Organized Chaos: Insurance Coverage and Retail Crime

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Shoppers line up to enter a Louis Vuitton in San Francisco in December 2021. California Governor Gavin Newsome said the level of organized retail theft has become unacceptable and the state has increased police presence in major retail sectors. (Credit: David Paul Morris/Bloomberg)

“Organized theft rings” hit the headlines towards the end of 2021 as a series of incidents rocked authorities and rattled shop owners in major cities across the country, displacing some retailers to increase safety and municipalities to redirect traffic to stop the trend.

Even before recent headlines, organized retail crime (ORC) was on the rise, according to the National Retail Federationwhich reported that three-quarters of retailers saw an increase in organized retail crime in 2020.

Additionally, more than two-thirds of retailers said the pandemic increased the risk of organized crime. Overall, 57% of retailers reported growth in ORC, according to a 2021 Retail Security Survey.

“Organized theft is a relatively new terminology that is used when we see these types of mass thefts that have happened recently. If these events took place during a riot, they would be considered looting,” said Chris Kirby, Global Head of Political Violence and Terrorism for Optio Grouptells PropertyCasualty360.com.

Chris Kirby, Global Head of Political Violence and Terrorism for Optio Group.  (Credit: Optio) Chris Kirby, Global Head of Political Violence and Terrorism for Optio Group. (Credit: Optio)

Additionally, retailers have an obligation to protect goods and make sure people pay. Retailers should detain those caught stealing and pursue the legal process from there, Kirby says.

“The fact that this is not happening needs to be underscored. This is allowed and companies are fully aware that they are taking these losses on their balance sheet,” he says.

While Nordstrom and other high-end stores have risk management strategies in place, for small businesses these types of crimes should be of even greater concern.

“Small businesses tend to rely on local brokers to purchase coverage, and small business owners may not understand the extent of coverage and obligations in these types of situations,” he explains. “This is very worrying for small business owners, and perhaps there needs to be clarity about what is expected of an insured under due diligence clauses and what underwriters can reasonably expect.”

Subscribers’ expectations

He adds that even for locations with alarm and security systems in place, if there is no response to the alarm by staff or hired security, the purpose of the system is defeated. Kirby compares it to a fire extinguishing system, which an underwriter would assume to be in working order when taking out coverage.

“If you have stated that you had a guarantee in place and it was used as an underwriting criterion, it is not unreasonable for an underwriter to make a condition that it remain operational during the period of insurance”, he said.

One of the keys to determining if a policy applies is to look at what happened before, during and after the crime. Kirby says if there is a clear threat of violence, underwriters wouldn’t expect anyone to put themselves in harm’s way.

“If they (the perpetrators) just walk out without the threat of violence, then I question why policyholders are allowing that to happen,” he adds. “Nowadays when everything is captured on video, there’s probably a whole wealth of footage available to see what happened in the buildup. Or if there was no one at the door to stop them .

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