Got that supermarket covered?

FAnews asked the underwriting experts at Lion of Africa to recommend cover for the unique risks faced by supermarkets as the next business risk assessment in our series covering various businesses in diverse industries.

Supermarkets present their own, unique panorama of risks and it is important to determine which risks are better retained, which risks can be reduced or avoided, and which risks should be transferred to an insurance company.

Fire

A fire can be catastrophic and this risk can usually not be retained by supermarkets other than the larger supermarket chains and, even then, not always in their entirety.

In addition, supermarkets often carry hazardous and or flammable materials, such as paint thinners, methylated spirits, oils, and lubricants. They may also engage in hazardous activities such as the preparation of take-away foods and operating bakeries.

The insurers should advise on aspects such as fire protection systems and safe storage systems to assist in reducing risk and, hence, the cost of insurance.

Business Interruption

It is not always possible to locate suitable premises from which to maintain the operation of the business following an insured event. This is why a Business Interruption policy, with a period of indemnity sufficient to cover not only the period taken to rebuild the premises, but also to regain market share, is necessary.

The Business Interruption policy can also be extended to cover any reduction in turnover following damage by an insured peril at the premises of a supplier; or at the premises of a supplier of water, gas or electricity; or in the vicinity of the insured premises which prevents access thereto.

Book Debts/Accounts Receivable

However, the Business Interruption policy only covers the reduction in turnover attributable to the damage and does not cover transactions which took place prior to the damage. For those businesses which provide credit facilities, it would be advisable to investigate a Book Debts and Accounts Receivable policy to cover any outstanding debit balances which cannot be traced or collected as a result of damage to the books of account.

Theft, Money and Fidelity Guarantee

Because they are cash intensive and their inventory is largely portable and easily disposed of, supermarkets are particularly prone to the risks of theft and staff dishonesty, for which Theft, Money and Fidelity Guarantee policies are available.

Fortunately, there are many ways in which these risks can be mitigated including armed response and CCTV security systems, safes, guards and professional cash carriers. The limit of insurance selected in respect of Theft should represent the maximum that could be lost in the event of a burglary or armed robbery bearing in mind that the Theft policy operates only when the incident is accompanied by forcible and violent entry and or exit to or from the premises. This means that shrinkage or pilferage is not covered. Furthermore, the Theft policy does not cover cash and other negotiable instruments which must be covered in terms of a Money policy.

Money policy

When determining the Money sum insured, it is only necessary to insure for that amount which is likely to be kept on the premises during normal trading periods. During those peak shopping periods, such as Christmas and Easter, when larger amounts could be kept on the premises, it is possible to arrange for higher, temporary, limits. Because of the risk of injury to employees during the course of an armed hold-up, it is possible to extend the Money policy to cover Personal Accident (Assault) to employees.

Personal Accident policy

Broader cover than that mentioned above is afforded by a Personal Accident policy which guarantees an employee, or their estate, payment of a pre-agreed amount in the event of death or permanent or temporary disability following accidental bodily injury. The policy can also be extended to provide for medical and other expenses.

Fidelity Guarantee

The Fidelity Guarantee policy is, effectively, an indemnity against the exploitation, by employees, of loopholes in the insured's systems of checks and controls. Cover is usually more expensive for supermarkets and other businesses handling substantial amounts of cash and or attractive goods which can be easily disposed of. However, it is possible to reduce premiums through regular audits of the stock and cash handling procedures and the assumption of a higher, voluntary, excess.

Glass

Most supermarkets have extensive glass frontages which may be broken during the course of forced entry or fall prey to the actions of hooligans. Other than damage by fire, the Glass policy provides "All Risks" cover in respect of all glass, sign writing and fixtures and fittings. In addition, it covers the cost of employing a watchman service prior to the replacement of the damaged glass; or boarding up; or the repair of the burglar alarm system.

Public Liability policy

Supermarkets are also vulnerable to claims brought against them by customers who sustain injury whilst on the premises, usually as the result of slipping on wet or dirty floors. The Public Liability policy is designed to protect the insured against the financial consequences of claims brought against them by customers who are injured or whose property is damaged as a result of negligence on the part of the insured or their employees. As more consumers become aware of the common law remedies available to them and the size of the awards handed down by the courts increase, the premiums are also increasing especially in respect of those occupations which manufacture or produce goods which could cause illness or injury. Insurers are also interested in the evacuation procedures in the event of a fire, bomb scare or similar incident.

Electronic Equipment

The vast array of electronic equipment designed to scan purchases, process sales and maintain stock registers is extremely susceptible to direct damage by fire, water, theft and other, accidental, means as well as indirect damage such as power surges and lightning strikes. The Electronic Equipment policy affords protection against all of these contingencies although most insurers require that the installation be protected by approved lightning protectors or surge arrestors. The policy can also be extended to cover reinstatement of lost or corrupted data and any increase in cost of working consequent upon damage by an insured contingency.

Machinery breakdown

Most supermarkets need to maintain cold-rooms and/or refrigeration facilities for those products requiring a temperature controlled environment. Such equipment is susceptible to the risk of breakdown leading to costs of repairing or replacing the faulty equipment; the deterioration or spoilage of refrigerated stocks; a reduction in turnover during the period the equipment is out of action; and an increase in cost of working.

The Machinery Breakdown and Machinery Breakdown Business Interruption policies are designed to absorb the consequences of machinery breakdown and, in the case of Deterioration of Stock, the consequences of an interruption in the public supply of electricity other than as a result of the withholding or restriction of supplies by the supply authority. The same policies can also be used to obtain protection in respect of baking ovens, stoves and other cooking appliances.

SASRIA

SASRIA cover in respect of riot, strike, lock-out, public disorder and other, specified, perils, should also be included. Whilst the general outlook remains peaceful, isolated incidents of unrest do occur and retail outlets appear to be among the primary targets.

Motor

Some supermarkets may also require motor cover for vehicles owned by the business.