Insurance for e commerce: What Is It, And Do You Need It for Your online store?
The online retail industry has seen astronomical growth in the past decade, and with that raises unique challenges and risks to the store owner.
According to a study by BigCommerce and Square: 96% of Americans with internet access have made an online purchase in their life. 51% of Americans prefer to shop online in 2018.
E-commerce is growing 23% year-over-year, yet 46% of American small businesses do not have a website.
That’s a clear upward trajectory. And the barrier to entry for those businesses who don’t have a website has never been more permeable. User-friendly web design platforms have made it possible to launch an online store in a matter of hours.
Insurance is a tricky topic, especially when it comes to business insurance. The products are complex, and it’s easy to feel intimidated by the jargon.
On the other hand, insurance is an important way to protect your business, and if you ever end up relying on commercial insurance, it can be the difference between an unfortunate situation and a total disaster.
Getting the lay of the insurance landscape before you sit down to talk to a professional can help you both understand the process and understand which insurance products your business might need as it grows.
And if you’re still feeling intimidated at the thought, remember: When it’s used correctly, commercial insurance is just another product you buy, and what you need depends entirely on your business. And you already know and understand your business.
So, let’s dig in.
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Who needs commercial insurance?
By nature, running an E-commerce business exposes companies to a different risk profile versus traditional brick and mortar stores.
One of the big fears when you don’t understand financial products is that you’re going to be sold something you don’t need, simply because you don’t understand what you’re buying.
If you’re a small business owner and you have revenue coming in from the products and services you sell, you should think about commercial insurance. When your business grows and starts to bring in significant revenue, that’s when you really need to think about the next level of protection. Revenue is an effective way to evaluate if you’re ready to think about commercial insurance, but there are other factors to consider as well.
Insurance, at its core, is a way to minimize risks in your business, and there are some risks that wouldn’t be covered through your existing, personal insurance policies like protecting your inventory in a worst-case scenario.
Whether you have all your inventory in your garage, or you have an office or a warehouse somewhere, you need to make sure that inventory is insured. Your homeowner’s policy is not going to insure inventory sitting in your garage if it’s for your business. Insurance isn’t the only way to handle those risks, so at small levels of inventory and equipment, it becomes a judgement call. Could you really replace all your inventory if it were lost in an accident or fire, or get new equipment if yours was stolen? We can’t answer that for you, but it’s an important question to ask.
At certain stages of your e commerce business, you’ll know without a doubt that you need commercial insurance, because you’ll be faced with contractual obligations to buy it. If you’re working with a fulfillment center or selling to a major retailer, they might specify you need a certain amount of liability insurance, property insurance, or other types of commercial insurance.
Whether it’s a clear-cut choice or not, if you decide you need commercial insurance, your next step is to figure out where and how to buy it.
Scaling up to work with big-box retailers?
There’s a lot you’ll need to know ahead of time, so we spoke with a business owner who’s been through it to help guide you on your way.
The Unique Risks of Ecommerce
E-Commerce Insurance vs. Standard Business Insurance
Certainly, not everything is completely different when comparing online retailers and traditional stores. There are risks that both business models share and there are some that can be avoided by going online.
For many e commerce companies, a standard business owners policy (BOP) will cover most risks. This policy combines property coverage with general liability.
If someone slips and falls while shopping in a store, the liability portion will help pay for medical expenses. If a severe windstorm breaks a few windows, the property damage will be covered by insurance.
As an e-commerce business, you operate in a completely different realm, so while the standard BOP policy may cover a few risks, you need more comprehensive coverage.
An e-commerce business presents unique challenges that only e-commerce insurance can address. Two key areas that internet businesses should focus on include:
An online business is likely to keep sensitive customer data and valuable business information in a secure database, but breaches are known to happen more every day. Risk management is essential to preventing a breach, but are you prepared if information is exposed? You could be held liable for each customer’s information.
But the introduction of the Internet as the bridge between sellers and buyers and the new risks that come with the arrival of this infrastructure cannot be downplayed.
