Aon's Retail and Wholesale Inperspective Summer 2015

Risk. Reinsurance. Human Resources.
Retail and Wholesale
Inperspective
In this issue
p3 Reputation and competition
threats dominate 2015
risk registers
p5 Intangible risks get short shrift
on insurance programmes
p7 Preparing for a crisis; the art of
the possible
p9 Meet the experts
Aon Risk Solutions
National | Retail & Wholesale Practice
Issue 4 July 2015
Welcome to the latest edition of Inperspective, Aon’s review of the
latest risk management trends in the retail and wholesale sectors.
Shortly before we published this issue, Chancellor of the Exchequer George
Osborne gave his first Budget since the General Election, with extended opening
hours a key headline. With retail and wholesale markets accounting for at least 5%
of gross domestic product according to 2014 UKTI statistics, this potential
relaxation was met with mixed reviews from the industry and it remains to be seen
if the change will encourage growth on its own.
Meanwhile, with the Grexit dominating headlines the worrying volatility in Chinese
markets has now emerged as a concern for retailers. With China such an integral
part of the UK retail sector’s supply chain we will be monitoring developments in
this area carefully. On 9 July more than 40% of the country’s listed entities
suspended their shares from trading amidst fears of a mass sell-off driven by
overleveraged equity investors. Any further uncertainty from this dominant
manufacturing economy will be extremely unwelcome for retailers in the UK,
whose supply relationships will need to include buffer options if their networks
show signs of strain.
Daniel Fox
Aon Regional Practice Leader, Retail
Open all hours?

aon.co.uk/retail-wholesale
Inperspective | Retail and Wholesale | July 2015 FPNAT.150 2
In this issue
In this issue, we review the top three trends in risk management with analysis of
Aon’s Global Risk Management Survey 2015. Executive Director Norman Andrew
and Head of Business Continuity Practice Vince West explain the implications of
retail and wholesale companies’ increasing concern about brand and reputation.
Brand and reputation remain a dominant theme in our other stories too.
Adam Peckman, Principal Consultant at Aon Risk Solutions reviews another piece of
exclusive Aon-sponsored research, the 2015 Ponemon report into intangible risks,
which shows a considerable mis-match between how well insured our physical
assets are, and how underinsured our valuable but intangible assets like data are.
Finally, we consider the possibility of crisis and how companies are managing this
issue. Aon Crisis Management’s Director of Business Development and Network
Relations, Scott Bolton, urges retail and wholesale companies to set aside their
guidebooks and manuals, to consider what impact they most fear.
We hope you find this edition of Inperspective a useful resource and invite you,
as ever, to get in touch with any questions you may have.

Reputation and competition threats
dominate 2015 risk registers
Aon has uncovered increasing levels of concern amongst retail
and wholesale risk managers of the threat posed by damage to
their brand or reputation. Inperspective speaks to Head of Business
Continuity Vince West and Executive Director Norman Andrew
about the top risks facing the industry today.
According to Aon’s Global Risk Management Survey (GRMS) 2015, ‘damage to
reputation or brand’, was rated second only to ‘increasing competition’ in a list of
risks facing retail and wholesale companies. The report, which publishes every
other year, highlighted how reputation risk rose from #7 in 2013 – the biggest riser
in the top ten.
Economic slowdown also remains within the top three risks, and Norman Andrew,
Executive Director at Aon, says retailers’ continued concern over this and their
competitors reflects a challenging picture. “The UK’s retail industry had the best
sales performance since before the recession in 20141
. The sector’s sales grew by
around 2.3% last year but it is still experiencing a number of high profile
challenges. The results of Aon’s Global Risk Management Survey paint a very clear
picture of the concerns amongst risk managers in the sector and reflect the
changing environment in which they work.”
Norman adds that retailers are beginning to understand that the goodwill on their
balance sheets represents the intangible value of the brand. “The indirect impact
on goodwill of a product recall, a web site denial of service attack or a block in the
supply chain is becoming a much more common discussion in the risk
management community. The industry is advancing its understanding of those
individual risks (cyber, supply chain, product contamination/malicious tamper), but
the remaining part of the puzzle was always how can you recover your brand equity
after a crisis situation. I think that must be why, despite the fact only 3% of retailers
said that they had suffered a loss from damage to their brand or reputation in the
GRMS, it has risen to such an important factor on the industry’s risk register.”
Competition all under one roof
The impact of increasing competition remained firmly at number one in the survey,
having taken top spot in 2013 as well. Over half (53%) of retail and wholesale
companies confirmed they had experienced a loss in the past two years as a result
of this factor.
Vince West, Head of Business Continuity Practice at Aon, says that while predicting
the competitive landscape can be a guessing game, the ways retailers have
changed their operations to compete have led more manageable risks to coalesce
and create worrying exposures.
“Both online and high street retail is increasingly dominated by the single-site
warehouse distribution centre, meaning the fire and theft risk for the industry has
shifted from a networked exposure, perhaps with branches nationwide; to an
aggregated exposure, with stock and premises risk all in one place,” says Vince.1
http://www.retailresearch.org/retailforecast.php
Vince West
Head of Business Continuity Practice
Aon Risk Solutions | Global Risk Consulting
Norman Andrew
Executive Director | Aon

