Running an online retail store gives you the opportunity to sell your goods to shoppers from across the country, and in some cases, around the world. For many owners, the idea of getting sales notifications from such a diverse range of customers can be exciting. However, many e-commerce business owners don’t realize they are operating without adequate retail insurance protection and potentially putting their entire business at risk.
There is no denying that online retail has changed significantly in the last few years, shifting from something that was essentially forced on many stores as they adapted to pandemic-related realities to eventually become a favored way for millions of Americans to shop. This has presented small business owners with many great opportunities, but it also introduces risks that their traditional business insurance was not designed to address.
A False Sense of Security
Many online retailers assume that they don’t need much insurance coverage, given their lack of a physical storefront. However, online businesses must contend with some distinct types of exposure that never enter the picture for brick-and-mortar stores.
One example is data breaches. Online retailers collect a broad range of customer information, including addresses and payment details, making them attractive targets for cybercriminals. These breaches don’t just hurt your reputation; they also lead to expenses such as legal fees, regulatory fines, credit monitoring services, and the costs of notifying affected customers.
Another area that deserves close attention is product liability. Some businesses that use a dropshipping model don’t account for the fact that they could be held liable for injuries caused by products such as kitchen gadgets, even if the retailer never even came into contact with the product.
Essential Types of Coverage
Despite not having a physical premise, all online retailers need general liability insurance. It can cover property damage and third-party bodily injury claims arising from incidents such as delivery drivers tripping over a package at a customer’s house or one of your products causing property damage.
Another important type of coverage is cyber liability. It can cover business interruptions stemming from ransomware attacks and cyber extortion incidents, as well as PR related to managing the fallout of breaches
However, some of the biggest exposures for online retailers come from product liability. This applies whether you manufacture your products or use white label or dropshipping solutions. Online sellers can be held responsible for defective products even when they do not manufacture them, and these claims can be very expensive.
Online retailers should not overlook the importance of business property insurance. Consider where your inventory, computers, printers, and other equipment are stored. Keep in mind that if you work from home, homeowners’ insurance is unlikely to cover business property. A proper policy will cover inventory, whether it is in your basement, in transit, or being stored in a third-party warehouse.
The Gray Areas
Business interruption insurance for online retailers differs from traditional policies designed for physical perils such as storms and fires. Imagine your store’s website crashes during the biggest sales weekend of the year or your payment processor goes down. In such cases, this protection could provide a valuable lifeline.
Another consideration is employment practices liability. Even if your employees or contractors work virtually, they could still file a discrimination or wrongful termination claim.
Keep in mind that an online retailer’s insurance needs can vary dramatically depending on the type of business in question. A major dropshipping operation that moves thousands of units each month will have a different risk profile than a small online shop selling digital products.
Getting Your Coverage Right
Shopping for insurance can be time-consuming, and although it may be tempting to choose the cheapest plan so you can focus on other aspects of business, cutting corners here is genuinely risky.
Take some time to obtain quotes from multiple carriers. Working with an agent who understands e-commerce can make all the difference. Keep in mind that the insurance industry has been slow to adapt to online retail, and not every agent can properly assess your needs or find you the right type of coverage.
To facilitate this process, document everything about your business operations. What platforms do you sell on, and who are your suppliers? What’s your annual revenue? How do you handle customer data? All of these details matter when you are applying for coverage, and they matter even more if the need ever arises to file a claim.
It is important to review your policies each year because your business can change faster than you think. A side hustle that generated $30,000 last year could bring in $200,000 this year, and your coverage limits need to keep pace.
Let’s Discuss Your Coverage
At John M. Glover Insurance Agency, we’ve spent years helping online retailers find the right insurance protection without overpaying or leaving potentially dangerous gaps in coverage. We understand that every e-commerce business is unique, and cookie-cutter policies from online insurance marketplaces tend to miss important exposures.
Our team will take the time to understand your specific operations before recommending coverage. Reach out today to schedule a consultation.
