Retail theft has been a problem for store owners for decades, but its sophistication and scope have grown significantly in recent years. It has been taking its toll on businesses in many forms, from vendors who walk out with more than they delivered to complex theft rings, return scams, and untrustworthy employees. All business owners need to understand the limits of their business insurance policy and make sure their coverage matches the many ways inventory can go missing.

Essential Takeaways:

• Standard policies often leave considerable gaps in theft-related coverage.
• Employee theft requires a separate endorsement that many retailers overlook.
• Inventory valuation methods directly influence what a payout actually covers.
• Organized retail crime requires its own risk strategy that extends far beyond a lock upgrade.
• Carrying out a policy review before something goes wrong is always cheaper than filing a claim afterward.

Why Standard Business Insurance May Not Cover All Theft Scenarios

Many small retail business owners purchase a Business Owner’s Policy, or BOP, and assume they are covered for theft. This may be true to a point, as it will cover inventory lost to robbery and burglary, but it is important to understand how those terms are defined. For example, burglary claims usually require evidence of forced entry, while robbery requires a confrontation. Not all theft scenarios will involve these factors; shoplifting, vendor fraud, and employee pilfering all fall outside these definitions.

Retailers must also understand how sublimits work. Many policies place a cap on theft payouts that sit well below the actual value of the inventory stores keep on hand, and the discrepancy can be costly. For example, a small clothing boutique could have a theft sublimit of $20,000 while carrying $90,000 in seasonal inventory at peak season, leaving them with significant exposure.

How Inventory Valuation Affects the Size of Your Payout

In cases where a theft loss is covered, the settlement amount will depend on the policy’s valuation method. Actual cash value (ACV) will account for depreciation. This means that payouts for stolen merchandise reflect their value at the time of theft. They are often much less than the cost to replace them, especially for retailers selling electronics and other goods that depreciate.

In contrast, replacement cost value (RCV) will cover the actual costs of restocking your shelves. This naturally carries a higher premium, but it can pay off in the event of a claim.

Addressing the Risk of Employee Theft

Unfortunately, employee theft is common and can go undetected for a long time, especially when it occurs in smaller, incremental amounts. BOPs rarely cover this; business owners must obtain a separate endorsement for employee dishonesty or a fidelity bond.

Organized Retail Crime Is a Growing Problem

Organized retail crime (ORC) may have mostly impacted larger chains in the past, but these days, coordinated theft rings are intentionally targeting smaller stores. Those selling high-value items such as electronics, cosmetics, and jewelry are especially vulnerable. Many of these rings use very quick and well-rehearsed tactics that are difficult to stop in the moment, even when an employee notices them. This is where preparation can make the biggest difference.

Beyond adequate insurance coverage, some useful measures you can implement include security cameras with off-site storage and clearly documented inventory records. In fact, one of the most overlooked assets you have in the event of a loss is your inventory documentation, as claims without supporting records are typically disputed or underpaid. Keep regular inventory counts and itemized receipts; it is also helpful to take photos of your high-value merchandise while it is stored securely.

What To Do Before Your Next Policy Renewal

Obtaining better coverage can be surprisingly straightforward. Take a look at your current policy, paying special attention to the property section. What perils are listed, and which are excluded? What sublimits are placed on your business’s personal property? Seek clarification from your agent if there are any parts you don’t understand. Be sure to ask them what would and would not be paid in specific theft scenarios you could experience.

Some other points you may want to raise in this discussion include:

• Asking about adding employee dishonesty coverage if it is not already included.
• Confirming whether your policy will cover theft that takes place during off-hours and whether alarms are required.
• Reviewing the coverage you have for inventory that is stored off-site, such as in a warehouse or storage unit.
• Finding out whether your seasonal inventory increases are automatically covered or if you must notify the insurer in advance.

Secure That Your Inventory Is Properly Insured With JMG

If you have any uncertainty about what your current policy covers, it needs to be reviewed immediately. At John M. Glover Insurance Agency, we work with retailers to establish that they have adequate coverage for the specific risks they may encounter. Contact us today to schedule a consultation and make sure you are fully protected.