Grocer written premiums

With crime largely under control, claims steady and rates high, the shops insurance market is very much open for business, writes Rachel Gordon

Napoleon may have dismissed Britain as a 'nation of shopkeepers', but the UK's strong retail sector means big business for the insurance industry.

When it comes to shops, products are fairly commoditised - and most insurers say volume sales of policies are creating healthy profits. Greater use of technology has led to efficiencies, rising premiums have generated more revenue, and - according to most - improved risk management has meant fewer claims.

Better security

There was, therefore, surprise in some quarters when Zurich reported in April that 58% of claims it received from shop-owners in 2003 were the result of crime, with 30% of property claims arising from theft or attempted theft and 17% from malicious damage.

Most insurers say their crime experience is lower than this, and Axa, for example, believes it is not the main concern for claims. Neil Mercier, property insurance manager for Axa, comments: "Of course, we still get our fair share of arson and graffiti, but better security, in the form of alarms and closed-circuit TV, has helped. For us, I think weather has been more of a problem in terms of the volume and cost."

Kevin Roberts, national development manager for Royal & Sun Alliance, adds that, although his company covers its fair share of 'problem' towns and cities, it is also seeing crime-related claims fall: "I think we are starting to see the effects of risk management in action. There is also better security and many urban areas are being regenerated, which leads to a reduction in crime."

Liverpool, Manchester and Birmingham are examples of cities that have benefited from major investment in retail facilities. But then, unsurprisingly, crime becomes more of a problem in deprived areas away from the 'main drag'. Mr Roberts reports that RSA has experienced slightly higher-than-average crime claims from York, Cambridge, Lincoln, Shrewsbury and Bradford.

"It's hard to pinpoint exact reasons, as some of these are affluent market towns. These shops probably just had poorer security."

Mr Mercier believes crime is now more of a problem in areas where there is a large, showpiece shopping centre. With fewer shoppers and reduced investment in the existing retail areas, crime can spiral. One example is the Lakeside shopping centre in Essex, where nearby Grays suffers the knock-on effects.

Whatever the impact of crime, there is no doubt retail is a highly competitive sector, with insurers battling for market share. Ken Smith, commercial manager for Fortis, says his company insures a good mix of shops and agrees that, while crime makes up around 55% of the volume of claims, the good news is that they tend to be low-value. "It accounts for around 25% of the total cost - often it may just be for broken glass. The numbers have been pretty static and I'd say claims are under control."

He says better security has been introduced in most shops, but adds: "In recent years, we've grown our account and expanded it to takeaways, cafes and restaurants. These can be more problematic in terms of claims, particularly if they are in town centres where young people tend to be out at night."

Although Zurich highlighted the retail crime issue, Dave Smith, its head of market management for UK commercial business, believes claims are set to remain stable: "We have experienced an increase in claims for crime - typically broken glass, graffiti and damaged doors - but we'll continue to set minimum security standards and cover a wide range of businesses throughout the UK." He reports that the worst areas for crime have been inner-city areas including London, Liverpool, Manchester and Birmingham, while the South-west and Wales have the best records.

Price correction?

He explains that Zurich is raising its premiums slightly to ensure continued profitability, and adds that he is concerned about rates coming down.

"There are pockets of irresponsible underwriting. The problem is that some insurers are purely small-business players, and when this is their only card, they are going to go all-out for volume."

But for some time now, many brokers have been saying insurers are overcharging for cover and believe a correction is due. Certainly, it would seem only fair that insurers reward buyers for improved claims experience. In general, it appears rates are steady, or falling slightly. Most insurers continue to offer a range of excesses, with £250 being typical for a small shop.

Ian Page, commercial underwriting manager for MMA, reports that the number of crime-related claims are down for 2003 compared to 2002, with rates dropping as a result. "We looked at our postcodes and, taking into account improved security, some rates have come down," he says. "I think most would agree the market is getting a little softer." He adds that MMA is also seeing greater profitability through technology. "We're doing far more business via the web - something brokers have really taken to. Around 85% of our SME business is coming through our Broker Online system now."

Brokers will certainly need to keep on their toes with the announcement that More Th>n, the direct arm of RSA, has recently launched a small commercial package. To date, the direct commercial market has not taken off, largely because brokers have proved a more cost-effective distribution channel compared to the higher marketing costs of a direct operation.

But government figures show there are over 200,000 shopkeepers in the UK - and whether they will be tempted by the likes of More Th>n still remains to be seen.

RETAIL RISK MANAGEMENT: TOP TIPS

- "Brokers should encourage even the smallest shops to take risk management seriously. There have been some big claims for 'slips and trips' and the local greengrocer may be less clued-up about litigation. Mini-supermarkets can have overstocked shelves and blocked aisles and they need to watch out for this." - Neil Mercier, property insurance manager, Axa

- "Sometimes a property will be subject to attacks so often, the only option will be to install roller shutters. This may mean dealing with the local authority, as there can be restrictions - there is no doubt they are not attractive to look at. But they have a proven record of keeping theft under control." - Ken Smith, commercial manager, Fortis

- "Brokers should encourage retailers who have experienced a crime claim to seek advice. We offer a range of advice lines covering health and safety, tax and risk management. A broker may also want to recommend a visit from a surveyor: we have 30 full-time surveyors working for Enterprise, giving national coverage." - Kevin Roberts, national development manager, RSA

- "The broker should be talking to its client about crime prevention at the outset, and many are looking for guidance. Our booklet How to Stabilise Your Premiums contains a vast amount of information on how to cut risks." - Dave Smith, head of market management for UK commercial business, Zurich.

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