Trust, but Verify: How to Safely Diversify Retail Vendors and Suppliers
February 23, 2021
In Q4 2020, excess liability pricing rose by 28%, cyber insurance pricing increased 17%, and pricing in the public D&O market went up more than 44%. This year saw new trends in rising insurance premium costs emerging due to the Covid-19 pandemic, which deeply disrupted supply chains and bankrupted businesses.
In these strange and uncertain times, it’s now more important than ever for retailers to diversify their vendors and supply chains, but the double-edged sword of diversification is that retail networks have become way too fragmented, leaving businesses especially vulnerable to vicarious liability threats.
Broadening their networks also puts both retailers and their vendors under a lot of pressure to maintain proper insurance requirements. If retailers can’t verify third-party coverage on an ongoing basis, and an accident occurs, they face heavy legal consequences that could damage their brand reputation, or worse, put them out of business.
On the flip side, vendors are doing whatever they can to cut costs and to help their employees work remotely so they can better serve their retail partners in the midst of a pandemic, but in doing so, are inadvertently creating more vulnerabilities, especially if they’re operating an information system without proper security measures in place.
Data breaches aren’t just inconvenient, they’re expensive. 82% of organizations have experienced one or more third-party data breaches over the last two years, costing an average of $7.5 million to remediate, which is why there’s a growing need for retailers to verify their vendors’ and suppliers’ cybersecurity coverage.
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Example: A Fortune 50 retailer that operates 7,500 national stores experiences two third-party data breaches in one year, affecting more than 1 million customers as well as its employees. (TechCrunch)
Even if adequately protected from online threats, vendors are still working remotely, which means that retailers are onboarding a lot of new vendors without actually meeting them in person. This makes it even harder for retailers to trust that their vendors have the right types of insurance coverage to maintain compliance and avoid claims stemming from an unforeseeable incident.
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Example: A grocery store retailer that stakes its reputation on sourcing high-quality, locally sourced foods recalls 70 products sold nationwide after one of their largest suppliers announced concerns about listeria contamination in more than 100 of their vegetable products. (USA Today)
Retailers that don’t verify their vendors’ or suppliers’ insurance aren’t mitigating risk at all, and those that do verify coverage are limited to options that are inefficient, expensive, error-prone, and not scalable to meet growing needs.
Verifying insurance, authoritatively and in a timely manner, is hard. Businesses must obtain a copy of vendors or suppliers’ insurance policies and certificates of insurance (COIs), store them in a single, online location, and automate the entire process – from notifications of renewals and expired COIs, to document storage and retrieval.
An outdated COI means a supplier or vendor could be underinsured or lack coverage altogether, both of which could go unnoticed until an accident occurs, and at that point, it’s too late. There’s never been a more important time to verify insurance. COI verification can go a long way to protect retailers from claims, minimize their losses, and ultimately save them money – even more so if the solution is able to automate the COI collection and management process entirely.
Within 90 days of implementing Evident’s insurance verification solution, our solution has raised compliance levels above 80% for retailers, reducing their administrative burden by more than 90%. In fact, most have repurposed their entire personnel toward more strategic initiatives.