The global pandemic changed the retail industry dramatically. In 2020, consumers decided to shop from their homes instead of visiting local stores, and online sales grew by over 25%. Thousands of business owners then traded their shops for online storefronts and embraced the new world of retail. What many of them didn’t realize, however, is that going digital opened their companies up to new risks.
When you first opened your online business, you might have assumed that not having a physical storefront means you don’t need insurance. After all, your customers can’t slip, fall, and sue you if they can’t visit your shop, which removes many of your general liability risks. Additionally, a tree can’t fall during a storm and come crashing through your roof, so you don’t need commercial property insurance, right?
Not exactly. Just because you can’t see your risks doesn’t mean they don’t exist, and you might be surprised to find that you still need many of the same coverages you had before you went digital.
For example, your employees can still get injured on the job, even if they spend most of their days on the phone with customers. As a result, you need worker’s compensation insurance to cover their medical costs following a workplace injury. Additionally, you still own property as an e-commerce business, which means you need a policy to cover your inventory, computers, and furniture.
On top of general liability, property, worker’s compensation, auto, and other essential coverages, e-commerce companies need policies that specifically address their online risks. These are the types of online sales insurance you need to protect your business.
You may never speak with your customers face-to-face, process their credit cards in person, or see them use their new product, but unseen risks still exist—and they could take down your business if you don’t know how to insure them. Here are a few of the policies you need to protect your unique risks as an e-commerce retailer.
As an e-commerce business, you’re a prime target for cybercriminals. You only accept payment virtually, which means you store hundreds of pieces of customer information, including addresses, names, credit card numbers, and more, in an online system. All it takes is one cybersecurity misstep for a hacker to gain entry into your system and steal your sensitive information.
One data breach could tank your reputation as a safe online retailer, cost you thousands in damage control, and land you in court for failing to protect your clients’ information. If you want to prevent the financial disaster a data breach can cause, you need cyber liability insurance. This coverage type covers costs related to restoring your network, regaining business function, notifying clients about the breach, and defending your company against lawsuits.
In addition to cyber insurance, you may also need e-commerce fraud insurance, which helps protect your business against payment scams. For example, if someone purchases an item from you, receives it, but later disputes the charge with their credit card company, a chargeback insurance policy can reimburse you for the product’s cost.
It doesn’t matter where or how you sell your products—you can still get sued for defective or harmful merchandise. For example, let’s say your customer orders a chair from your online store, which collapses when they test it out, causing a back injury. They could take you to court to cover their medical expenses. In total, after paying for a lawyer, court fees, and damages, you spend nearly six figures defending your business. Without a product liability policy, that money comes out of your pocket.
Product liability insurance protects your company against lawsuits related to design and manufacturing defects, bodily injury or property damage caused by your products, and allegations of insufficient warnings about product risks. Insurance companies often combine this coverage with your general liability insurance.
Your e-commerce company makes promises to customers, which sometimes go unfulfilled. For example, you tell a customer their order will arrive on December 23, in time for Christmas. However, your order fulfillment company loses track of the package, and it doesn’t arrive until December 27. In this scenario, you would usually get a bad review and an angry phone call, but this customer decides to sue.
Because this lawsuit alleges you failed to fulfill a service, your general liability policy won’t cover it—but a professional liability policy will. When a customer experience goes wrong, and you end up in court because of a mistake you made, professional liability insurance helps cover your lawsuit costs.
The cost of your e-commerce business insurance depends on a wide range of factors, such as:
- The number of policies you need
- Policy limits and the extent of coverage
- Your products and services
- Number of employees
- Your business assets
- Previous claims history
Businesses with higher risks typically have higher insurance costs. For example, a home-based e-commerce retailer with limited foot traffic will likely have a lower insurance rate than an online company with multiple employees.
Finding insurance for your e-commerce business is no easy task, but you don’t have to do it alone. At Southpoint Insurance, we’re well-versed in assessing companies’ coverage gaps and creating custom insurance packages that fit their business. Whether you need to add product liability insurance to your existing business owner’s policy, or you need a professional liability policy to cover your new risks, our team members can help.
Contact us today to learn more about our e-commerce business insurance or request a quote.