Overview of the E-Commerce industry

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-yearyet 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.

Biggest players in e-commerce as of 2017

  • Amazon – almost $178 billion in revenue, up 31% from 2016.
  • Alibaba – ¥158 billion ($25 billion) in revenue
  • eBay – $9.6 billion in revenue
  • 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.

Some of the biggest risks E-Commerce companies face

By nature, running an E-commerce business exposes companies to a different risk profile versus traditional brick and mortar stores. Here are some common threats that the E-commerce industry is subject to:

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

Distributed denial of service (DDoS) attacks are when hackers use botnets to flood a website with so many requests it crashes or become inaccessible due to overload. These attacks have a direct impact on revenue and the trust you’ve built with your customers.

Fraud

E-commerce transactions more likely to result in fraud than face-to-face ones. Stolen credit card use, unauthorized card users and hacked store credit can impact e-commerce retailers bottom line. In Q2 2017 “account takeover” fraud alone rose by 45%  – costing online retailers $3.3 billion.

Product Defects

Product defects can have a significant impact on the bottom line, especially if you offer free returns. Moreover, major defects can have a huge cost. In 2016 IKEA recalled 29m of its chests and dressers due to a tipping hazard, which tragically caused the death of 3 children.

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.

Cyber Security

One study showed that the retail industry is most at risk of attack by hackers. And the majority of the attacks against retailers specifically targeted the servers and databases of e-commerce sites. Small online companies present some of the best targets since big-box retailers started investing heavily in cyber security. For hackers, these small businesses who think “OK, but it probably won’t happen to me” are the lowest-hanging fruit since they can attack a large number of victims with much less effort than an attack on Amazon would ever require.

Product Risks

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.

Standard Business Risks

There are the risks every company has to deal with. Most states require employers to purchase workers compensation insurance for their employees. And speaking of employees, the company can be sued by its workers for employment practices violations. Stakeholders in the company can file suits against management if they feel they haven’t upheld their fiduciary duty. Competitors can take you to court with allegations of unfair trade practices, intellectual property infringement or defamation.

What Insurance do E-Commerce companies need?

What insurance to e-commerce companies need

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