Overview
The online retail industry has seen astronomical growth in the past decade, and with that raises unique challenges and risks. According to a study by BigCommerce and Square:
- 96% of Americans with internet access have made an online purchase in their life.
- 69% of Americans shop online regularly.
- E-commerce is growing 23% year-over-year, yet 46% of American small businesses do not have a website.
These stats indicate a clear upward trajectory. 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.
Or, if companies don’t want to go through the process of building an online presence, retailers like Amazon and Alibaba provide the marketplace for them (at a cost, of course). These e-commerce behemoths have been dominating the marketplace and there’s no sign of that stopping. Amazon might even claim the majority of all online sales in the near future.
3.5
tnCompanies worldwide lose $3.5 trillion to fraudsters every year — and the figures continue to devastate small and large businesses.
$4
mThe average total cost of a data breach in 2020 was $3.86 million and the average cost per individual record that was lost was $150 (IBM).
Why is Insurance for E-commerce Organizations Important?
Think about the risks involved with e-commerce compared to traditional retail. Of course there are claims online retailers have to deal with that would rarely be faced by your average walk-in store, but some things never change.
Both e-commerce and brick-and-mortar retailers have to bear the risk of being a link in the supply chain of a product that could hurt somebody. Both have employees who need to be protected from injury and management who needs to be protected from shareholder lawsuits. But bodily injury claims like slip-and-falls are less likely in e-commerce. Alternatively, the chance of someone stealing customers’ sensitive information is a great deal higher for online stores.
The importance of computers and system integrity for e-commerce companies cannot be overstated, so let’s start with some of the risks insurance addresses. The theft of customers’ personal info — or worse yet, their financial info — is a looming threat for online retailers. Bad actors can wreak havoc by stealing data, encrypting your data and extorting you, or shutting you down with a DDoS attack. These challenges can cause lasting damage to a company who isn’t prepared to face them.
Data Breach
When sensitive information is data is copied, transmitted, viewed, stolen or used by an individual unauthorized to do so. The Equifax Breach in 2017 that leaked 145.5m customers accounts (including social security numbers) was due to a server security patch that was not implemented.
DDoS Attack
A Distributed Denial of Service (DDoS) attack occurs when cybercriminals overwhelm an online service from multiple sources (i.e., UDP or SYN flooding), making it unavailable. E-commerce operations can come to a screeching halt when faced with a DDoS attack. Lost income, server outages, and mounds of IT stress typically follow one of these vicious attacks.
Property Damage
Many e-commerce platforms store their inventory at 3PLs and fulfillment centers, making it critical to protect your business personal property (BPP) while it’s not in your possession. Losing valuable BPP or experiencing severe damages could devastate an e-commerce operation.
Product Defects
No matter how meticulously you design or handle your products, a flaw might slip through the cracks. Whether shipping or a manufacturing issue causes the issue, product defects happen. Sometimes, e-commerce companies need more than a sophisticated return and exchange system to handle specific problems arising from product defects.
Recommended policies for e-commerce companies
Core Coverage
These coverages form the foundation of any risk management program for ecommerce companies
General Liability
General liability offers broad protection against some of the most fundamental risks companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.
Workers' Compensation
When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping e-commerce companies running smoothly.
Cyber Liability
Cyber insurance protects companies from third-party lawsuits relating to electric activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
Employment Practices Liability Insurance
Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. This coverage protects companies against lawsuits related to employment practice
Ecommerce Specific Coverage
These policies are essential for or can be tailored to the needs of companies operating in the ecommerce space
Product Liabilty
Companies offering tangible products or services risk third-party lawsuits claiming bodily injury or property damage. Consider McDonald’s notorious “Hot Coffee” case in the 1990s, for example. No matter if the claims are grounded or not, this policy covers defense fees and settlements
Property Insurance
Whether it’s a devastating fire, natural disaster, or burglary, property insurance responds. This policy reimburses companies for direct property losses, supporting recovery and momentum.
Transit & Transportation Insurance
Logistic companies move goods by the ocean, air, and land, facing the risk of damaged goods, theft, and other liabilities. This policy protects from business property loss or damage when it’s in transit or stored offsite.
Types of Ecommerce Companies that need insurance
- B2B
- Direct to Consumer
- Third-Party Logistics
- Dropshipping
- Subscription Ecommerce
- Wholesaling
E-commerce Insurance Frequently Asked Questions
Food can make people sick, small objects can be swallowed by children, safety equipment can fail, machinery can malfunction and hurt the user…amazingly, baby powder can cause cancer. The list goes on and on. Bottom line, product liability exists regardless of where you are in the supply chain or whether you company has a storefront or not.
The cost of insurance for e-commerce companies will depend on several things, including the company’s size and development stage. Other factors include:
- Exposures: risks being insured
- Company practices: views on safety, compliance, and risk management
- Program structure: the amount of deductible and willingness for a company to assume more risk
- Claims history: the type and amount of past claims against the company
