Insurance as a Strategic Tool for Retailers

This article is provided by BRC Associate Member, Aon.

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Retailers are navigating one of the softest insurance markets in years against one of the toughest trading environments, with margin compression, AI driven fraud, cyber threats and fragile supply chains reshaping their risk profile. In a recent webinar with the British Retail Consortium, Aon explored how risk financing, captives and evolving cyber and fraud coverages can help retailers protect liquidity, manage volatility and build greater resilience.

Chris Scott, UK Managing Director Global Risk Consulting said, “A soft insurance market gives retailers a window of opportunity to rethink their risk financing – before the next major shock tests balance sheet resilience.”

A soft insurance market in a hard operating environment

The panel highlighted a clear disconnect between market conditions and business reality:

• Soft insurance market – Competitive capacity and improved terms are available across many lines, creating an opportunity to lock in broader coverage and higher limits.
• Hard operating environment – Retailers are contending with margin pressure, shifting consumer demand, higher input and logistics costs, and greater scrutiny on supply chains.
• New systemic threats – Cyber incidents, climate driven events and geopolitical tensions are moving from isolated shocks to recurring features of the risk landscape.

This backdrop means that treating insurance as a purely tactical purchase is increasingly out of step with the risks retailers are carrying on their balance sheets.

Retail specific pressures: liquidity, fraud and supply chain disruption

Retail typically operates on tight margins and limited operating headroom. A major loss can quickly turn into a liquidity challenge, with implications for suppliers, lenders and investors. Speed of financial recovery is therefore critical, and the design of risk financing and insurance programmes has a direct bearing on resilience.

The sector is also experiencing a rise in AI driven fraud and financial crime. Large transaction volumes, extensive customer bases and complex vendor networks make retailers attractive targets for increasingly sophisticated schemes, which are already influencing claims experience and adding to earnings volatility.

At the same time, global supply chains remain fragile. Events in key regions can rapidly increase raw material and transport costs, forcing difficult decisions about absorbing costs, compressing margins further, or passing increases on to consumers. Maintaining service levels and brand trust under these conditions is an ongoing challenge.

Using insurance more strategically

The panel explored how risk and insurance strategies can better support retailers’ financial and operational objectives.

Re thinking risk financing structures

With market conditions favourable, many retailers have an opportunity to re examine how risk is financed. This includes revisiting retention levels and attachment points to ensure they align with risk appetite and cash flow tolerance, and reassessing programme limits in light of today’s more severe but plausible loss scenarios.

Parametric insurance is also becoming a useful complement to traditional indemnity covers. For well defined triggers, parametric solutions can provide faster and more transparent payouts, helping to support liquidity and recovery when disruptions occur.

The role of captives and alternative risk transfer

For larger or more complex retailers, captives and other alternative risk transfer solutions can provide additional flexibility. Captives can consolidate and retain risks that are difficult or inefficient to place in the traditional market, and they can generate richer data and insight on loss behaviour.

This data can help organisations test new coverages, respond more quickly to emerging risks and refine their overall risk financing strategy over time. In this sense, the captive can act as both a risk management tool and a strategic asset.

Broadening the scope of insurable risk

Cyber insurance has developed significantly, with coverages that are more closely aligned to retailers’ digital and omnichannel exposures. Similarly, financial crime and fraud coverage is increasingly relevant as AI enabled schemes grow in frequency and sophistication.

Retailers that have not recently revisited how these exposures are insured may be missing opportunities to transfer risk more effectively and support balance sheet resilience.

Taking a holistic view across markets and functions

Many retailers operate across multiple jurisdictions, each with different tax regimes, insurance regulations and claims practices. The panel emphasised that insurance programme design should reflect this global footprint to avoid coverage gaps and inefficiencies.

Equally important is internal alignment. Risk, finance, treasury, procurement and operations all have a stake in how risk is financed. Bringing these perspectives together helps ensure that the insurance strategy supports broader commercial priorities, from supplier resilience and ESG commitments to capital structure and investor expectations.

Practical next steps for retail leaders

1. Re assess total cost of risk – including retained losses, volatility and impacts on liquidity, not just premium spend.
2. Stress test programmes – against severe but plausible cyber, supply chain and fraud scenarios specific to their business model.
3. Evaluate structural options – from revised deductibles and limits to captives and parametric solutions.
4. Enhance internal alignment – bringing together finance, risk, procurement and operations to ensure insurance strategy supports commercial priorities.

How Aon can help

Aon works with retailers to quantify risk in financial terms, design appropriate risk financing strategies and optimise the use of insurance and alternative solutions. By combining sector insight, data and analytics, and experience of complex claims, including cyber and financial crime, Aon helps retail leaders make better decisions about risk, capital and resilience.

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