Ecommerce Insurance: An Expert Guide For Online Business Owners

Essential guide to ecommerce insurance for online retailers' risk management.

The Moast Team

January 9, 2024

Ecommerce insurance is important for any business operating online – it acts as a financial safety net if anything goes wrong.

If you're an ecommerce business owner, knowing which coverages to have in place is a key part of operating your company worry-free. 

In this article, we’re covering everything you need to know about ecommerce insurance as an online retailer, including what it is, what it covers, and expert tips on how to choose the right insurance coverages and provider for you. 

Keep reading to learn everything you need to know about ecommerce insurance for your DTC ecommerce brand.

What is ecommerce insurance?

Ecommerce insurance is a set of specialized insurance coverages designed to protect businesses engaged in online retail transactions. 

The digital marketplace is continuing to evolve, and ecommerce insurance is an important part of mitigating the unique risks associated with online business operations.

So, here are a few of the key components of online retailer insurance that you should know:

  • Coverage for cyber liabilities: This coverage protects against data breaches and online security threats that could compromise customer information. 
  • Coverage for business interruption: This safeguards against revenue loss due to unexpected disruptions like website outages or cyberattacks. 
  • Product liability insurance for ecommerce: This shields businesses from legal claims related to defective products or injuries caused by their products sold online.

Ecommerce insurance can also include coverage for the shipment and delivery of goods, to cover potential losses or damages during transit. 

This type of insurance covers the dynamic requirements of your online business, and offers a tailored solution for businesses navigating the digital landscape. 

To sum it up, ecommerce insurance provides online business owners with a safety net, allowing them to operate confidently in a sometimes unpredictable business environment.

The complete guide to understanding online retail business insurance for your ecommerce company.

What insurance is needed for ecommerce?

So, you've started an online business, and you're wondering what insurance you need for ecommerce. Fair question. 

Like we touched on above, ecommerce businesses have unique risks associated with online retail operations, so they need specific coverages.  

The key ecommerce insurance coverages that online retailers should know include:

  1. Cyber liability insurance: This protects against cyber risks, including data breaches and hacking. It assists in covering the costs associated with data recovery, notifying affected parties and legal expenses.
  2. Business interruption insurance: This coverage is crucial for ecommerce platforms, and provides financial support in the event of unexpected disruptions like website outages, cyberattacks, or other incidents; all of which can lead to a loss of revenue.
  3. Product liability insurance: Product liability insurance for ecommerce protects against legal claims arising from defective physical or digital products, ensuring coverage for legal defense costs and potential settlements.
  4. Cargo & transit insurance: A key part of ecommerce operations involves shipping products to customers. Cargo and transit insurance covers the goods during transportation, protecting against damages, theft, or loss while in transit.
  5. Professional liability insurance: Also known as errors and omissions insurance, this coverage is crucial for businesses providing services or advice online. It protects against claims of negligence, errors, or omissions that may lead to financial losses for customers.
  6. General liability insurance: This provides coverage for third-party bodily injury or property damage claims. In the ecommerce context, it can apply to situations such as a customer getting injured on your business premises
  7. Employment practices liability insurance (EPLI): If you employ people in the USA, this protects against claims related to employment issues, such as wrongful termination, discrimination, or harassment, which can arise even in an online work environment.

By combining these coverages, ecommerce business owners and online retailers can create a comprehensive insurance policy that addresses the diverse risks of the digital marketplace. 

That way, you can operate your business with confidence and peace of mind. 

Does an online store need insurance?

Consider the digital landscape – cyber threats are real. Ecommerce insurance is a financial safety net for your online store in the event of a claim. 

Think about it: What would happen if your website suddenly went offline due to technical glitches or a cyber incident? Business interruption insurance steps in to cover the income you'd lose during the downtime.

If you're selling products, product liability insurance is your defense against claims related to defective items, and when your products are on their way to customers, distributor insurance covers potential damages or losses during shipping.

When it comes to online commerce – or any business for that matter – mishaps are par for the course. So, having insurance as an online retailer provides a safety net; that way you can focus on growing your business.

Do I need product liability insurance for ecommerce?

So, do you need insurance for your online business?

If you're in the ecommerce game, having product liability insurance is a smart move. 

Here's the deal – no matter how great your products are, glitches happen. If your product causes harm to someone, product liability insurance will cover you for related claims. It covers legal costs and settlements, saving you from a potentially hefty bill.

