and may go far wider than this e.g. to include
consultants or service providers.
Finally you need to avoid data dumping i.e. providing large volumes
of information without sufficient structure. All disclosures need
to be accessible and clearly presented, structured, indexed and
sign-posted. We will of course continue to work with you in order
to achieve this.
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%Q3 ‘14
-2.7%
1.3% 1.3%
2.5%
-0.1%
-6.8%
Q4 ‘14 Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15[Forecast]
Food System, Agribusiness and Beverage – All Products Percentage Change in Rates at Renewal
Aon Risk Solutions 5
Property– Is your distribution centre actually your biggest store?
Property accounted for 15.4% of the retail sector’s overall premium spend in 2014 and according to Aon GRIP data, rates for property insurance for the United Kingdom were flat in Q3 2014 (-0.18%) and softened slightly in the same quarter 2015 (-0.59%), reflecting a continued pattern of softening which has pervaded the market in both property and casualty lines for more than a decade.
Well managed risks in the retail sector are
frequently achieving discounts in excess of 15%
and the industry’s focus on safety and resilience in
recent years appears to be bearing fruit in the form
of fewer large losses and a manageable risk profile.
Declare your profits where they’re earnedThe retail sector’s property risk profile has been
shifting rapidly in recent years as the move from
conventional high street shopping to online and
omni-channel distribution continues at pace.
While the industry maintains a strong high
street presence, Aon’s brokers will also look to
consider how other distribution channels and
peak season scenarios are contributing to a
retailer’s overall gross profit. This income figure is
key for underwriters who have traditionally used
it as a basis for their pricing but it is becoming
increasingly clear that for some retailers, different
physical assets in the property portfolio are
contributing towards that overall gross profit
number and should be considered more carefully.
Ultimately we believe the risk profile of a retailer
should reflect the broad nature of their whole
asset base. For example if distribution centres
are used increasingly to ship products directly to
individual points of sale, gross profit contributions
from that DC will be on the increase. Like most
businesses, retailers will be asked to declare
their estimated gross profit by insurers in order
for underwriters to provide terms. With ever
increasing requirements to declare accurate
data (see introduction – Insurance Act 2015),
do your insurers fully appreciate the impact and
estimated cost of a major loss during peak period?
This must be reviewed on a regular basis
to ensure you have sufficient cover and
sufficient indemnity periods to properly
protect your business going forwards.
Winter storms – a reminder of flood risk challengeAs this report was going to press, insurers and
adjusters had been on the ground across the UK
responding to a number of major losses after flood
waters inundated numerous locations. Initial estimates
of up to £5bn in total claims emerged after the
storms caused significant damage.
It remains to be seen whether these events will
become market changing and impact property
rates. However businesses with flood-prone
premises may not receive access to the same
affordable insurance homeowners have access
to under the new insurance industry scheme,
Flood Re3, which when launched will provide
homeowners with better access to affordable
insurance. Those retailers in threatened locations
could expect more of a challenge at renewal.
Improving the attractiveness of your risk• Plan and regularly test your business
continuity procedures and be in a position
to present them to insurers
• Avoid BCP with prescriptive methods
alone – ‘plan ownership’ should be placed
in the hands of site managers who understand
the local risks and emergency procedures
3 Source: Association of British Insurers, The Future of Flood Insurance, what happens next?
6 UK Retail market update 2016
• Be aware of your limits in business interruption.
Does your supply chain have flexibility to bring
production back online within normal policy
term limits (12/24 months)?
• Seek out providers with dedicated claims
adjusters and agree approach prior to any loss
• Regular documented electrical maintenance and
thermographic checks for ‘hot spots’
• Ensure spot protection and speciality
extinguishers near hazardous heat processes
• Invest in risk surveys to obtain comprehensive
underwriting data that will enable insurers to
fully appraise your risk
Aon Risk Solutions 7
Your employees and the public– A stable market
Casualty and liability underwriters remain eager to write business for UK retailers; they are target driven and as such it can certainly be classed as a buyer’s market. Casualty rates across the UK continued to fall consistently throughout 2015, with Aon GRIP data showing public liability rates at renewal averaging -3.6% in Q3 2014 and -2.3% for the same quarter in 2015. Each of the five quarters from the end of 2014 onwards reported negative changes on premiums for this class of business. On employers’ liability, the falls in 2015 were broadly similar with EL rates at renewal in Q3 2014 falling 1.3% and 3.1% in Q3 2015.
