Most merchants don’t have a hard time understanding the need for commercial insurance coverage when they own a brick-and-mortar retail shop. However, protecting yourself with this type of coverage is just as important if the only storefront you have is a computer screen, you accept virtual payments, and you never have physical contact with your customers beyond tracking what is in their shopping carts. It is vital to take the time to understand whether you have the right insurance that will help protect your ecommerce operation.
All insurance is predicated on predicting and protecting against risk, and coverage for cyber companies is no different. Before delving into more specific types of insurance, all ecommerce entrepreneurs should at the very least have a business owner’s policy (BOP) or general liability coverage. A BOP is an affordable basic policy that bundles general liability, basic property, and commercial automobile insurance into one package. With this protection in place, your property and all the inventory that you maintain is safeguarded up to the purchase value of the policy. However, most etailers need more protection than a BOP can provide.
Cyber liability and data breach insurance.
All companies that do business online are vulnerable to attacks from cybercriminals. The fallout from a data breach can be catastrophic and is often costly enough to spell doom for the merchant’s survival. For that reason, most etailers opt to protect themselves against this risk with data breach insurance. When put in place, this coverage can do the following:
- Cover the costs of recovering sensitive personal or health data compromised during a breach, and of implementing proactive measures to guard against future attacks.
- Help with legal costs should customers sue after a data breach.
- Assist in covering the costs involved with protecting and rehabilitating your business’s reputation after a data breach.
You may need this type of coverage if:
- Your company collects, stores, sends, or receives customers’ payment or health data.
- You work in an industry with information compliance rules (such as education or healthcare).
- You do not have the financial resources to pay for the costs of a cyber attack.
Product liability insurance.
There are two types of product liability insurance. The first, designed for manufacturers and importers, protects the insured if a product fails and causes injury to an end user. The second covers a retailer who mishandles or damages a product, thereby ultimately causing injury to an end user. In this case, it is not the item itself but the retailer’s actions that caused the difficulty. If your products come to you from a wholesaler, ask that company to provide you with a certificate of insurance that lists your company as an additional insured entity on their policy. This will protect you from paying any fines or legal costs associated with a product failure.
Since these policies vary according to geography, it is important to consult your state laws for specific information. However, some generalities about this type of coverage hold true regardless of location.
Workers’ comp generally covers the medical costs associated with injuries that employees suffer on the job or while doing work-related tasks. In most cases, companies with three or more employees are required to provide this medical safety net. The good news is: General ecommerce retailers pay some of the lowest costs for coverage since most have few employees and much of the work is virtual. Nevertheless, should an accident or illness happen on the job, a workers’ compensation policy can provide vital assistance for the injured worker at a manageable cost for you, their employer.
Business interruption insurance.
There are two types of insurance in this category that are relevant for ecommerce companies. The first is traditional coverage that is generally included in a property or a standalone policy. It provides income protection for a specified period of time should a business be forced to diminish operations or close down altogether due to a covered event such as a fire.
The second type is known as electronic business interruption coverage. As the name implies, it kicks in when a company’s computer systems or networks are compromised, leading to an inability to conduct online sales via an online shopping cart. Although it can take anywhere from one to 10 days to be enacted, this specific kind of policy has no time limits on income reimbursement.
Businesses that sell products through marketplace websites such as Amazon can sometimes be hit with suspensions of their accounts that freeze them out of the site until the situation is resolved. This coverage provides income protection should your account be suspended and is particularly useful if you sell most of your goods via Amazon or other similar vendors.
Now that credit cards and online payments are so popular, merchants are becoming particularly susceptible to chargebacks. These occur when a customer requests a refund through their bank without coming to you first.
In some instances, chargebacks stem from blatant fraudulent activity and can cost merchants in both dollars and time. This coverage often protects against charges made with stolen cards, and those using counterfeit card numbers.
This coverage is an additional shield that supplements your existing liability insurance. It generally does not extend to other types of insurance such as data breach protection. However, purchasing an umbrella policy will likely cost you much less than it would to increase the coverage limits on your other liability policies.
This coverage is particularly necessary for ecommerce operations that have their inventory directly shipped to them. This is because merchants take on the burden of ownership of the products as soon as they are placed on the transporting vehicle. Without coverage, any loss due to accident or theft falls squarely on your shoulders. The cargo policy addresses any losses that occur before the goods reach your own business’s property.
Whether your business operates out of a physical building or strictly online, insurance coverage is a must. Without it, you might not be able to financially withstand the cost of natural disaster, lawsuit, data breach, or product loss. If you take the time to determine which types of coverage are best for you, and choose a top-tier provider, you can bolster your business, while providing your customers and investors with protection and peace of mind.