Monthly Archives: November 2012

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Managing the Risks of Black Friday

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The day after Thanksgiving has become the high-profile shopping of the year.

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From unbelievable deals to special promotions, retailers across the country try to pack in as many customers as they can and move as many units as possible. It’s all about volume and the stores that can scan the most transactions are those that get the most rewards.

But such plans can create major safety hazards that lead to consumer injuries, major lawsuits and severe reputational damage. To shed some light on what stores can do to make sure their Black Fridays are remembered for revenue not regret, I emailed Kelly Brown, the retail/wholesale industry practice leader for Zurich Services Corporation, to ask the following questions.

What is the biggest risk retailers face on Black Friday?

Kelly Brown: A fatality or violent incident that would make national news. Damage to reputation and potentially a large workers compensation or general liability claim.

What types of safety and security issues should every store be sure to address?

Brown: Throughout its 100 years of insuring America, Zurich has helped identify and assess the types of risks to help keep retailers profitable and customers safe. Stores should be sure to address the following issues on Black Friday.

  • Crowd control: Realize ads or celebrity events may create “door buster” activity. Have a plan in place.
  • Provide adequate security or police protection. Control the crowd through physical set up, use of stanchions, tickets or rain checks.
  • Communicate with the crowd to keep control. Customers should enter buildings single file and be advised not to run through the store.
  • Identify a manager (or managers) to be notified in the event of problem customers in order to properly de-escalate the situation.
  • Provide sound customer service at point of sale. Have experienced teams in place to ring up sales and bag merchandise. Ensure cash and wraps are properly signed and stanchions are utilized when appropriate to direct customers.
  • Review emergency response plans. Respond promptly to employee and customer incidents.
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  • Ensure fitting rooms are safe and secure, and furniture, mirrors and doors are in good condition and function properly.
  • Keep rolling racks and other material handling equipment off the sales floor to prevent customer incidents.
  • Ensure exits and aisle ways are clear of storage. Emergency exits do not have storage and are not locked. Doors open when panic hardware is activated.
  • Parking lot lighting should be adequate. Lighting timers should be adjusted to come on at dusk and turn off at sunrise.
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  • Have a see it, fix it approach. All employees should be working to eliminate slip, trip and fall hazards all hours of the day.
  • Incidents or accidents cost money and take away profits. Plan ahead and work to reduce customer and employee incidents.

Have there been any serious legal or insurance claims related to Black Friday?

Brown: Yes. Family members of the employee who was fatality injured in 2008 have filed a wrongful death suit. There are numerous lawsuits each year as a result of persons getting injured during Black Friday openings or getting into conflicts with others over highly desirable merchandise.  

What one piece of advice do you have for any store trying to exploit the sales opportunities while avoiding the risks?

Brown: Retailers need to realize Black Friday deals could literally create “door busters.”  Have a plan in place.

Why Mark Cuban Lost Interest in Facebook Brand Pages – And Why the Social Network Should Care

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Mavericks owner Mark Cuban (third from right) with his players at ESPN’s ESPY Awards.

Each year, our December issue of Risk Management highlights the Year in Risk. Basically, we look back at the year that was through the lens of risk and offer a time line of its biggest events as they relate to the discipline. (Look for it in your mailbox or online in a few weeks.)

One of the trends I wrote about this year was how some of the internet/tech companies that the world has been buzzing about for years are starting to lose their shine. Facebook (with its disastrous IPO), Google (with its third-quarter earnings embarrassment) and Apple (with its iPhone map fiasco and fall stock drop) have all looked a little less rosy this year. After some high-profile gaffes, that are starting to seem more like any other major brands with major revenues and major detractors.

Now, it seems that Facebook also may have to begin dealing with an outspoken critic: Mark Cuban.

The boisterous billionaire owner of the NBA’s Dallas Mavericks and television network AXS TV wrote an op-ed chastising Facebook’s sposored post arrangement with companies and, really, its whole strategy. In his eyes, the company is getting away from what made it such a good network in the first place and is now force-feeding users content based upon its proprietary algorithm rather than what they want. Thus, given the diminishing returns he now sees on the time and money the Mavericks devote to Facebook, he is instead directing the team’s staff to prioritize other networks, like Twitter, Tumblr and Pinterest.

Cuban wrote the following on Business Insider today.

First, I’m not recommending to any of my companies that we leave Facebook. I am recommending that we de-emphasize pushing consumers or partners to like us on FB and focus on building up our followings across all existing social media platforms and to evaluate those that we feel can grow a material following. In the past we put FB first, twitter second. FB has been moved to the bottom of a longer list.