Cyber Risks
When it comes to cyberattacks, e commerce companies are one of the most bombarded industries, with 32.4% of all cyberattacks targeting this industry. Ecommerce websites are a goldmine for sensitive information, especially buyers’ credit card information. Data breaches in which this sensitive, personal information is leaked, stolen, or used are one of the greatest risks that businesses face. Another common risk is a distributed denial of service (DDoS) attack in which hackers will flood an ecommerce website using botnets to crash the store, which will obviously lead to downtime, loss of revenue, and unhappy customers as well.
Unbelievably, a data breach causing damage to third-party computer software, networks, or data is also a real risk. For example, if the company’s online store or email client were somehow infiltrated by a virus and, as a result, a customer’s computer suffered damages, there could be grounds for a lawsuit against the ecommerce business.
Product Liability Insurance
Much like regular retailers, ecommerce businesses also need to worry about product liability issues because any product or service sold can malfunction and result in some type of injury whether you’re selling toys or software.
The most common product liability claims result from defectively manufactured or designed products, or a failure to provide adequate warnings or instructions for the product. It should be noted that these issues can affect your ecommerce business even if you are selling products and services that were created by others. If you are in that chain of distribution, claims can be filed against you if there’s something wrong with the product.
Professional Liability Insurance
Since most transactions and deals in ecommerce are made online, there are usually contracts that are entered into and promises that are made before the transaction occurs. So if your ecommerce business made a mistake or delivered products or services that were not up to specifications in terms of how they worked, or when they arrived, you can be sued if your actions in any way resulted in your customer losing money.
Privacy Issues
Intellectual Property Infringement
Seller Suspension Insurance
If you sell on a marketplace like Amazon, your business can be shut down at a moment’s notice. Seller Suspension Insurance is a low-cost insurance that can do wonders for your peace of mind. Think of it this way: If you had a brick-and-mortar store and a pipe burst, water damage might cause you to temporarily close your store. While your store was closed, your business insurance policy would kick in to cover the repairs and loss of income, helping ease the financial burden of this unforeseen setback.
As an online seller you may not be worried about floods or fires, but you still can’t afford to be shut down. Seller suspension insurance eases the burden of an account suspension by providing you with the resources and financial support you need to tackle an account suspension head-on and get back to business.
What’s that you say? You follow Amazon’s rules and have exceptional performance metrics? Doesn’t matter. Amazon’s loyalty is to its buyers, and their philosophy is: react first, ask questions later. Any issue or claim real or fake can trigger a suspension, causing you to miss sales and leaving you with a sticky situation to deal with.
A seller suspension insurance policy can provide coverage for suspension-related costs like hiring a reinstatement specialist to help with your appeal, and reimbursement for the financial losses incurred during the time your account is suspended. In addition, some suspension insurance policies, like Momentum™, cover tax audit expenses to pay for a tax practitioner in case you get audited.
Seller suspension insurance can be purchased for a low annual rate compared to many other insurance policies and is an easy decision for anyone who earns the bulk of their income selling online.
What are the common types of commercial insurance for e commerce?
- General Liability (GL)
- Commercial Property
- GL + Property (bundle them with a "BOP" Business Owners Package)
- Business Interruption Insurance
- Workers Compensation
- Employment Practices Liability Insurance (EPLI)
- Cyber Insurance
- Product Liability Insurance
- Umbrella Policy
What types of insurance do e-commerce and online retailers need?
These policies provide coverage for the most common risks of online retail.
Business owner's policy
A business owner’s policy bundles property insurance and general liability insurance in one plan. It’s often the most cost-effective type of commercial insurance for online retailers.
General liability insurance
This policy covers basic e-commerce risks, such as a delivery person stumbling on your porch and breaking a leg. Bundle with property insurance in a business owner’s policy.
Workers' compensation insurance
Workers’ compensation insurance is required in most states for e-commerce businesses that have employees. It can cover medical costs for work-related injuries.
