This case study shows how a retail shopping-centre complex established a risk management program to reduce its property and public liability risk exposures and achieve savings to its cost of risk. All data given in this case study is fictitious, though based on an actual case and representative.

Setting

The shopping centre is typical of a retail complex, comprising a number of tenancies encompassing shops, cafeterias, food courts and public areas. There are also regular casual tenancies displaying stands and trestles of various goods and services. On occasions, special events and promotions are conducted in the centre's public areas, and fixtures for these are usually set up by contractors for that purpose.

Centre management consists of four full time persons, namely a centre manager, a marketing manager, a maintenance officer and a receptionist. Part-time rostered staff include three contract cleaners and two contract security guards present during trading hours.

When closed out of trading hours at night, the premises are monitored by drive-by patrols carried out by a contract security firm.

The shopping centre is a complex of buildings on two levels, of concrete, steel and brick construction, with a basement area primarily used for storage and maintenance functions. T

he centre is 25 years old though it has undergone a number of refurbishments and extensions in that time. It is fitted with fire sprinklers throughout.

Major plant and equipment includes airconditioning systems, a dock leveler in the cargo bay, a compactor available to all tenants, a goods elevator and escalators. These systems are regularly maintained by various specialist contractors.

Background and risk management context

The centre manager is concerned to improve their risk management program. Specifically, he wishes to:

• Ensure that any significant liability exposures are identified and addressed
• Reduce the centre's current cost of risk, primarily its cost of insurance and the cost of claims
• Establish a more formalised and systematic risk control program, but one that is efficient and commensurate with the skills of centre management and tenants

Currently, the centre's risk management program largely consists of hazard spotting and immediate response by the maintenance officer and cleaners. The centre manager has a good understanding of the potential hazards to public safety and the associated issues of liability. A register of all incidents is kept and reviewed monthly by the centre manager. This regular review also encompasses assessment of costs and trends. The centre's insurer and insurance broker have not been involved.

The centre's cost of risk has steadily risen over recent years. This cost is primarily made up of insurance premiums plus the cost of claims under the deduction paid by the centre. At present, the centre's cost of risk is 3.2 per cent of revenue (excluding its workers compensation premium). Property cost of risk is 0.81 per cent of revenue and this cost has generally remained stable for the past few years. The centre's cost of public liability risk is presently 2.26 per cent of revenue, up by 14 per cent over the previous year. The manager feels that this cost could be markedly reduced and should be nearer 1 per cent of revenue.

Method and approach

Risk identification

Centre management decided to call in a risk management advisor to appraise the centre's risks, review its current risk management program and establish a set of procedures for better risk control where necessary.

The advisor first reviewed the centre's claims, incident and loss experience from its records for the past five years. Loss rates and costs for workers compensation and property had remained steady and the centre's performance in this regard was judged to be satisfactory. In contrast, the loss rate, incident rate and cost of public liability had steadily risen. Closer assessment of these public liability losses indicated the following breakdown over the past three-year period.

A major proportion of incidents and losses were related to slips and falls. Causation appeared to be debris and slippery floor and step surfaces. This breakdown argued, inter alia, for improvements to the centre's cleaning procedures, especially in the food court areas and at the centre's entry/exit doorways.

For example, by way of improvements in view of these data, extra waste receptacles were installed in the food courts. Mats were fixed to the floor at the centre's entry points and adjacent to escalators, in particular to enable centre patrons to dry the soles of their shoes on rainy days.

Secondly, the risk management advisor, together with the centre manager, carried out an inspection of the centre, including a risk assessment of all tenants' premises, work areas, plant, equipment and the centre's external surrounds.

Risk evaluation and analysis

Specifically this risk assessment focused on public safety and encompassed the following parameters:

1. Management awareness, responsibility, understanding and training
2. Hazard management systems, inspections, documentation and procedures
3. Incident and claims management system, documentation and procedures
4. Specific identification and control of public hazards
5. Tenants' hazard and risk controls
6. Contractor risk controls
7. Security – trading and non-trading hours
8. Building and plant maintenance
9. Building health and hygiene
10. Emergency systems and contingency response

Current risk controls were assessed on a three-point scale as 'good', 'fair' or 'poor'.

Examples of the assessments of the parameters listed are presented as an Excel spreadsheet.

Risk treatment and risk control improvements

Thirdly, the risk management advisor and the centre management team reviewed the risk assessments outlined above and formulated improvements to the centre's risk management program. These improvements produced a program consisting of the following six elements:

• A risk control framework comprising a self inspection checklist and log for use by the maintenance officer, a contractor safety plan and checklist supervised by the maintenance officer, a hot work permit procedure for all welding and brazing on the premises and an external specialist contractor to improve and monitor the centre's emergency organisation and response procedures
• Incident reporting and recording improvements agreed in writing with the centre's insurer. In addition, the hazard inspections and reports carried out by centre management included a record of the corrective actions taken and were extended to include food safety assessment of food service tenants
• Procedures to ensure written contracts and agreements for all leases, hires, works and services, with standard minimum provisions for indemnities and insurances to better protect the centre management and owner. For example, a minimum $5 million public liability insurance cover was required of all service and works contractors
• Periodic external audit by a recognized risk management advisor. This audit invited and involved the centre's insurance broker and insurer. The aim here was to have both these parties fully understand the insured risk and the risk management program operated by the centre
• A 'risk-o-meter' included in centre management reporting in appropriate formats to the property owner, insurer, broker and tenants, showing changes and trends in risk performance, loss rate, cost, causes and the like
• A 'blitz' program, whereby a specific risk issue was targeted and emphasized for a quarter (three months), akin to a promotional or marketing strategy. Gains of the blitz program are attributed to a 'Hawthorne effect' on staff and tenants.

Outcomes

• Centre management and its insurance broker were able to negotiate a significant decrease in the centre's insurance premium on renewal at the end of the insurance period (end of financial year in this case). It was felt that this was due primarily to the insurer's better understanding of the insured risk and the quality of risk controls in place.
• The risk management advisor conducted a review of the risk management program some two months after its inception. As a part of this review, an appraisal of the centre's fire risk was made by the advisor and a professional building surveyor. This appraisal used a property fire risk evaluation software model. The appraisal indicated that the risk management improvements made by the centre to hazard mitigation, staff training and housekeeping reduced its fire risk by over 50 per cent – a substantial risk reduction! It also showed the centre manager a tangible benefit from the risk management actions.
• The attachments overleaf show the model results before and after these risk management improvements. The model results formed a part of the centre's submission to its broker and insurer and no doubt contributed to the reduction in the centre's insurance cost.

Case study guidelines

The approach taken to risk management in this case study followed that outlined by the Australian standard AS/NZS 4360 on risk management. In particular, this case demonstrates the following items for risk management in practice:

• Clearly defining objectives and focus for the risk management effort
• Setting targets for risk reduction and risk control improvements by reviewing past incident/loss performance and combining this with a risk evaluation
• Using the performance review and risk evaluation to highlight the key needs for application of risk controls
• Applying existing control measures in conjunction with a management system

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