Aon Executive Director Norman Andrew is responsible for building comprehensive
insurance programmes across the retail and wholesale markets. He adds: “We are
increasingly providing advice to customers as they grow and develop these pick,
pack and despatch business models. When retailers are building new warehouses
from scratch, they very sensibly look at where the pinch points will be from a risk
point of view. This ranges from construction, through to the finished asset and
business continuity in the long run.”
Norman adds that once a warehouse is up and running, a continued interrogation
of the model is required to keep processes slack. “We encourage clients to ask
questions like ‘when the warehouse is at full capacity, are there secondary
operations or agreements with competitors to provide reciprocal support in the
event of an incident?”
This concentration of risk requires substantial limits of indemnity and Norman adds
that only a true partnership can work between client and broker. “Clearly when
there is lots of value into a single site, this exposes a lot of capital and providing full
value for a site into hundreds of millions of pounds will require us to buy a
substantial primary coverage layer and lots of reinsurance as well.”
Insurance is the straightforward solution, says Norman, but the key is to dovetail a
programme with your own business continuity programme. “Surviving the risk is
the key issue and reinstatement can be challenging,” he says. “If a retailer loses a
major asset like a warehouse at which it might take up to two years for full
reinstatement; does its business continuity plan ensure that it will be back up and
running in that time?
“Anybody making that call must give the right guidance to ensure that the limit of
indemnity is sufficient to allow the customer to get back to a pre-loss trading
position; not simply just to rebuild and re-kit a site. We had a £50m claim on a food
and drink manufacturing site and even with a two and a half year indemnity period,
by their own admission this wasn’t long enough because they had to go to a
particular machinery manufacturer in Italy who had a full order book. They had
to wait their turn for the machinery to be built; this meant there was a rebuilt
warehouse up and running for about eight months before they could
resume production.”
For further information contact Vince West
Vince West
vincent.west@aon.co.uk

