eCommerce Business Insurance – Find the Best Protection
Whether you operate in the digital or physical realm, running a business comes with inherent risks. eCommerce insurance becomes particularly crucial in the online sector, which has seen explosive growth, with sales surpassing a staggering $4+ billion in 2020.
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The complexity of managing an e-commerce business often surpasses that of traditional businesses due to the higher number of risks and the legal ambiguities that can arise from online operations. For these reasons, it’s essential to protect your venture with a comprehensive e-commerce insurance policy.
What is e-Commerce Insurance?
As an e-commerce business owner, you face many different risks each day.
E-commerce insurance coverage is designed to protect you from potential losses arising from events that may occur when doing business online.
Furthermore, e-commerce business insurance protects your e-commerce financial assets, intellectual, online, and physical inventory, if any, from:
- Loss of income
- Employee injuries and illnesses
More About the Most Significant Risks Faced by E-Commerce Businesses
Fraud is perhaps one of the greatest threats to owners of e-commerce businesses.
E-commerce fraud volume has been snowballing in the last few years.
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In terms of numbers, e-commerce fraud increased by over 40 percent in 2017, which resulted in losses of more than 50 billion dollars.
E-commerce business fraud is due to several reasons, including stolen or fake credit cards, identity falsification, and many others.
Even though security procedures to protect e-commerce have greatly improved, fraud is still a significant cause of e-commerce business losses.
Data security is critical to surviving in the 21st-century e-commerce landscape.
Compromised data exposes e-commerce businesses to numerous new vulnerabilities.
Data breaches such as cyber-attacks can happen more often than e-commerce businesses anticipated, and can quickly transform a thriving business with an unforeseen cash flow crisis.
One prominent example is the leading retail giant Target, which had information about more than 100 million customer credit cards stolen in 2013.
Another case of losses because of a data breach was the US multinational computer software company Adobe, which had approximately 35 million IDs and encrypted passwords for 38 million of its active users compromised.
DDoS attacks are another significant reason why you should get e-commerce business insurance.
A DDoS (short for Distributed denial of service) attack occurs when hackers attempt to crash a website and make it unavailable to users by overloading the service with thousands of simultaneous access attempts.
DDoS attacks have a direct and significant impact on e-commerce business revenue, and the loyalty you’ve built with your customers.
Sometimes, DDoS attacks aren’t able to ultimately achieve total denial of service.
However, they impact network performance to the point where customers give up, which interrupts regular trade. DDoS may also serve as a preliminary path to more malicious attacks.
E-commerce businesses provide consumers access to a wide range of products and deliver the selected products right to their doorstep in a few clicks.
But product defects can not only have a significant impact on the bottom line of your e-commerce business but can also expose your business to unlimited claims in lawsuits.
An excellent example of this is the world-renowned furniture retailer Ikea.
In 2013, the company had to recall more than 25 million faulty chests and dressers due to the discovery of a tripping hazard.
These defects caused the death of three children and resulted in lawsuits amounting to $50 million.
Even though the company settled these lawsuits, it was probably e-commerce insurance that saved the company’s bottom line from substantial losses!
Different Types of E-Commerce Insurance Policies and Coverage
E-commerce insurance can be a tricky area, and dealing with it may be overwhelming given the jargon and complexities.
As well, the different types of e-commerce insurance coverages to choose from present another level of difficulty. But here, we describe for you the three most common e-commerce insurance coverages to choose from to help you get the right policy for your business.
Liability Insurance for eCommerce
Many of the top e-commerce businesses were started in a garage, and one such great example is Amazon.
E-commerce general liability insurance covers several different risks, including property damage, lawsuits related to bodily injury, advertising injury, and much more.
So, whether you operate your e-commerce business from a warehouse, an office or out of your home, you’re going to need general liability insurance first before going on to select any other type of e-commerce insurance coverage.
If you run your e-commerce business from your home, things get a bit more complex, and here’s why!
Assuming you have a homeowners insurance policy, you must be aware that in most cases, this type of policy won’t cover any business activities you pursue from your home.
Even if your homeowners’ insurance policy does cover business property stored in your home, it will not provide coverage with limits that are high enough to protect your e-commerce business.
Therefore, your best option to protect your home-based e-commerce business is with a separate e-commerce policy.
And if you’re active on social media as a way of boosting your market presence, then getting insurance for media influencers is a great option.
Product Liability Insurance
If you sell physical products rather than intangible products, such as software, through your e-commerce business, then getting product liability insurance shouldn’t be an option – it’s a necessity
As well, if you sell products via Amazon as an FBA seller, securing insurance for FBA sellers is a good option.
Just as happened for Ikea, any physical product you sell could pose a hazard for your customers, regardless of how safe you think they may be.
E-commerce product liability insurance is generally an add-on over and above general liability insurance.
It covers your e-commerce business if your product causes bodily injury or property damage to a third party.
Whether you’re a baker selling delicious cupcakes through your Shopify store, or a boutique selling the trendiest carpets, product damage could occur, such as food poisoning or slipping or falling on a carpet.
Do you recall the time 79-year-old Stella Liebeck sued McDonalds because she accidentally spilled hot coffee in her lap? Well, she was awarded a hefty $3 million for the burns she suffered.
If your e-commerce business offers professional advice- and service-providing individuals, it may be a good idea to protect your company with errors and omissions insurance.