To get an expert opinion, we asked Curtis Killen, president of local Montreal insurance broker KBD Insurance, his thoughts on liability insurance for ecommerce businesses.

“If you're importing products from China, you become the manufacturer in the eyes of the insurance company. If you’re distributing stuff, and it’s being imported from China, India,Taiwan, etc. you absolutely need to have liability insurance. You’re crazy if you don’t,” he explains. 

It's not just for the big businesses; in fact, as of 2021, all Amazon retailers that sell more than $10,000 of inventory in one month are required to carry liability insurance. 

In a nutshell, whether you're selling handmade items or expensive tech gear online, product liability insurance is a must-have. 

Choosing the right ecommerce insurance for your region

The right ecommerce insurance for your region is a policy that's tailored to local regulations, business practices, and unique risks. 

Whether you're looking for ecommerce insurance in Canada, the United States, or overseas, compliance to these regulations is crucial to ensure that you're properly covered.

Ready to shop?

The best way to find the right ecommerce insurance for your region is by checking with an experienced insurance provider in your area. 

Before you give them a call, it is helpful to evaluate the ins and outs of your ecommerce operations. 

For instance, if your business relies on online transactions and customer data storage, prioritize cyber liability insurance. Similarly, consider the types of products you sell – if physical goods are involved, cargo and transit insurance may be essential. 

Again, a commercial insurance professional who’s familiar with your business, the region you operate in, and ecommerce insurance requirements, will be best suited to guide you. 

Choosing the right ecommerce insurance provider for you

Choosing the perfect ecommerce insurance provider is two fold: the insurer needs to understand your business, and be able to provide the right coverages. 

Not all insurance companies are able to cover ecommerce businesses. So, getting in touch with a commercial insurance broker is the easiest way to get placed with the right ecommerce insurance company for you. 

This is because brokers have access to multiple commercial insurance companies, and can shop around to find the best fit for your business.  

Look for a company or broker who understands insurance for online businesses; one size does not fit all in ecommerce business insurance for online retailers. 

Plus, you can check their track record – how have they supported businesses similar to yours in the past? Online reviews and word-of-mouth testimonials can help you to understand their track record. 

When you choose your policy, make sure that you understand the fine print, especially when it comes to deductibles, coverage limits, and any exclusions. Ask about their claims process. 

Lastly, consider the cost. It's not just about finding the cheapest option; it's about securing comprehensive ecommerce insurance coverage at a reasonable price.

Choose your ecommerce provider wisely to ensure they can keep up with your coverage needs as your business grows. 

All in all, the best ecommerce business insurance for you will be the provider who has expertise in your business operations, can offer the right coverages, and is licensed to operate in your region. 

Ecommerce liabilities that business owners should know about

As you can imagine, there are certain risks and liabilities that are unique to the complexities of ecommerce businesses. 

Running an ecommerce shop? Here's the breakdown on the liabilities you can't afford to ignore:

  • Cyber liabilities: Cyber liability insurance is your shield against the nightmares of data breaches and cyber chaos. Needless to say, it's an important coverage to have. 
  • Product liability: Selling stuff? Awesome. But if someone claims your product caused damage, product liability insurance steps in as your financial safeguard against any claims. 
  • Business interruption: Websites aren't invincible. Sometimes they break or get hacked. Business interruption insurance pays out for loss of revenue due to your business being temporarily out of operation. 
  • Cargo & transit liabilities: Shipping out products? From lost to damaged products, to international shipping problems, a lot can go wrong when you're getting a package from point A to point B. Cargo and transit insurance insure you in the event that your goods don't arrive safe and sound.
  • Professional liability: If your company offers advice or services, professional liability insurance is your legal safety net.

These ecommerce insurance coverages protect you against the specific risks that online retailers face. They’re essential for operating smooth and drama-free ecommerce performance.

Conclusion: Get your ecommerce business insured so that you can operate worry-free

Ecommerce is tricky enough.

From inventory management to international shipping, there are a lot of risks to running an online business. That said, this guide will steer you in the right direction if you're searching for business insurance for ecommerce. 

Remember: Properly protecting your business with e-commerce business insurance is the best way to make sure you can keep operations running smoothly, even in the event of a claim.

Ps. We wrote an entire blog on ecommerce trends. Check it out, 43 Trends in Ecommerce to Look For In 2024

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