Retailers spent 19.4% of their combined premium
on public and employers’ liability programmes
in 2014, making this the third largest part
of their risk transfer budget after motor and
health and benefits. Aon’s brokers expect no
change in typical pricing dynamics for buyers
in 2016. Those with particularly well managed
risks can achieve double digit discounts and
only those with poor claims history may find
themselves subject to any premium loading.
Improving the attractiveness of your riskManufacturers who invest in liability risk surveys
have been able to approach the insurance
market with a much greater degree of certainty
about their programme over recent years.
These surveys are provided by independent
companies who will review an organisation’s
profile and feed that information back to brokers
and insurers. On-site information about exposure
to loss from premises, products, and completed
operations can be extremely influential to the
end result of a programme review, particularly for
insurers looking to understand the supply chain
process in industries such as food manufacturing
to ascertain the chain of responsibility.
Consider these points of action to increase insurer appetite• Conduct noise studies and consider installing
acoustic panels, damping materials, silencers
and other reduction remedies
• Implement rehabilitation and occupational
health programmes
• Claims analysis to identify areas of attritional loss
• Day one absence management for all injury types
• Invest in liability risk surveys
8 UK Retail market update 2016
Your vehicles– The end of whiplash?
The fleet motor insurance market has been hardening for two to three years before levelling off in 2015. The withdrawal of significant reinsurance capacity in January 2013 forced up prices in this attritional risk category, where today many insurers are looking to combine and package casualty, property and motor in order to blend and smooth out their loss ratios.
This is a major part of the retail sector’s risk
transfer spend, with more than 25% of premium
allocated to motor insurances. According to
GRIP data, rates for automobile for the United
Kingdom were flat in Q3 2014 (-0.17%) and
hardened slightly in Q3 2015 (+0.93%). Aon’s role
has increasingly been to collaborate with retailers
across all lines of business and those who analyse
and react to the data emerging from their claims
experience can expect flat rates or even reductions
into 2016. The picture for fleets with poorer risk
management is understandably more challenging
with an expected price range of +2.5%–15% at
renewal in 2016.
Autumn statement – good news for fleet ownersPerhaps the most significant piece of news to
emerge since the civil justice reforms, was in the
Chancellor’s Autumn Statement in November
2015, in which George Osborne announced plans
to increase the small claims limit to £5000 and
to withdraw the right to financial compensation
for soft tissue injuries such as whiplash.
An indication of how this news was received
is illustrated by the fact one of the UK’s
largest claimant law firms saw its share
price crash 50% in a single day4 following
the Chancellor’s announcement.
The move towards providing claimants with
recourse in the form of rehabilitation should have
the effect of removing the financial incentive for
speculative and also fraudulent whiplash claims.
If the Government’s proposals have the desired
impact, fleets which are often targeted by crash
for cash fraudsters may be less threatened.
The corollary is of course that fleet managers
themselves will have to ensure that vocational
rehabilitation becomes an essential part of their
own return to work programmes for drivers
directly employed who suffer injuries at the wheel.
Safety concernsWith the UK’s roads frequently congested,
continuing safety improvement should be
of great relief to fleet owners. Those which
regularly drive in London will have the added
complication of sharing the roads with more
than 300,000 cyclists5 and news that a scheme
to segregate them from vehicles with the
construction of new cycle paths as part of a
£913m investment should be warmly received.
Agency DriversThe availability of quality agency drivers
could be a key to success for the logistics
operations of retailers but it is essential that
they work hard to pre-empt any issues.
Reports that independent logistics firms
like Yodel hired 7000 agency drivers for the
Black Friday and Christmas periods in 20156
should serve as a reminder of the importance
played by pre-emptive risk assessment.
The task becomes harder with the appointment
of foreign nationals and EU driving licence
holders. There remains no means of adequately
checking licences for any prosecutions or
endorsements because data protection
laws prohibit disclosure across borders.
