Changing Risk in the Age of E-Commerce
Apr 24, 2019

Today’s retail landscape doesn’t look like it did even a few years ago. Just count the number of brick and mortar stores vying for your business - odds are, there aren’t as many.


The shift to ecommerce from traditional brick-and-mortar locations has led retailers to invest heavily in distribution centers, by either opening additional centers or improving the technology in existing centers. 


The increase in warehouse workload is also changing the nature and mix of workers compensation injuries, impacting cost and lost time. Ecommerce creates a different level of liability exposure in shipping, product safety, and commercial auto.


Understanding the impact of all of these changes is important for risk managers to analyze and prepare for a shift in their risk exposure.


An inevitable result of the shift to ecommerce is the closing of brick-and-mortar stores. Store closures require a strategic and concise claims management plan in order to preserve evidence and prevent an uptick in claims.


According to Coresight Research, more than 4,000 store closings have been announced so far this year. Last year, down more than 30% from a record 8,139 closures announced in 2017.


Closing stores requires preparation for both work comp and liability claims, as claims should be triaged to determine which claims can finalized prior to the closing. Claims filed during this time may be more subjective in nature and involve attorney representation, so it’s important to coordinate witnesses, communicate to workers, and gather evidence.  Bottom line: prevent and close as many claims as possible during this time of transition to control cost.


A Changing Work Comp Landscape

Retailers are finding attracting workers to be a challenge as stores are closing. Prospective workers are thinking twice over whether they want to work for a retailer who’s shuttering locations. After all, who wants to accept a job only to find themselves quickly out of work?


As the number of distribution jobs grows, employers find it difficult to find skilled labor to fill them. That means an increased need for training, supervision and loss control.


Further complicating matters is an increasing minimum wage. Companies are compelled to voluntarily raise wages and add new benefits in an effort to gain a competitive edge over competitors, having a direct impact on indemnity costs.


As the move to distribution centers from brick-and-mortar locations continues, employers will find it more difficult to get injured workers back to work because of limited light duty options. On top of that, distribution center workers experience more severe injuries from forklift accidents, overexertion, repetitive stress and loading dock injuries than brick and mortar store employees.



The Potentially Troublesome News from a Shift in Liability Risk

Not only does the work comp exposure change, your liability risk will take on a new form as well.


For example, the move to ecommerce requires more customer service handling - Consumer Product Safety Commission reportable claims require retailers to report claims which could create a risk to consumers within 24 hours.  Failure to report claims in this time period can cost retails thousands of dollars.


 For some of our retailers, we have assigned one individual to investigate these claims within 48 hours to determine if they are reportable.  Retailers often simply don’t have the staff or resources to complete this work.  And ecommerce also increases the product liability risk because handling of merchandise--and in particular packaging--becomes even more important. 


Add to that the fact that delivering merchandise that is broken or damaged could result in injury to the consumer.  These claims require a different type of investigation since they are unwitnessed and highly sensitive to retailer’s brand.  It is important to consolidate these types of claims with handlers that are fully trained on your products, your warranties, and 3rd party indemnification agreements.


A Riskier Road Ahead?

The shift in liability extends to commercial auto risk. Increases in distribution and product delivery lends itself to a significant uptick in auto fleet.  Ecommerce by its very definition means a demand for trucking service as merchandise is delivered to customers. Between 13% and 30% of all online orders result in the product being returned, compared to just 8% for in-store purchases, prompting new approaches for efficiently handling the reverse logistics of returning items back through the distribution system.



Not surprisingly, commercial auto claim losses are on the rise for the fourth consecutive year according to the National Associations of Insurance Commissioners.  A recent article by the Insurance Information Institute noted trends that drive up commercial auto losses. Among them are distracted driving,impaired driving aggressive driving and the fact that there are simply more vehicles on the road. More vehicles means a higher frequency of crashes.


Other sources point to negative trends that will likely impact your claim costs including an increase in the age of drivers, increasing medical costs and increasing litigation include award amounts. And rates for commercial auto insurance continue to rise, adding to the pressure to manage your commercial fleet risks as effectively as possible.


Change always brings new risk, and the shift from brick and mortar retailing to ecommerce is no exception. Work comp, liability and commercial auto liability will all present new challenges. It’s imperative for risk managers to work with their claim administrator to anticipate, prepare, analyze and put action plans in place to meet those challenges by mitigating exposure.


Mary McGurn has 30 years of industry experience and leads the Retail Practice at GB. You can find her on LinkedIn


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