It’s the wrong time for independent shopkeepers to cut back on cover – they’re more vulnerable to crime and damage, for starters. What can brokers do about it? Katie Puckett finds out

If you’re looking for a shred of good news amid the tales of collapse and crisis, you could do worse than turn to the retail sector. And not just the pile-it-high and flog-it-cheap merchants either. Small shopkeepers have been hit by a new public reluctance to spend, but in many cases they have also been able to capitalise on their place at the heart of a community.

Take Chris Mitchener, owner of the Swan Street Stores grocery in the Hampshire village of Kingsclere. “In relative terms things are tighter,” he says, “but I don’t think our sales are any less – in fact, we’ve seen a small increase. People aren’t doing as big a supermarket shop, so they’re doing more topping up.”

Mitchener has been monitoring his customers’ habits closely, arranging his displays carefully and bringing in some new impulse lines. Although he’s a minnow in a market where a handful of major chains dominate 75% of trade, he is optimistic. “If you provide a good service that’s friendly and efficient, make sure you don’t run out of the things they come to you for, keep your displays clean and tidy, then you’ll do OK.”

It may come as a relief to insurers that, while the retail sector has provided some of the grimmest headlines, the reality is far more mixed. As with the rest of the small and medium-sized enterprise (SME) market, insurers and brokers are concerned that struggling traders may make false economies with non-essential cover, leaving them even more vulnerable to losses.

But an equally pressing issue is an up-to-date assessment of these businesses’ risk profile. Independent shopkeepers are on the front line of a consumer world in flux and often more vulnerable to rises in crime or damage.

According to the British Retail Consortium, there are nearly 300,000 retail outlets in the UK. Most of the smallest retailers will buy one of many ready-made insurance packages that includes compulsory liability cover, as well as insurance for property, stock, probably business interruption and possibly add-ons such as legal expenses.

Slightly larger businesses or savvier shoppers like Mitchener will use a broker. “I would always go through a specialist, they always give you better advice,” he says. “I am expert in getting the extra sales through my customers, what do I know about insurance?”

Comforting words for brokers and for the insurers that rely on them to make sure customers are fully covered. Mike Crane, commercial director for the broker division at LV=, says retailers have not yet cut back on cover, although it’s a danger he’s primed to spot. “At the moment, the sums insured are being reduced as stock is reduced, but people are not trying to cut back on cover. Our concern would be those who treat it as an optional cost rather than an essential part of doing business.” In fact, he has seen a rise in the uptake of legal expenses insurance.

One organisation that attempts to knit together the wide and wonderfully varied world of small shops is the Retail Enterprise Network, based at Manchester Metropolitan University’s business school. Ojay McDonald, its communications co-ordinator, says a mixed picture is emerging as the recession changes consumer behaviour. “You find quite unique trends within each thread of the small retail sector,” he says. “A lot of people are still spending money but what they spend it on is changing.”

New cars and restaurant meals may be out but bicycles, slow-cookers for stewing cheap cuts of meat and home entertainment like DVDs are booming. “It’s not all bad news, but things are changing so retailers have to be intelligent.”

Small retailers have a greater connection to their locality – they don’t just close down and move somewhere else when the going gets tough.

But as other high-street occupants fail, fewer potential shoppers will walk past their doors.

“Even though businesses compete with each other, most are reliant on other businesses to create a vibrant trading environment,” says McDonald. In many town centres, smaller retailers can only afford space in back streets that will be less well covered by CCTV. They are also less likely to install systems themselves or employ security guards, leaving them prone to property crime as the number of boarded-up premises around them rises and unemployment spirals. “They tend to operate on quite tight margins and can become quite an easy target,” he says.

David Orr, Norwich Union’s small business underwriting manager, agrees that unoccupied premises nearby present a greater risk for small retailers. “From an underwriting perspective, there have always been unoccupied premises, there are just more of them now.”

Norwich Union’s risk services division gives advice on managing risks in areas such as property and health and safety. Surveyors do not necessarily visit the smallest businesses but instead direct enquiries to information on the company’s website. “With SMEs it’s about maintaining a profile and dialogue – with intermediaries, with our frontline staff – trying to get as close to the trends as we can.”

Doug Barnett, head of contract risk management at AXA, says shopkeepers may not be aware of every risk. “Retail outlets that hold a lot of cash are targets in a recession – bookies, small local grocers that sell National Lottery tickets. A shop might have £1,000 on its premises during the week, but it can go up to £7,000 on a Saturday night. We send surveyors out to understand how much cash customers are holding and what they do with it – moving it to a safe or a cash uplift by a security company.

“It’s not just cash, it’s personal safety too. In the week, you might have one or two people behind the counter. On Saturday night, the last thing you want is a single person in the shop. Often retailers don’t think of that.” Neither do retailers consider the stability of their supplier networks, or the impact of currency changes on imported lines.

Direct Line recently carried out focus groups with some of its retailer customers. Kate Syred, head of Direct Line for Business, found more education was needed on what policies included and how they worked. “The key thing they worry about is having the right cover for their stock and coping with fluctuations during the year, and valuing stock levels.”

Many were confused by or unaware of the principle of applying average to claims, in which insurers pay for only a proportion of the damage where property or stock is underinsured. “That’s definitely something people need to understand better – it could even invalidate their insurance.”

There are retail opportunities in this climate, however: entrepreneurs can set up in closed shops and there are property bargains for anyone with cash to spare.

“A lot of businesses are closing, but a lot are opening too,” says Barnett. “For people who may own two or three properties already, it’s a good time to get in and expand.”

These people will need specialist advice. Perhaps insurers and brokers too should look on this time of uncertainty as a business opportunity – a chance to get closer to their customers, in readiness for the upturn.