4 Source: City A.M. 26 November 2015 – Quindell buyer Slater & Gordon share price halves after George Osborne reveals plans to
overhaul personal injury law
5 Source: BBC News 4th June 2015 – Number of cyclists in London reaches record high
6 Source: The Drum
Aon Risk Solutions 9
Improve the attractiveness of your riskAon is able to support customers operating
fleets in the food and drink manufacturing
sector with its Fleet Complete solution which
is designed to provide complete visibility of
their exposures. However, all fleets should at
least observe the following advice to ensure
their profile meets the typical benchmarks.
• Conduct online licence checks for
agency drivers
• Build an auditable system of driver checks
and pre-screening – particularly for foreign
nationals and EU Licence holders
• Consider telematics, GPS and vehicle
tracking systems
• Reduce time incentivised deliveries
• Be aware of staged accident gangs
targeting liveried vehicles
10 UK Retail market update 2016
Your cash flow– Insurers relax on reverse credit for retail supply chain
Smart retail and wholesale firms are enhancing their creditworthiness and gaining more support from banks by implementing reverse credit schemes.
The purpose of credit has always been clear;
to enhance a business by smoothing cash flow
and enabling companies to borrow and grow.
Credit insurance on the other hand has had a
less favourable press after financial crisis scandals
saw cancellations damage trust significantly.
In 2015 the tables turned again. The relationship
between credit insurance and banks’ lending
facilities has become closer so banks are
increasingly prepared to offer credit with the
right protection in place.
Sectors like retail, in which unpredictable
market conditions can challenge the cash
positions of both suppliers and customers,
have begun to benefit from a growing trend
in reverse credit insurance. This is a relatively
new method in which buyers – typically in retail
distribution – are approaching the insurance market
to secure capacity against themselves which they
can then offer to suppliers as an incentive.
Historically it would have been the supplier’s
decision to buy credit insurance against their
customer as a protection against bad debt.
Now insurers have come round to the idea
of retailers themselves offering suppliers the
opportunity to ‘credit enhance’ them. The net
result is that suppliers are happier to extend
credit terms to their customers and supply
chain liquidity can be maintained.
Insurers previously had concerns at the potential
moral hazard and insurable interest implications
of reverse credit insurance, but the market has
relaxed its attitude.
In 2016, retailers know that their supply chain has
to be robust. The risk of supplier insolvency is a key
exposure so the growing influence of reverse credit
insurance is providing genuine benefits which at
present outweigh those previous concerns.
Aon Risk Solutions 11
Product recall and crisis management– Avoiding drama
A downward push on pricing has encouraged insurers to innovate, with crisis management consulting a helpful option for retailers.
Market dynamics shifted again in 2014 toward
increased competition and new entrants at Lloyd’s
at the beginning of 2015, while global insurers
also eyed product recall as a profitable business
line leading to flat and in many cases, downward
pressure on prices.
Where retail industry turnover is increasing, market
appetite is strong for the best accounts, while
decreased rates of up to 10–20% are being seen
on renewals for the most attractive businesses.
Wordings vary widely and clients have to be aware
of the advantages and disadvantages of moving
from one carrier to another. However, terms and
conditions have remained quite stable across
Aon’s UK retail portfolio. This has presented an
opportunity for Aon to push for enhancements
to market wordings which have included adding
sub limits for claims preparation expenses utilising
Aon’s complex claims teams and higher sub limits
on rehabilitation expenses.
Crisis consultancyIn addition, cover for malicious tamper and
contamination remains an important part of many
companies’ programmes. In addition to providing
for the direct recall and business interruption costs
they also put in place a range of support services
to aid in crisis management when an incident
occurs and can mitigate against the risks of supply
chain vulnerability, which have picked up so many
headlines recently. Crisis consultancy is becoming
a key aspect of the product recall armoury and
with a 5% standard bursary (of net premium)
available for clients to spend with their insurer’s
crisis consultant, clients can take some comfort
by having that expertise available to assist them
in the review of their supply chain management,
business continuity and recall management plans.
12 UK Retail market update 2016
Cyber liability– Message getting through
Despite suggestions to the contrary, the take up of specific cyber liability insurance remains fairly cool across most industries, with retail no exception. However with bigger and higher profile cyber breaches regularly exposing weaknesses in corporate risk management, sectors like retail are beginning to take notice.
Even if the actual incident does not turn out to be
that large in material terms (e.g. records stolen)
the reputational capital of the business may be
compromised which can certainly be material to
the balance sheet.