Intangible risks get short shrift on
insurance programmes
Intangible assets like customer data are considerably underinsured,
when compared against physical assets (11% v 49%), according to
new research by Aon and the Ponemon Institute. Adam Peckman,
Principal Consultant at Aon explains his concerns and solutions
for the retail and wholesale industry.
The transformation of the world’s economies from historical tangible products and
manual labour services, to reliance on technology and information assets is rapid
and expansive. Cloud computing, mobile devices, social media, big data analytics
and the explosion of the Internet of Things help facilitate this digital transformation.
In the next five years, the number of internet connected devices is predicted to rise
from 15 bn to 50 bn2.
For the retail and wholesale industries this interconnectedness is acute with
customers; supply chain and infrastructure all increasingly linked online.
In recent years, this has exposed the assets of retailers to cyber criminals, causing
losses estimated in the tens and hundreds of millions in terms of forensic costs,
regulatory fines and share price impact.
Case studies like Home Depot and Target Retail demonstrate how the potential
for damage to intangible assets will continue to be a challenging task as retailers
further transform their value chain through deploying omni-channel strategies,
digital supply chains (automated via ‘Internet of Things’ technology), and big
data infrastructure.
The Aon/Ponemon report raised a number of key concerns for risk managers, who it
seems have yet to adequately assess their value at risk in terms of intangible assets
like customer data. The report found that industry-wide, companies insured 49% of
their potential loss to plant, property and equipment – physical assets – while just
11% of their information asset value was covered by insurance.
Of equal concern was the fact that a significant minority of businesses still conduct
‘informal or ad hoc’ risk assessments and only 58% having conducted any form of
cyber risk assessment.
Measure and value
Findings like these should encourage retailers to assess their intangible value-at-risk
as an early step when developing new strategies that protect market share and
ensure continued competitiveness.
If a retailer has a material incident (i.e. fire, flood and explosion) that impacted on
their physical assets, this could be measured and valued. It could also be insured
under traditional insurance policies such as property and business interruption
cover, but increasingly the insurance market has developed innovative products
that go beyond this to protect intangible assets and support the insured in the
event of a crisis scenario with consulting services designed to mitigate any impact
on intangible asset values.
Adam Peckman
Principal Consultant | Aon
2
Source: Cisco

Report values up the chain
In our experience an increasing number of retailers are deploying enterprise risk
management approaches to identify, assess, and manage brand exposures in the
increasingly digital economy. Accordingly, this involves reporting to the board on
material exposures and the effectiveness of controls and responsiveness of
insurance to protect these intangible assets.
There remains a way to go before parity is achieved between how tangible assets
like property are viewed alongside intangible assets like brand, reputation or
customer data. The Aon/Ponemon Institute report showed that fewer risk managers
will report a material loss to their information assets than they would a loss to
property, plant or equipment (50% v 34%).
To return to the principal concern highlighted in the report; underinsurance,
perhaps the most significant finding was the percentage of potential loss which is
self-insured. Industries like retail predominantly self-insure against losses to their
information assets. From the whole sample, the report found that 58% of any
potential loss to information assets is currently self-insured, against an average of
28% on physical assets. Considering that Ponemon also found it was more likely
respondents would suffer a loss to information assets in the next 12 months than
one to their physical assets, the case for increasing coverage becomes clear.
For further information contact Adam Peckman
Adam Peckman
Principal Consultant
adam.peckman@aon.co.uk
Intangible and tangible assets have similar value,
but losses have unequal expected impact, likelihood
and coverage
Intangible vs. Tangible
Cyber risk is frequently discussed and often
experienced, but limited action is being taken
Talk vs. Action
Cyber risks should be managed in a similar way to
tangible risks – including assessing the potential
financial statement impact
What Next?
Is your cyber risk approach ahead of the curve?
Cyber risk in EMEA
But limited action
44% Lack formal cyber
risk assessment
79% No Cyber insurance
cover
37% No financial
statement disclosure
of cyber losses
Visit www.aon.co.uk to learn more or download
the full 2015 EMEA Cyber Impact Report
Source: Research independently conducted by Ponemon
Institute LLC and commissioned by Aon Risk Solutions.
Research explored financial statement exposure of
intangible vs. tangible assets.
Values are in USDm
1 Collaborate across
risk, finance, IT & legal
2 Formal assessment
of all potential cyber exposures
3 Risk quantification,
tailored to your business
4 Strategy for risk management,
mitigation or transfer
38% Rank cyber a
top 5 risk
46% Expect cyber
exposures to increase
A discussed priority
38% Experienced a
material or
significant loss
$1.1m Average loss value
And losses are occurring
Similar asset value
USD 872m
USD 615m
$845m
$638m
Total value
Probable maximum
loss
Intangible
assets
Tangible
assets
And larger impact & likelihood
Impact of business
disruption
Likelihood of loss
$103m
1.5%$168m
4.7%
But less insurance cover
Proportion of
potential loss
covered by
insurance
49%
11%
Intangible
assets
Tangible
assets
Intangible
assets
Tangible
assets

