Industry insights

Retail

Alongside a hardening insurance market, the retail industry has been acutely affected by the economic impact of COVID-19.

A broad and quickly evolving industry, retail is much more than physical stores, distribution centers and consumer goods. Customers increasingly buy products and services online and organizations are constantly finding new ways to reach them. As such, innovation within retail is now an essential requirement to keep up with the pace of change in the sector.

Digital economy

The significant growth seen in the digital economy space has left retailers facing a number of critical issues: how does their data need to be handled and transmitted; how can they reach customers on a global basis; and how can they create a 'stickier' customer relationship? To this end, companies in the retail space continue to develop new platforms to engage with consumers, and we expect captive owners to innovate alongside these platforms to accommodate new and varying lines of business.

Emerging risks in retail captives

One of the more pronounced changes we have seen in our 2021 Captive Benchmarking Survey data for this industry is the enormous climb in retentions for Credit Insurance, increasing over 1800% since 2018. This increase is fuelled largely by the pandemic which significantly hit the working layer of the economy, resulting in more expensive coverage.

The amount of Terrorism Gross Written Premium (GWP) in retail industry captives under our management has risen by 115% since 2018. In the US, government pools seem to be moving away from this line, and the data suggests captives are taking on this risk as premiums increase and terms and conditions become more restrictive.

Cyber is becoming a universal challenge across industries with rising prices and some constrained capacity. The retail industry is particularly prone to cyber risk given the sensitive nature of the financial data collected from customers and potential vulnerabilities to ransomware attacks on both online platforms and point-of-sale transactions.

Ongoing changes

The retail industry will continue to innovate and evolve over the coming years with developments in areas such as autonomous delivery vehicles, drones and the increased use of data for personalized customer experiences. These areas all come with implications to an organization’s risk profile, and we expect captives will be used to fill certain gaps in coverage that might not yet be available in the traditional insurance market.