Insurance for E-Commerce Companies

The definitive guide to business insurance for online retailers and store owners.


Online retail is a unique industry with very specific nuances and challenges when it comes to insurance. The risks and exposures that e-commerce companies face can create insurance needs that range from basic property coverage to protect inventory stored in warehouses all the way up to more complex lines of protection like a cargo policy to protect inventory while it’s in transit to a warehouse or products liability insurance to protect against product failures. If you’re an online store owner, big or small, this e-commerce insurance guide should help you understand what types of coverage are right for your operation.

Manufacturers & Importers

If you're an online retailer who manufactures or imports the products that you sell, pay close attention to the product liability insurance section below. It describes a key line of coverage that will protect your company if a consumer is injured by one of your products.

Drop Shippers

If you're a drop shipper that doesn't have physical control over the products you sell, pay close attention to the business income insurance section below in case something happens to the third-party you depend on to manage and fulfill orders to your customers.

What We’ll Cover

The purpose of this guide is to provide detailed descriptions and explanations of the business insurance policies e-commerce companies should consider putting in place to properly protect their online stores. Feel free to use the links below to jump ahead to any specific policies you’d like to learn more about.


The Foundation

The key to a well-rounded and effective business insurance strategy begins with a solid foundation of coverage. Like any other business, e-commerce companies should all have either a general liability insurance policy or a business owner’s policy in place before they start exploring more specialized lines of coverage like products liability insurance or cyber liability insurance. If you don’t currently have any insurance in place, a business owner’s policy, or BOP as they’re commonly called, is a great place to start. This ideal “starter” policy is an affordable bundle of general liability, commercial auto liability, and basic property coverage.

The property component of a BOP is intended to protect business personal property and any product inventory that your store maintains. Therefore, when estimating how much property coverage to put in place, make sure you take into account the estimated replacement costs items like computer equipment and furniture in addition to the value of your average inventory levels.

Cyber Liability & Data Breach Insurance

Cyber Attacks Against Retailers

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This is a crucial line of insurance for most modern companies. Online businesses, however, are especially vulnerable to the risks protected by a cyber liability policy. Cyber attacks and data breaches against online retailers is on the rise and according to recent data released by Symantic and BigCommerce, the average cost for each breached record is $172 for e-commerce companies. As a result, it’s no surprise that 60% of small businesses who experience a cyber attack or data breach go out of business within 6 months. This is exactly why cyber liability and data breach insurance is so important.

Here at UnBrokerage, we’re working closely with insurance companies to bring affordable cyber coverage to the market that is fast and easy for e-commerce companies to get in place. Our cyber liability and data breach insurance starts at just $250 per year for a pre-underwritten instant issue policy that provides $100,000 in protection. As your company grows, we have more robust policies that you can grow into which can provide higher coverage limits and additional benefits like cyber extortion protection.

Product Liability Insurance

The first type of product liability insurance protects companies that manufacture or import products in cases where a product fails and causes injury or illness to a consumer. For example, a nutraceutical manufacturer produces a bad batch of dietary supplements and customers who receive product from that bad batch end up getting sick. In this scenario, the manufacturer’s product liability policy would respond since the fault rests with the manufacturer and not the retailer that ultimately sold the supplements to end users.

The second type of product liability insurance provides protection for the retailer (or e-commerce company) selling a product to end users for instances where the retailer damages or mishandles the product being sold in a way that ultimately harms the consumer. For example, an online health products retailer purchases dietary supplements from a nutraceutical manufacturer to resell but doesn’t store the product at the right temperature which causes customers who purchase the supplements to get sick. In this case, it’s not the manufacturer’s fault that the retailer didn’t properly store the supplements which caused the consumers to get sick. As a result, the manufacturer’s product liability policy would not respond but the retailer’s product liability policy would.

When you purchase product liability insurance, it’s extremely important to learn what all the exclusions are and the list of exclusions can get long. For smaller retailers, basic product liability insurance is often included as part of a general liability policy or business owner’s policy so before you purchase stand-alone coverage, check to see if your GL or BOP is already providing protection.

It’s common for retailers to require their suppliers to have a product liability policy explained in the first scenario above because if a product fails as a result of a manufacturing flaw or design flaw, they want to make sure there is a layer of protection between the manufacturer or importer and themselves and that their supplier will be able to handle the financial responsibilities of a product failure including paying any fines or legal defense costs. If you’re an e-commerce store who is drop shipping or reselling products from a wholesaler, ask them for a certificate of insurance listing your company as an additional insured before you begin selling their products.

