Does every e-commerce business need insurance? Insurance is necessary for any business, regardless of size or industry. Today, more and more people are turning to the internet to shop online and conduct business. Online retailers have risks and liabilities just like any other business and need to make sure they are protected.
What is E-commerce Insurance?
The tremendous growth of the e-commerce space has meant that insurance companies have created policy options specifically designed to protect e-commerce merchants. There are plenty of nuances when it comes to e-commerce businesses so insurance should focus on the risks that your specific business faces. For example, a company that manufactures their own products should have product liability insurance as part of their coverage.
Separating e-commerce insurance from general commercial insurance makes it accessible to businesses that handle international shipments, customer relations, and online liabilities. E-commerce insurance policies protect against the specific risks an online company might deal with.
What Does E-commerce Insurance Cover?
A standard property and casualty insurance policy might not cover issues that arise for your business, such as damage to inventory during a natural disaster. E-commerce insurance covers a business should they not be able to sell their products online due to a covered risk. This is especially important should a cyber-attack, virus outbreak, or other hack occur.
Commercial Property/General Liability:An e-commerce policy can incorporate these coverages to protect against property damage or injury on the premises of the property.
Product Liability: Online retailers that manufacture or import products should be protected in the event that the product causes an issue or harm a customer. E-commerce insurance takes care of the product legally and can cover any incurred medical expenses for the customer.
Cyber Liability: If an online business is the victim of a cyber-security attack or data breach that results in data loss, an e-commerce insurance policy will cover the cost to repair the data system as well as any legal fees to resolve the situation.
Why Your E-Commerce Company Needs Insurance
There are several important reasons why every e-commerce business should carry insurance.
· Marketplace requirement. Many marketplaces including amazon are now requiring sellers that hit a certain sales threshold, to have an insurance policy in place before continuing to sell on their platform. Not having the right insurance coverage in place may result in your business being suspended from selling on many marketplaces.
· Coverage for Legal Expenses. The risk of being sued is part of running any business. E-commerce businesses are no exception. Insurance that covers legal expenses can be used in any situation in which the business is brought to court. This covers legal fees as well as damages that are awarded to the plaintiff. The high cost of legal fees could put an e-commerce business in bankruptcy.
· Protection from Defective Products. Defective products can cause injuries to customers, which creates a risk to e-commerce businesses that can be held responsible for these injuries. In 2021, 11.1 million consumers were treated in emergency room hospitals due to product injuries. E-commerce insurance will cover the cost of legal fees, settlements and judgments as well as medical bills of the injured consumer.
· Protection from Supply Chain Issues. E-commerce businesses rely heavily on their supply chains, which have become increasingly complex. Suppliers send raw materials that are manufactured and then send to the customer as a final product. There are many risks along the supply chain from breached contracts with the suppliers to goods that are damaged in transit. Insurance can protect against supply chain issues such as damage to goods, fraud, stolen goods, and contract breaches.
· Inventory Protection. If your e-commerce business sells goods, inventory protection is important. Lost or stolen products mean a loss of income for an e-commerce business. Insurance is also necessary when inventory is damaged in a fire or natural disaster. E-commerce retailers need to pay for replacements and additional shipping costs for any lost or stolen items. There can also be damage to the e-retailer’s reputation if they are not satisfied with the reimbursement process. Insurance can mitigate these financial risks by reimbursing for replacements or coverage for legal fees. Tip: Base your coverage on your projected inventory for the next year, not what is currently in stock.
· Website Coverage. A business can temporarily shut down for several reasons. When an e-commerce website gets shut down, even for a short period of time, the company can lose income. If your website is built on a platform that is hosted by a third-party provider, they are not responsible for protecting your business in the event of a cyber security breach. E-commerce insurance can minimize the financial damage that occurs when a website goes down.
· Protection Against a Cyber-Attack. A cyber-attack is a serious risk for an e-commerce business. A data breach will expose sensitive information, such as a customer’s credit card number. A hacker can use this information for identity theft or to make fraudulent purchases. On a larger scale, a data breach can result in loss of data or the shutdown of a business’s website. While this can be a costly attack, e-commerce insurance can protect a company from financial losses associated with a cyber-attack. Insurance policies reimburse companies for lost data, revenue, and customers, and can also take care of the cost of re-establishing the data or website. E-commerce data loss coverage varies from one policy to the next but is usually in the large range of $1,000 to $50,000 worth of coverage per customer.
Getting E-commerce Insurance
E-commerce businesses face numerous risks from manufacturing to shipping products. While it is not possible to eliminate all risks, insurance can help to protect your company against these events and can be customized for your company’s size and policy needs.
Coverdash will provide your business with customized policies to protect you against risks. Our insurance experts will find your business the best coverage at the most affordable rates to best fit your business’s needs. We are available to discuss how we can best protect your e-commerce business against risk and loss.