The risk of being small

There are many small retail businesses in Britain requiring cover. In the first of a three-part series, Ian Jerrum explains how to assess the risksConsider a corner shop on an urban housing estate which sells newspapers and magazines and also alcoholic drinks, tobacco, food (including some frozen food) and sweets. There is a separate stock room at the rear of the premises with no internal access from the shop.The vast majority of policies sold to small retailers such as this corner shop are package products. This means that they cover a defined range of 'standard' risks, typically including stock and contents, buildings (if applicable), business interruption, liability risks, glass and shop fronts, money, personal accident assault or personal accident. There might also be specialised covers required by an individual establishment. Identifying whether a particular package is appropriate, what level of cover is required, and whether and how the policy may need to be tailored or supplemented requires the purchaser to supply detailed information. This process will entail plenty of open-ended questions to elicit as much information as possible and ideally a site visit. A surveyor acting for the insurer or intermediary may complete a pre-printed form on site, noting key risk areas such as security precautions, layout, storage arrangements (for hazardous goods in particular), fire prevention and safety measures and adherence to relevant health and safety regulations. A risk survey helps to spot risks that may be too familiar to the owner for them to fully appreciate the hazard posed. It also provides an opportunity to demonstrate and/or recommend appropriate risk control and prevention measures. The survey also builds a rapport with the customer.Some perils - fire, storm and flood, burst pipes and impact damage - are indiscriminate in that all stock or contents can be affected regardless of their type or value. The majority of our corner shop's stock of course is relatively low value. A surveyor will look for an unusual accumulation of items (for example, any build-up of discarded papers or cardboard packaging) that could become the seat of a fire. He wil also check that flammable materials such as alcoholic spirits are stored safely. Other concerns would be unusual heating or lighting arrangements - paraffin heaters or naked flames - or the absence of fire extinguishers, blankets, smoke alarms and no-smoking signs.Much of our corner shop's stock will be perishable and vulnerable to water damage. These risks can be minimised by lagging water pipes to prevent bursting during cold weather, and by storing stock at least 15 centimetres above floor level - in both the main shop and storeroom - to minimise damage from flooding or accidental spillages. From the point of view of impact damage, a surveyor will want to be satisfied that there is adequate room for delivery vehicles to manoeuvre and unload safely.

Minimising theftTheft tends to generate more claims than any other risk. Shoplifting and other petty theft would not usually be covered by a shop package, but can be minimised by perhaps limiting the number of schoolchildren allowed in the shop at any one time or installing CCTV. The main concern would normally be break-ins or hold-ups involving large-scale theft of stock (alcohol and tobacco are notoriously attractive to thieves). If our shop can be accessed from adjoining living quarters, it is important that the security arrangements here are as good as those for the shop itself and that any partition walls with other flats are of brick and concrete construction. Locks should conform to appropriate British Standard specifications and doors should be solid enough to withstand impact. All too often, good locks are let down by poor-quality or lightweight doors. Given our shop's location, metal shutters or wired glass windows might also be appropriate - possibly even anti-ram-raid barriers.

Financial meansObviously, any risk minimisation measures recommended should be within the financial means of the customer. Alarms, for instance, vary widely in cost and operation (triggered by movement, sound, heat, pressure or vision via CCTV). For our corner shop it may be sufficient to have a movement-triggered alarm linked to a central monitoring organisation, but it is important that this also covers the stock room.Another consideration is stock stored away from the premises. The proprietor of our corner shop will likely make regular visits to a wholesaler to replenish stock. Theft of the vehicle and/or the stock it contains could have a significant impact on a small business. Cover will also be required for the vehicle itself, and insurers will normally insist that stock is not left in the vehicle overnight.Minimising the amount of cash held on the premises is obviously prudent. Keeping all takings in an approved safe overnight might be preferable for our corner shop to making daily visits to a bank's night safe (insurers generally require two or more people to accompany money, depending on the amount involved, or a security company for an amount in excess of £10,000), but cash should still be regularly deposited and not allowed to accumulate on site. Policy limits will apply.In part two of this article we will consider other cover relevant to small shop owners, including liability insurance and protection against a range of non-standard risks.' Ian Jerrum is managing director of Searchlight SolutionsThis article is based on one of a number of case study modules on the online learning resource for insurance professionals, Tick. Readers who would be interested in viewing the full text can request a copy by emailing training@ssluk.net.

Test yourself on retail coverQ1: Name three of the key factors a risk surveyor would typically be looking for when making a site visit to a small retailer:Q2: Name three types of peril that would normally be considered as indiscriminate, in that they affect all types of property regardless of their nature or value:Q3: Which is usually the most frequent type of claim for small retailers?Q4: What would make the corner shop in our scenario particularly attractive to thieves?Q5: Name three measures that could protect the shop front against impact damage or break-insAnswers next week.