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The risk manager of one niche retailer says he shares many of the same concerns of megaretailers like Wal-Mart and Federated, but his focus is less on issues, like globalization and Internet sales, and on more parochial matters, like the affordability and availability of property insurance and the rising costs of workers' compensation and health care.

Not that Ace Hardware, of Oak Brook, Ill., is small potatoes. It's a $13 billion to $15 billion company, whose brand is out there in all 50 states and in 70 foreign countries, says William Montanez, its corporate insurance manager.

The second unique feature of the Ace operation is its in-house insurance agency. "I operate at a couple of different levels," says Montanez. "At the corporate level, I resolve issues with our warehouses and distribution centers. I also run an in-house insurance agency that sells insurance to our independent retailers. I act as a reinsurer to the agency, as well, through Ace's Bermuda captive, NAIL (New Age Insurance Ltd.). We do everything from supply-sell to insure." The in-house agency has been in operation for 25 years, the captive for 10.

On the corporate side, Ace insures large properties--distribution centers, for example, with footprints of 800,000 square feet. "We have 4,600 or so retailers, and they're scattered in all 50 states with a large concentration of them in Florida and the coastal areas, because that's where the population is moving and that's where the owners like to set up shop. "A good 20 percent of our business is in Florida on the retail agency side," says Montanez.

One of Ace's top retail issues these days is securing affordable property insurance, especially in the coastal areas of the Southeast, especially Florida, where most of its business is concentrated. "For the retailers, it's a challenge to get property insurance," says Montanez. "They're looking at 50 percent to 100 percent increases in their insurance. In many cases they're not even getting phone calls back from the insurance agencies."

Except to act as an advisor, he can't help Floridians, for example, with their property insurance problems because the fronting company the Ace agency uses declared a moratorium on new business in the state a year or so ago.

"This is going to be a telling year," adds Montanez, speculating on what could happen to coastal property. "If we get hit hard with any kind of a natural catastrophe, it could be an extremely difficult market."

Another huge issue is the soaring cost of workers' compensation coverage. "You just try to keep it under control," he says. "We're just like everyone else in this regard. Nothing specific to the retail business."

But he says that the biggest problem of all for Ace retailers is trying to deliver cost-effective health insurance to their employees, who do not make a lot of money. "We're different than the big boxes," says Montanez. "They have market clout. The retailers we do business with are at the mercy of smaller markets. They usually have no negotiating power, and they're subject to community rates. We just try to advise them on the options being presented to them and steer them to some good local resources."

August 1, 2006

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