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. 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.
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 as soon as 2021.
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
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.
Fraud
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.
Product Defects
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.
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.
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.
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.
Types of Ecommerce Companies that need insurance
- B2B
- Direct to Consumer
- Third-Party Logistics
- Dropshipping
- Subscription Ecommerce
- Wholesaling