Since all insurance companies operate online, getting cyber insurance for your e-commerce business makes sense, particularly if your business collects personal data and sensitive information such as credit card information.
Cyber e-commerce insurance is essential to all types of e-commerce business, even if you’re just providing something as innocent as matchmaking services.
The Ashley Madison and MeetMindful dating websites are prime examples of why e-commerce business owners need cyber insurance.
In the first case instance, Ashley Madison lost a court case and had to settle a whopping $11 million-plus.
Other types of e-commerce business insurance include:
Technology Errors & Omissions Insurance (Tech E&O):
This insurance is particularly vital for e-commerce businesses as it provides protection against claims of negligence, misrepresentation, or failure to deliver services as promised, particularly those related to your technology services or products. If your software fails to perform, resulting in customer loss or data breaches, Tech E&O could cover the legal costs and damages.
Employment Practices Liability Insurance (EPLI):
EPLI is crucial for protecting your business from claims by employees who allege violation of their legal rights, such as cases of wrongful termination, discrimination, harassment, or other employment-related issues. For e-commerce ventures, which may employ a diverse and often remote workforce, this insurance is an essential shield against employment-related lawsuits.
Commercial Crime Insurance:
This insurance offers coverage against crimes such as theft, fraud, forgery, or robbery by employees or third parties. Given the virtual nature of e-commerce, where transactions, customer data, and funds are managed online, this insurance can be a critical safety net against cybercrime and associated losses.
Directors & Officers Insurance (D&O):
D&O insurance protects the personal assets of corporate directors and officers, and the organization itself, from financial losses due to legal action taken against them for alleged wrongful acts in their managerial roles. This coverage is essential for e-commerce businesses to safeguard decision-makers who could be held liable for the actions of the business.
Workers Compensation Insurance:
Even in an e-commerce setting, employees can encounter workplace injuries or illnesses. Workers’ compensation insurance is legally required in most jurisdictions and covers medical expenses, lost wages, and rehabilitation costs for employees who are injured on the job. It’s relevant even if your workers are warehouse staff, delivery personnel, or office employees.
For e-commerce businesses that deal with the physical shipment of goods, cargo insurance is indispensable. It provides protection against risks of transportation, covering loss or damage to merchandise while in transit by sea, air, or land. This insurance assures that supply chains are protected and that a lost, damaged, or stolen shipment doesn’t translate into a financial disaster for the business.
Find the Best eCommerce Insurance: Buyers Guide
There are several vital things to consider when on the shopping trail for the best e-commerce insurance.
Determining what you need
It is important to make of list of things you’d like to cover through your e-commerce insurance policy, including your website, warehouse, etc.
You also must understand your legal obligations that arise when you are renting a commercial space.
Take care as well to cater for third-party property damage or injuries.
Remember, legal obligations vary across states, so it’s essential to research and get information in states where you will be doing business.
Coverage is more important than the cost of the coverage
Once you’ve figured out the type of e-commerce insurance coverage you need, you prioritize getting the best insurance coverage rather than skimping on the costs.
If your product results in damage, you could end up paying a vast amount of money in damages and legal costs arising from the lawsuits.
If you don’t have the right kind and amount of coverage, these unexpected expenses will come straight out of your own pockets.
Select a reputable insurance provider
There are many hundreds of e-commerce insurance companies to choose from.
What’s important is choosing a company that boasts a stellar rating and reputation.
Of course, along with the reputation, the company should also offer the type of coverage you need and should be able to create a bespoke insurance policy tailored to your business model.
Once you receive your e-commerce insurance policy, be sure to read it thoroughly, including the fine print, before signing off on it because the last thing you want is unanticipated surprises when you file a claim.
Final Thoughts for eCommerce Insurance
Venturing into the e-commerce arena can be as thrilling as it is challenging, whether you’re just starting out or scaling an existing online enterprise.
Amidst the excitement, it’s critical not to overlook the importance of securing robust e-commerce business insurance. This protective measure isn’t just a safety net; it’s an investment in the longevity and resilience of your business.
In the digital marketplace, where uncertainties range from data breaches to supply chain disruptions, the right insurance policy acts as a bulwark against unforeseen financial strains.
Finding the best ecommerce business insurance isn’t a one-size-fits-all solution. It demands diligent research and a strategic approach to cover all potential risks tailored to the unique demands of your online business.
Starting your search with a simple online query can unveil a plethora of e-commerce insurance providers. However, the key is not to rush this process.
Take your time to delve into the specifics of what each policy covers. Compare the quotes, certainly, but also weigh the comprehensiveness of each policy against the particular vulnerabilities of your e-commerce operation.
Remember, the cheapest option isn’t necessarily the best. Consider factors such as the insurer’s credibility, customer service record, and the ease of the claims process. It’s also wise to read customer reviews and seek testimonials, as these can provide valuable insights into the real-world application of the policies.
Selecting the right insurance partner for your e-commerce business is a decision that should be made with foresight. It’s not merely about mitigating risks but about empowering your business to thrive in an ever-evolving digital landscape.
By securing a policy that best fits your business, you’re not just preparing for the ‘what ifs’ – you’re setting a foundation for peace of mind and ensuring that your business has the potential to grow, adapt, and succeed, no matter what challenges the online world may bring.