Theft is a common risk among retailers. But for small and medium-sized businesses, even a minor theft can be significant, often becoming death by a thousand cuts. Unlike larger businesses, small retailers typically operate on a lower profit margin with less financial cushion to absorb losses from theft.

A Forbes survey of 660 small and medium-sized retailers across the country found that the vast majority (90%) have experienced theft, and three-quarters (75%) see theft on a monthly basis. Even more alarming, the survey found that 41% of small and medium-sized retailers reported that the value of stolen items in 2023 has increased compared to previous years.

However, only a third (33%) of businesses reported these incidents to their insurance companies. The main reasons SMEs did not report theft to their insurance companies were that the value of the stolen items was not worth filing a claim (74%) and that they feared their insurance rates would go up (52%).

Dan Wahl (pictured), a small business insurance expert and sales manager at Aon, isn’t surprised by these reasons. He said the decision to report a theft and file an insurance claim can be a surprisingly complex and personal one. “Do I feel comfortable paying for this out of my own pocket? Is this something I want to discuss with my insurance company?” Wahl said.

Why don’t SME policyholders report theft to their insurance companies?

One factor that influences small and medium-sized retailers’ decision to file theft claims is their insurance deductibles. High deductibles can discourage business owners from filing claims for smaller losses.

“If you’re in a minor collision, and the damage to someone else’s car is maybe $1,500, and you have a $1,000 deductible on your auto insurance policy, you probably wouldn’t risk a claim,” Wall explained.

Insurance companies keep records of how much money they have paid out in these claims, and Wall noted that frequent claims can lead to higher insurance rates, especially when renewing. In some cases, too many claims can lead to an insurance company refusing to renew the policy entirely.

“You may have to pay higher rates for a certain period of time depending on the carrier, typically three to five years, maybe six years,” Wall said. Losing a preferred carrier could force small and medium-sized businesses to insure more expensive redundant lines.

However, it is not common for insurance rates to rise at small and medium-sized retailers after a claim. Wall noted that most insurers will consider the balance between the severity and size of the claim.

“One catastrophic claim can have the same impact as several smaller claims, for sure,” he added.

Theft Claims – How Can Brokers Help?

The Forbes study also highlighted gaps in SME retailers’ knowledge of commercial insurance. Other top reasons SMEs cited for not filing theft claims with their insurers included:

• No theft insurance coverage (42%)
• Claims take too long (29%)
• Not knowing how to file an insurance claim (18%)

Brokers play a critical role in advising SME clients on these issues. While SMEs are not legally required to disclose theft, they should be proactive about their insurance policies and be aware of all the financial protection options available to them, Wall said.

Ensuring adequate coverage requires regular consultation between brokers and SMEs. Brokers should guide insureds to understand the details of the policy to avoid gaps.

“I can’t count the number of times a customer has purchased a general liability policy thinking it includes property (coverage). That’s absolutely not true,” says Wall.

He recommended that companies ensure they have appropriate commercial or property coverage policies and check that theft is explicitly included.

Reducing theft is also critical. Practical preventative measures such as installing security cameras and burglar alarms can help significantly. Store location, open floor plans for better visibility, and employee training are also important deterrents.

Finally, Wal stressed the importance of helping small and medium-sized companies in searching for their policies, especially in light of the rising prices in the market.

“We are definitely seeing higher premiums, largely due to the higher cost of rebuilding materials,” he said. “Maybe a carrier has had a significant loss in a particular industry and has raised their rates accordingly. Shopping around regularly for the best rates, even once a year or every other year, is critical.”

Do you agree with these tips? Have you advised SMEs on theft claims? Please share your thoughts in the comments below.