The crux of his dwindling interest in using Facebook to promote his brand is the company’s increasingly pervasive EdgeRank algorithm, which decides which items in a person’s time line are the most important and thus elevates them to the top. For a brand like the Mavs, which often posts the score of the team’s game as it is occurring, the result can be a non-chronological display of the breaking information they’re trying to provide those that “like” their page. Or worse, it means that fans might miss interesting nuggets of info altogether.

Essentially, in its attempts to become, as Cuban terms it, an “efficient information delivery source” via their algorithm, the company is making it harder for companies to get the benefits they signed up for — and often pay for with “sponsored posts” that purport to help reach a wider audience.

By trying to be an incredibly efficient information delivery source, they confine our ability to organically reach most of our followers to using Sponsored Posts. They also significantly increase our costs because if we create a post that doesn’t engage our followers to the level the algorithm expects it to, it can impact our ability to be seen in the future. Talk about pressure.  Put up a post, but be sure that EdgeRank doesn’t think it sucks.

Then of course there is the money. As many have written before me, sponsored posts can get expensive. If you post many times a day, that can get incredibly expensive.

So why would brands who can’t afford the algorithmic presentation risk, or the financial cost, want to continue to drive their user interaction by investing in FB if there are alternatives?

Of course, all this critiques are basically just mumbo jumbo to most of us non-techgeeks. These are details that few people actually care about. With his closing comments, however, Cuban gets to what sound like a potentially larger problem — and one that, if a host of other executives feel similarly about, could cost Facebook a lot of cache from the companies it has been enticing to join in recent years. In short, with its strategic shift, it may have invited strategic risk.

I also think that FB is making a big mistake by trying to play games with their original mission of connecting the world. FB is a fascinating destination that is an amazing alternative to boredom which excels in its SIMPLICITY. One of the threats in any business is that you outsmart yourself. FB has to be careful of just that.

And in case you were wondering: I first became aware of Cuban’s essay from @BusinessInsider on Twitter.

A Perfect Storm of Insurance Coverage Problems

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Businesses surviving Superstorm Sandy’s wrath will have another storm to endure, thanks to their insurance companies. Under many business property insurance policies, insurers may argue that some types of damage caused by Sandy are excluded. For example, some components of Sandy such as wind and rain damage may be covered causes of loss, while storm surge and flood may be excluded altogether, or may be covered only with lower limits and higher deductibles. Superstorm Sandy, much like Hurricane Katrina, included multiple perils, some of which likely are specifically covered, but some of which may arguably be excluded. Moreover, even if a business was affected by only one type of damage (flood, for example), that damage likely was precipitated by another cause, such as storm surge, wind and rain.

So, who wins in this epic battle? The answer may depend upon which state’s law will control the issue. Many states have adopted an “efficient proximate cause” test to determine coverage when there are both covered and excluded perils contributing to a loss.

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Efficient proximate cause, however, has no set meaning and courts interpret the test differently.

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Some courts view it as the “dominant” or “predominating” cause, while others see it as the risk that sets other causes or a “train of events” in motion. Some courts find that either the first or the last event can be the proximate cause. Without uniformity under state law, policyholders are left unsure as to whether their losses will be covered.

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To make matters worse, some policies contain what is known as an “anti-concurrent causation” provision, which provides that the insurance company will not pay for loss caused by an excluded peril, even if a covered loss contributes directly or indirectly or in any sequence to the loss. Through this clause, the insurance company may seek to avoid coverage entirely if there is but one potentially excluded cause in the mix.
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This has enabled the insurance companies to contract around the efficient proximate cause doctrine. While some states allow an attack on this provision, the majority of states hold that such a clause is valid and enforceable.

Further complicating the problem is the ensuing loss clause found in some policies, which carves back coverage for a loss from a covered peril that follows as a consequence of an excluded peril. For example, if a policyholder suffers loss from an excluded cause, such as flood, but the building is consumed by fire shortly after (which happened in the case of Superstorm Sandy to a number of structures), then the loss should be covered.

With Superstorm Sandy it is likely that insureds with these policy provisions will remain uncertain as to their coverage for some time to come.

S&P Sees Uncertainty in Sandy Loss Estimates

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Superstorm Sandy wreaked havoc not only on the people of the tri-state area, but also on insurance companies. In a recent edition of Credit Matters, a talk show produced by Standard & Poor’s, Taoufik Gharib, director of S&P’s insurance sector, discusses the insurance lines most affected by Superstorm Sandy, the uncertainty that remains in industry loss estimates and the potential for ratings action that may still result.