Preparing for a crisis;
the art of the possible
Risks that trigger potential crises are insured by retail and
wholesale companies to varying degrees; product recall resulting
from malicious tamper or contamination is one such example,
while data breach response following cyber-attack is another.
However, protection doesn’t begin and end at the point of sale.
Inperspective hears from Aon experts Scott Bolton and Kary Yates
about the growing importance of crisis management consulting in
the prevention and response to watershed events.
As a common feature of the insurance programmes on offer to retail and wholesale
companies today, Aon Team Leader for Product Recall and Crisis Management, Kary
Yates, says Crisis management consulting is growing in popularity. “With a 5%
standard bursary (of net premium) available for clients to spend with their insurer’s
crisis consultant, clients can take some comfort by having that expertise available to
assist them in the review of their supply chain management, business continuity
and recall management plans.”
Appointed directly by insurers, these third party consultants typically help by
deploying a range of assets in the aftermath of an incident to manage companies’
response and recovery. “They send responders to work alongside the client and to
advise them on how to solve a problem when it arises,” says Kary. “They are an
extremely useful resource but one that is best relied upon when you have a
thorough understanding of your organisation’s own ability to recognise and
respond to a crisis event.
“Aon also works with retail and wholesale companies to prepare for crisis,” she says.
“We can then ensure we build the customer’s capability and train their team to
understand the challenges of crisis prevention and response.”
Crisis management consulting is a term with considerable scope and meaning.
Aon Crisis Management is led by Director of Business Development and Network
Relations, Scott Bolton, who says the term ‘Crisis Management’ itself needs a more
specific application. “A crisis is an incident of a strategic nature that has the
potential to overwhelm an organisation. Lots of food manufacturers could manage
a limited product recall without any fuss. Where there is often scope to enhance
crisis management capabilities is where the scope of the event is larger, or where
the event isn’t necessarily related to their core business. What we advise companies
about is the need to understand what ‘impacts’ a potential crisis could have so we
can help them build a team capable of reducing the duration and severity of those
impacts,” he says.
“Both Knight and Pretty in 1996 and the Aon/Oxford Metrica Reputation Review of
2012, support the opinion that articulate, prepared, strategic crisis management
can have a positive impact that translates into improvements in share price, market
share or brand equity.”
Kary Yates
Team Leader | Product Recall and Contamination
Aon Global Broking Centre
Scott Bolton
Director of Business Development and
Network Relations
Aon Crisis Management

The wood for the trees
The problem for many risk managers, says Scott, is that too much emphasis is
placed in imagining incidents or scenarios and prescribing a response to each one.
“If you try and imagine every type of crisis out there, the numbers are legion and
you would end up with a crisis management plan the size of an encyclopaedia.
Instead, why not consider the potential impact rather than the scenario which
generates it; then you can filter these down into a sensible number of effects that
you want to manage. Perhaps you are most concerned about the impact on your
brand or reputation, or a regulatory intervention; it could be the impact of an injury
or a loss of life, and so on.”
Supply chain risk is continually on the industry’s agenda but again, Scott says crisis
management need only concern itself with a focus on this risk beyond a particular
threshold. “A single day’s disruption in your supply chain could have a relatively
short-term impact.”
‘Crisis’, not ‘incident’ management
This illustrates the fundamental difference between crisis management and incident
management, he says. “In the latter you rely on a procedure and you resolve the
incident. In crisis management, you are relying on the people in your team to
understand the organisation and the external influences in play and with the right
training and flexibility, enabling them to ‘innovate’ a solution.
One example of a crisis which stepped aside from formal procedure is now widely
regarded as a model for public relations crisis management today. “For anyone
looking for a practical example, it’s worth considering the Maple Leaf Foods case
study,” says Scott, “an incident in 2008 that helped redefine how companies
handle crisis communications. This organisation acted perhaps against the legal
advice at the time by admitting culpability but took a very candid approach to their
communications and ultimately benefited from their strategy.”
An intangible investment
The tale above illustrates how the perception of good management in a crisis
translated into stakeholders increasing their confidence in your management.
“This means having a crisis management team that is trained and can operate on
behalf of the board and yet still connect into the tactical elements of the
organisation to deliver a response. The nature of those individual tactical responses
are immaterial, it’s about getting to the point where you can trust your team to add
value in a crisis; influencing public, regulatory and government perception that you
can be trusted to ride out the storm.”
For further information contact:
Kary Yates
Team Leader for Product Recall and Crisis Management
kary.yates@aon.co.uk
Scott Bolton
Director of Business Development and Network Relations, Aon Crisis
Management
scott.bolton1@aon.co.uk

