Retail sales in the United States went up by 6.7% in 2020 despite the ongoing public health emergency. The retail sector has had a massive shift in recent years with the growing demand for online sales. 51% of Americans now prefer online shopping over visiting physical retail stores.
Owing to consumer demands, retail firms are now having to adopt hybrid models with physical and online retail stores coming together in innovative combinations. For instance, BOPIS, i.e. Buy Online, Pick-up in Store, is a new addition to the hybrid retail model. After the outbreak of the Covid-19 pandemic, 43.7% of the top 500 physical retail stores are offering the BOPIS option to their customers.
Such transformations in the retail industry have brought many benefits to the retailers and the customers. Retailers could continue selling during Covid-19 and customers had the convenient option to safely make a purchase from any location.
However, new ways mean new implications. A case in point is that now insurance has become more complicated for retail stores.
Hybrid Retail Models & Insurance Requirements
Retail stores need to cover offline as well as online risks and possible damages in their insurance policies. Many retailers are new to the eCommerce market and are not aware of the necessary insurance coverage.
Cybersecurity Insurance, for instance, is a necessity for retail stores in these times. Retail stores with an eCommerce presence can face system breaches or loss of electronic data. Malicious entities can target the eCommerce retail platforms through malware attacks or network eavesdropping. If such attempts are successful, sensitive customer information may get lost. Retail store owners will then be liable to pay for the damages. Cybersecurity insurance policies cover such risks and damages.
A major part of retail sales still comes from physical retail stores. Retail store owners can have massive confusion on the specific insurance policies for the physical stores and the online stores. A lack of coverage in either of the areas can cause severe damages.
Several retailers have seen a rise in the demand for online shopping and reduced footfall in their retail stores. That has left some retail store owners wondering whether to continue with existing insurance policies for their offline stores or not. Commercial property insurance and general liability insurance are still essential for retail stores.
Commercial property insurance safeguards the physical retail stores from different risks and damages, such as theft, fire, vandalism, etc. These risks continue to exist irrespective of customer flow in the physical stores. For example, an electrical short circuit can lead to a fire in the retail store. Thieves may break into the store and steal the goods and products. The lack of coverage in such cases can become a major financial problem. Commercial general liability insurance covers third-party bodily injuries and third-party property damage. It also covers reputational harm and advertising injury for the business. For instance, a customer or another business group may sue the retail store over something an employee may say. A customer may trip or slip in the retail store and may face minor or major injuries as a result. Such incidents are possible and general liability insurance covers the legal costs in these circumstances.
Business interruption insurance is one category to consider including in the existing insurance policy. The insurance type can cover for operating expenses in scenarios where a retail store is shut down. It covers the revenue, rent/lease payments, payroll for the employees, taxes, training costs, and additional expenses.
Covid-19 Impacts on Retail Stores
Many retail stores had to temporarily shut due to the lockdowns imposed by the State and Federal Government to contain the spread of the coronavirus. Many states are now facing the second or third wave of the Covid-19 pandemic. It’s fair to say that a lot of uncertainty is prevailing in the retail sector. To add to that, government mandates are also only evolving. Some of that uncertainty spills over into the insurance domain too. Insurance providers are trying to come to terms with definitions and conditions as stores seek clarity on insurance claims. Many business interruption coverage policies, for instance, expressly exclude closures due to pandemics.
It is important for retail store owners to get in touch with their insurance providers to understand the coverage around Covid-19 and similar pandemics in the future.
To Sum it Up
Retail stores need to keep pace with the changes around them. It is important for retail business owners to acknowledge the impact of the transformations around them on insurance schemes and policies. Regular updates in the insurance policies are critical to assure required protection. Retail business owners must ask their insurance service providers to re-evaluate business risks for their retail channels to identify possible gaps. They then need to modify their existing insurance policies to ensure continued protection from all sorts of possible damages.