In 2015 we saw a high profile data breach at a
telecoms provider. Although this was ultimately
contained after initial speculation about its
extent proved wildly overstated, valid questions
about the longer term effect on brand and
reputation have been raised. In view of this it
is critical that the risk management strategy
of a retailer is such that it serves to bolster
resilience in technology, people and brand.
Insurers are beginning to create a range of
more robust solutions designed to meet the
demands of corporates facing the cyber threat.
Focusing on service-level response, these
solutions are built to withstand regulators’
ever-increasing interest in the obligations
companies have after a cyber-breach.
Zurich and AIG are arguably leading the
market with their solutions which use prior
nomination to appoint insurance claims
handling, IT forensics, data analysis, crisis
consulting, loss adjusting and legal advice within
a rapid response service level agreement.
Retailers must consider their own exposures
carefully, particularly given the potential for
cyber-attack or data breach to cause untold
damage to brand and reputation; a key
concern amongst risk managers in the Aon
2015 Global Risk Management Survey.
Aon Risk Solutions 13
7 Source: Claims Portal Executive Dashboard
The outlook for claims– Slow pace of reform
There has been no shortage of action taken to stem the tide of spurious injury claims brought against organisations like retailers both from employees and the public. As evidenced by the Chancellor’s Autumn Statement announcement in which he pledged to remove the right to monetary compensation for soft tissue injuries like whiplash, there is clearly an appetite from government to shift the balance in favour of employers.
The legal landscape has shifted considerably
in recent years. First the Legal Aid, Sentencing
and Punishment of Offenders Act became
law in 2013, followed shortly afterward by
the Enterprise and Regulatory Reform Act
2013; both of which promised to support
employers by reducing the costs of litigation and
increasing the burden of proof on claimants.
The introduction of fixed legal fees for employers’
liability claims valued up to £25,000 has yet
to influence claims volumes. Indeed, the
opposite seems to be true in relation to claims
notified via the Claims Portal. In the year to July
31st 2014 there were just over 33,000 Claims
Notification Forms issued, a figure which rose
to 54,634 in the year to July 31st 20157.
Improving your claims defensibilityIt remains to be seen what impact these
twin reforms could have on the cost of
claims for employers, but companies that
engage Aon will be able to put their best
foot forward. There are a number of trends
which risk managers should be aware of;
• Claimant lawyers seeking easy wins and hoping
to benefit from defendants with a less than ideal
accident reporting and investigation process
• Be aware that ‘Special Damage’ claims are being
made to boost the level of damages recovered by
the claimant. Early intervention into accidents to
identify what has happened and how serious an
injured party actually is, is essential
• Claims for rehabilitation and psychiatric referrals
are increasing, not always with justification.
Good claims defensibility requires consideration
of rehabilitation by the employer and potential
defendant early on, as opposed to waiting for a
claimant lawyer to do it at their cost
• While costs are decreasing in the new world
(post MOJ/LASPO), costs on old world claims are
increasing as firms look to maximise their recovery
• The move away from the recoverability of
success fees and ATE premiums from defendants
has seen claimant solicitors seeking higher
damages to try to help their clients mitigate
the impact of their success fees which are now
being paid out of the claimant’s damages
• There has been an increase in requests for
pre-med offers to the insurance industry.
Caution when considering pre-med offers as
there is a propensity for the claim to be bogus
or inflated due to the speed of settlement
14 UK Retail market update 2016
Aon Risk Solutions 15
About Aon Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 72,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com/
Aon specialises in providing risk management and insurance solutions to the retail sector. Our experts will work with your business to assess your total cost of risk and develop solutions that fit your distinct industry needs.
© Aon plc 2016. All rights reserved.The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
Aon UK Limited is authorised and regulated by the Financial Conduct Authority. Aon UK Limited Registered Office: The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, London, EC3V 4AN. Registered No. 210725. VAT Registration No. 480 8401 48. Some links on this website may redirect you to third party sites. Aon is not responsible for this content. Telephone calls are recorded and may be monitored.
FPNAT.183
Risk. Reinsurance. Human Resources.
For more informationDan Fox | Retail Practice Leader
Aon Risk Solutions | National e dan.fox@aon.co.uk
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