Meet the experts
Daniel Fox
Regional Practice Leader | Retail
Aon
Vince West
Aon Risk Solutions | Global Risk Consulting
Daniel Fox has over 20 years’ experience working for leading national and global
brokers in client management roles. In this time, he has lead client service teams,
delivered strategy and developed international and captive programmes. In his last
position, Dan was a specialist in the retail sector and was accountable for a number
of existing flagship accounts together with success in new business development.
Vince West has considerable experience formulating and advising clients on their
respective business continuity strategies and has been engaged on business
continuity projects with many leading organisations. His extensive experience
of business continuity management has been deployed across sectors including
retail, petro-chemical, telecommunications, banking, finance and insurance,
defence, IT, publishing, food manufacturing, regional development and other
government agencies.
Scott Bolton
Director Business Development and
Network Relations
Aon Crisis Management
Scott Bolton provides specialist consulting to support clients purchasing terrorism
insurance; delivering a more articulate approach to managing a terrorism program.
He supports clients in understanding their exposure to unfamiliar, high impact risks
(terrorism, security) and provides guidance in managing those risks on the ground.
Scott has extensive industry experience covering retail development, banking,
property development and logistics and distribution and specialises in areas of
expertise including kidnap, ransom and extortion, terrorism threat assessment,
global safe travel programs and country entry and exit planning.
Prior to his commercial experience, Scott spent 6 years in the Royal Engineers,
specialising in bomb disposal and counter terrorism.

Kary Yates
Team Leader | Crisis Management
Aon Risk Solutions | Global Broking Centre
Kary Yates has 29 years’ experience in producing and placing property and casualty
business with emphasis on product recall and contamination since 2002. Kary has
14 years broking experience in the London market, including Lloyd’s of London and
the London company market. Kary has a number of qualifications in food and drink
including a Level 2 and 3 in Food Safety Supervision for Manufacturing.
Adam Peckman
Principal Consultant
Aon Global Risk Consulting
Adam Peckman is a senior enterprise risk management consultant in Aon Global
Risk Consulting. He is primarily engaged with delivering solutions to support the
corporate risk management requirements of multinational clients. He is currently
advising a British multinational retailer and the largest Finnish retail chain on cyber
risk to support their respective risk management and insurance strategies.
His extensive retail sector experience has involved numerous risk advisory projects
that include conducting enterprise wide risk assessments and applying advanced
quantitative simulations to model financial exposures.
These projects are aimed at optimising investment decisions in risk management
and designing more fit-for-purpose risk financing and transfer arrangement.
Adam holds degrees from the University of Sydney in Economics and Psychology
and is a member of workgroup for ISO 31000 and ISO 28000.

Risk. Reinsurance. Human Resources.
About Aon
Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage,
and human resources solutions and outsourcing services. Through its more than 69,000 colleagues worldwide, Aon
unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further
information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com/
Aon UK Limited is authorised and regulated by the Financial Conduct Authority. Aon UK Limited Registered Office: The Aon Centre, The Leadenhall Building,
122 Leadenhall Street, London, EC3V 4AN. Registered No. 210725.  VAT Registration No. 480 8401 48. Aon is not responsible for this content. Telephone calls are
recorded and may be monitored. © 2015 Aon UK Limited. FP number: FPNAT.150

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