Synergy, a new product on the insurance market, seems to be causing quite a stir with UK retailers looking to reign in their insurance costs.

Traditionally insurance policies for retailers cover two distinct areas. Firstly, retailers must protect themselves against major losses e.g. in the event of a store fire, large-scale theft or a major liability claim. Secondly, retailers also have to ensure they are covered for minor ‘day-to-day’ losses such as small damage claims, retail theft and ‘trips and slips’ injury claims. While minor, such claims can clock -up and prove extremely costly for retailers.

But because one policy typically covers all, claims for small scale issues can be disproportionately lengthy to resolve and involve a “pound swapping” exercise with insurers whereby all the small losses are paid out by insurers who then redeem their losses via the premium at the next renewal. Also, as control of payment of losses rests with the insurer, small injury claims are usually paid out rather than fought in order to avoid the potential of paying more in legal costs than the claim is worth. This can be extremely frustrating for the retailer.

Synergy works differently as is allows the retailer’s total premium to be split, with a large percentage (up to 40%) of the total paid each year going into a ‘fighting fund’ interest accruing bank account that is controlled by the retailer and not the insurer. The remainder of the premium is paid to insurers to cover catastrophe losses above a certain set-level agreed by all parties on a traditional insurance basis.

With Synergy, all major losses are paid from the main insurance programme so the retailer doesn’t have to stand a large excess deductible, while also leaving the retailer free (and with the financial power) to fight claims they see as illegitimate and of course gives them control over what course of action to take on legitimate claims. This ‘split premium’ technique can also see reductions in premium payouts as funds in the bank account (known as the “small loss account”) that remain unused are deducted from the following year’s total premium spend.

Certainly something to think about for retailers looking to gain greater control over their insurance spend.