Worker’s Compensation Insurance

The requirements surrounding worker’s compensation insurance vary by state so be sure to research the laws in your state before you begin hiring employees. On average, companies are legally required to purchase this type of policy once they reach or exceed 3 full-time employees including owners. It’s common for small business owners to exclude or opt-out of covering themselves with worker’s comp to lower premiums. This, however, is a dangerous decision. If you’re injured while performing a work-related task, your personal health insurance will not respond forcing you to pay out-of-pocket for any medical costs associated with that injury. Without worker’s compensation insurance, something as simple as getting into a car accident on the way to drop a check off at the bank could prove extremely costly.

The cost of this line of insurance for e-commerce companies will generally be relatively low. Unless you maintain a warehouse with employees who lift heavy boxes and drive around forklifts, your rates will be some of the absolute lowest. It’s for this reason that we always recommend our customers purchase worker’s compensation insurance even if they’re below the employee count threshold making it mandatory.

Business Interruption Insurance

There are two types of business interruption insurance an e-commerce company should consider. The first and most common type would be a traditional business interruption policy which is typically included within a standalone property policy or as part of a standalone business interruption policy. This coverage will provide income protection for a set period of time for cases where a business is forced to shut down or reduce its operations because of a covered event. The most common example would be a fire that destroys your office or warehouse.

The second type of policy is called electronic business interruption insurance and would likely be packaged into a cyber liability insurance policy. This coverage would respond, for example, when a companies computer systems are hacked or compromised preventing the organization from selling its goods or services online. In this case, there is often a waiting period of between 1 and 10 days before the policy will kick in to begin reimbursing for any lost income until the compromised computer systems are restored. The big difference between this policy and the first one we described is that there is no time limit on how long the insurance will reimburse for lost income.

Suspension Insurance

As the largest online retailer in the world with a reach that shows no signs of slowing down, Amazon can provide a significant source of volume for web-based businesses. If you run an e-commerce company and depend on Amazon or similar marketplaces for distribution, then chances are one of your worst nightmares is getting suspended from selling your products through this type of channel. Suspension insurance, or Amazon insurance as it’s sometimes called, is a relatively new line of coverage that will, in theory, provide monetary compensation in cases where a seller is suspended from selling on Amazon and other online marketplaces.

Like with any emerging risk, the insurance carriers are still trying to determine how to underwrite this niche line of protection. In fact, very few A-rated insurance companies currently offer suspension insurance which is the primary reason we don’t currently sell it. However, as the market matures and more carriers introduce dependable solutions, we will expand our offering to include it.

Chargeback Insurance

Like suspension insurance, chargeback insurance is a relatively new line of coverage created in response to the ever-increasing use of credit cards for payment as well as the rapidly growing e-commerce industry. these policies are designed specifically for retailers who accept payment either exclusively or primarily through credit and debit card. E-commerce companies are especially susceptible to chargebacks as a result of fraudulent payments. Because this is a newer type of insurance, the scenarios to which it responds can be limited. The most common chargeback triggers that will be protected by chargeback insurance are outlined below.

  • Charges Made With Stolen Credit or Debit Cards
  • Charges Made Using Counterfeit Card Numbers
  • Undelivered Orders from Post-Purchase Shipping Address Changes

Umbrella

An umbrella policy is one of the easier commercial lines of insurance for business owners to understand. Just like with personal insurance and as the policy name implies, an umbrella policy is an additional layer of protection that sits on top of any existing liability policies. For example, if you purchase $5,000,000 of umbrella coverage, you literally have $5,000,000 of protection in addition to the limits of your general liability and commercial auto liability policies. Most importantly, a standalone umbrella insurance policy will cost you much less than simply increasing the coverage limits on your other liability policies.

As a rule, umbrella insurance only extends to other liability insurance policies. For example, umbrella policies do not provide additional protection for property insurance. Additionally, cyber liability insurance is an exception to this rule. So, because it’s excluded from umbrella protection, make sure you’re always selecting an appropriate limit when purchasing cyber liability or data breach insurance.

Cargo Insurance

Cargo insurance coverage can be extremely very important for e-commerce companies and especially for those which have their product inventory shipped directly to their warehouse. In many cases, the ownership of inventory is transferred to the store owner the second it’s loaded on the truck, boat, train, or plane transporting it. In this case, the e-commerce company is responsible for any loss, including from theft or damage, of their inventory. Therefore, because the inventory isn’t at the company’s warehouse yet, any property policy will not respond. This is precisely where a cargo policy addresses any potential loss.

In many cases, the transportation and freight companies can offer limited coverage but it can be very expensive. For most online retailers, it makes the most sense purchase a true cargo insurance policy to protect its inventory while in transit.


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