Amid Surging Crime Rates, Make Sure Your Business Is Protected
Unprecedented crime rates nationwide portend looming risks, especially property crime, requiring innovative coverage strategies. Here's how to make sure your organization is covered.
During the height of recent civil unrest, a specialty retailer client of mine with locations in several major cities experienced "smash and grab" crime that led to more than $800,000 in losses in the last two years. While the inventory loss and property damage were a hard hit, it wasn't the only impact: The business is now unable to obtain commercial insurance — further exposing them to risk.
They're not alone. For many growing businesses, during what formerly were known — pre-pandemic — as "normal" years, insuring for risk typically did not include such a deep, overt focus on the full-spectrum of potential criminal acts. But now, crime waves nationwide are surging, gripping headlines with smash-and-grab robberies and cargo heists as shipping ports face major backlogs. Now businesses are seeing these emerging risks that can be challenging and complex to protect against and require innovative solutions.
Crimes against property
Crimes against property constituted an overwhelming 60.5% of the overall 8.9 million crimes reported in 2020, according to a December 2021 report by the U.S. Federal Bureau of Investigation. This form of crime typically includes larceny-theft, burglary, motor vehicle theft, arson and vandalism and costs companies $17.2 billion in losses annually.
According to the National Retail Federation (NRF), organized retail crime (ORC) has gone "multichannel," as the pandemic environment has led criminals to expand their attacks across multiple channels, including smash-and-grabs and other "brazen in-store attacks." In 2021, ORC gangs exhibited greater levels of violence and aggression than they have before, 65% of retailers said in an NRF survey. The NRF's 2020 report on the issue showed ORC resulted in an average loss of $719,548 per $1 billion in sales in 2020, marking the fifth year in a row the figure has surpassed $700,000.
For small businesses, the theft or destruction of property is especially debilitating and difficult to recoup compared to their larger counterparts. Mitigating this risk can be difficult since gaps in insurance may leave businesses unprotected. And because coverage costs are so high, many small businesses are left with inadequate protection, like the story of this small business owner who found out too late that her insurance only covered daytime incidents while her store was open. And while property damage can be covered by liability insurance, if a business is inaccessible and interrupts operations, yet not damaged, a business interruption insurance policy won't be triggered, and the claim will be denied.
Supply chain crime
Similarly, property crime impacting the supply chain cannot be overlooked. Stalled, stationery cargo fleets loaded with backlogged inventory provide "sitting ducks" to some criminals, who physically break into shipping containers to raid their wares. Roughly $57.9 million in cargo thefts were reported in 2021, according to CargoNet. That compares with $49 million in cargo theft in 2019, pre-pandemic.
Hijackings and thefts from storage facilities are also trending among supply-chain crime risks. Cargo being moved on trains and trucks are also at risk. In March of 2020, a Salvation Army trailer in Houston was raided, and supplies were stolen that would have fed hundreds of disadvantaged people. And as Covid-19 cases surged, trucks carrying toilet paper and medical supplies also experienced theft. To prevent supply chain crime, businesses can increase surveillance measures and security staffing while also pinpointing weaknesses in processes. Yet as criminals become increasingly advanced and adept, it creates new obstacles.
Given these emerging risks as crime is on the rise, companies must take a fresh look at business property, infrastructure, inventory and innovative, cost-effective protections. Businesses should start with a risk assessment to determine the most likely crimes and review their insurance policy to pinpoint the risks that may be under-insured or uninsured — including any gaps or exclusions. It's also helpful to develop a security plan and to review and update your business continuity plan.
In the example of the specialty retailer, they found a solution in captive insurance, where they own their own insurance company. It provides them with coverage that they were otherwise unable to obtain. And because captive insurance policies can be broadly written and address the unique risk factors of a business, the policy can fill gaps in commercial coverage and ensure a business won't be left unprotected. Also, since the business will retain the premiums minus claims paid as profit, it provides the business with a safety net to weather the storm when crimes strike.
The latest crime statistics make the case that businesses must be more aggressive in protecting for potential on-premises crime impacts, to an extent they may never have had to consider before. It's important to take a consultative approach toward identifying how captive insurance solutions can help businesses manage crime-related risk factors. Every business has its own unique set of situational risk factors, and when it comes to external criminal risks, there's no one-size-fits-all approach.
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