As internet shopping grows, so do the risks for online retailers.
A Kiplinger forecast predicts that online retail sales will increase by 15% this year. Although Amazon and eBay rank as the giants in the e-commerce arena, small businesses have turned online to drive growth and reach a wider audience. In fact, when small business insurance speciality firm Insureon polled more than 2,400 small business owners, the vast majority — 66% — sold their goods from their own websites.
Additionally, a sizable portion used Amazon and eBay to market their products, with 24% choosing Amazon as their platform and 22% advertising on eBay. Selling online seems to be working for them: 43% of the Insureon survey respondents reported a significant increase in revenue from their web-based sales.
Although small business owners recognize the revenue potential of online sales, they apparently haven’t given much thought to fully insuring the potential risks involved in e-commerce. While 72% hold general liability insurance, a third go without vital coverage, meaning they could be held liable if a defective product harms the buyer in any way.
This unique commercial market requires a suite of insurance policies to mitigate the risks e-commerce retailers face. Listed here are six options insurance agents can discuss with small businesses that sell over the web.
Product Liability Insurance
Although a general liability policy may include product liability coverage, e-commerce sellers should also purchase separate product liability insurance to protect themselves against the possibility of a malfunction resulting in a serious injury to a consumer. Even if the seller doesn’t manufacturer the product, the company could be named in a lawsuit if the item causes harm.
If the seller owns a warehouse from which their products are shipped, they must insure the structure against any damage from a fire. This type of coverage is typically required by lenders if the owner has a mortgage on the building. In addition, buildings at higher risk of damage from a major disaster like a flood or earthquake need supplemental coverage for those events.
Similar to building insurance, contents insurance compensates the warehouse owner if any of the goods kept inside the building are lost due to a disaster. While this type of policy might cover inventory, shelving, and shipping supplies, it typically excludes mobile equipment such as forklifts. In that case, e-commerce sellers can request that the insurer include those items in a contents policy.
Contents insurance only covers products while they’re stored in a warehouse. The cost to replace items lost, stolen, or damaged during transport can be recouped with transportation insurance. E-commerce sellers should also consider purchasing commercial auto insurance to protect their delivery vehicles in the event of an accident or theft.
Online stores offer a lucrative target for hackers looking to steal credit card and personal information from shoppers. Not only will the e-commerce sellers be sued by buyers whose data was hacked, banks and credit card companies involved in the transaction may come after the them, as well. Cyber insurance reimburses the policyholder for any expenses related to the breach, such as providing customers with a credit monitoring program.
E-commerce retailers depend on third-party vendors such as internet providers and shipping companies to run their online businesses. When those providers experience a stoppage for an extended period, the e-commerce seller’s revenue drops. A business interruption insurance policy compensates the e-commerce business owner for any dollars lost due to a vendor’s downtime.
The continued growth of internet shopping demands a unique set of insurance products specifically for e-commerce sellers. Insurance agents who reach out to them will find an untapped and underserved market.