Umbrella / excess liability insurance
Cyber Liability Insurance
Cyber liability insurance covers claims stemming from events like data breaches and denial of service attacks. Such claims aren’t covered by a standard liability (CGL) policy. One reason is that damage to electronic data doesn’t qualify as property damage because insurance companies do not consider electronic data as tangible property. It is more important than ever to consider data breach coverage for online retail businesses.
E-Commerce Seller Insurance Requirements
As an Amazon seller, you need insurance to meet Amazon’s Seller Central TOS (Terms of Service Agreement) as well as to protect your growing business. The type of coverage needed varies based on your account specifics.
How much does insurance cost for online retailers?
- Retail products and services offered
- Business equipment and property coverage
- Revenue
- Location
The average price of a standard $1,000,000/$2,000,000 General Liability Insurance policy for small eCommerce businesses ranges from $27 to $49 per month based on location, size, payroll, sales, and experience.
How do I buy commercial insurance?
Beacon Point Insurance was founded by established Independent Insurance Agent to meet the growing needs of successful eCommerce sellers. We understand the unique risks and exposure that sellers face. Beacon Point provides the e commerce business insurance options necessary to protect your business assets so you can focus on growing your e commerce retail store. Not all insurance companies understand your unique business risks when selling products online, which is why we partner with the several of the more forward-thinking insurance companies to provide you with the best possible coverage options to fit your online businesses growing insurance needs.
Need A Certificate of Insurance to meet Amazon’s Terms of Service? We have you covered!
Need a Consultation to better understand your exposure and needs? We have you covered!
Amazing e commerce store statistics:
According to the U.S. Census Bureau, retail ecommerce sales in the U.S. surpassed $390 billion in 2016 and are a bigger percentage of overall retail sales each year.
By 2020, ecommerce is predicted to make up 15% of all worldwide retail sales, according to digital research company eMarketer.
According to recent studies, retail ecommerce sales will increase to $4.058 trillion in 2020 and will make up more than 14% of total worldwide spending.
When it comes to cyberattacks, ecommerce is one of the most besieged industries, with 32.4% of all cyberattacks targeting this industry.
96% of Americans with internet access have made an online purchase in their life.
51% of Americans prefer to shop online in 2018.
Amazon – almost $178 billion in revenue, up 31% from 2016.
E-commerce is growing 23% year-over-year, yet 46% of American small businesses do not have a website.
Shopify – $673 million in revenue, up 73% from 2016.
It should come as no surprise, then, that e-commerce is expected to make up 17% of all retail sales in the US by 2022.
Additional Coverage
You can customize your policy to include specific needs for your business. Some available covers include:
- Miscellaneous professional liability insurance, also known as errors and omissions insurance- If your business involves representing the needs of others, making a recommendation, giving advice, providing physical care, or designing products, clients or patients could sue you for failure to perform your business properly that harmed them in a way. Errors and omissions liability insurance covers such situations. It covers any judgment that the business is liable for and any legal defense costs that may be incurred. However, this insurance is subject to a limit.
- Outdoor property coverage- covers outdoor property such as fences, satellite dishes, plants and signs among others.
- Cyber liability coverage- covers any losses associated to cyber crimes such as data breaches. Cyber liability coverage is especially important nowadays due to the rising cases of hacking.
- Business auto insurance- covers the company's automobiles and injuries caused by your vehicles.
- Data compromise coverage- Provides legal liability for victims of data theft. It may also pay for services to provide recovery of personal information that has been compromised.
- Equipment breakdown coverage
- Employment practices liability coverage- Pays for damages that the employer is legally liable for violating an employee's rights. It also pays for the legal fees that may be involved.
- Directors and officers liability insurance coverage- covers for judgment and legal defense costs when there is a lawsuit claiming that the business was managed without proper regard for the rights of others.
- Umbrella policies- The policy provides coverage for costs that are over and above your liability insurance. Umbrella policies protect businesses against high losses when underlying policies have been used up.
Now that you are aware of the various types of insurance, we will look at why a small business requires insurance.
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