Why Your Online Business Needs Ecommerce Insurance

March 18, 2024

How big does my business need to be to require ecommerce insurance? Do I need it if my business is just starting out? The answer is that you need commercial insurance for your ecommerce business, even if it’s small and you’re just starting out.

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From cyber threats to supply chain disruptions, the online marketplace presents challenges that traditional brick-and-mortar stores may not encounter to the same extent.

Whether you’re a new entrepreneur, selling products on Amazon, or a full-scale brand shipping internationally, business insurance is a necessity for ecommerce businesses of any size.

What risks am I facing as a digital business owner?

These are the five major threats that your digital business can face:

Cybersecurity threats:

With the increasing prevalence of cyberattacks, ecommerce platforms are prime targets for hackers seeking to exploit vulnerabilities in digital systems.

Data breaches, ransomware attacks, and phishing scams can easily compromise sensitive customer information, leading to legal liabilities and damage to your business’s reputation. Cyber insurance helps provide coverage for financial losses due to cyber incidents and helps in the recovery process, including data restoration and customer notification.

Product liability:

Ecommerce businesses that sell physical goods are exposed to product liability risks, where defective products or misrepresentations in product descriptions can result in lawsuits and financial settlements.

Product liability insurance offers protection against claims arising from injuries or damages caused by products sold through online platforms, ensuring that businesses are shielded from the financial consequences of legal disputes.

Supply chain disruptions:

The global nature of ecommerce relies heavily on supply chains, which are susceptible to disruptions caused by natural disasters, political instability, or economic crises.

Business interruption insurance supports you when your ecommerce business can’t operate due to a covered loss.

There are a number of losses that can force your business to shut down. Some examples include:

• Damage to your equipment from fire or vandalism
• A major reduction in revenue due to a client/supplier facing losses of their own
• A disruption in your supply chain

Business interruption insurance can help with expenses such as:

• Payroll
• Rent
• Utilities
• Property taxes
• Alarm monitoring
• Relocation of your business

Intellectual property infringement:

Intellectual property (IP) disputes are not uncommon in ecommerce. Online businesses may inadvertently infringe upon trademarks, copyrights, or patents owned by others.

IP insurance typically helps cover litigation costs related to the enforcement or defense of patents, trademarks, or copyrights. IP insurance can also help protect your ecommerce business from patent infringement claims brought against it.

Customer dissatisfaction:

Maintaining customer satisfaction is essential in ecommerce. You need to respond quickly and transparently to customer complaints and concerns.

Reputation management insurance can help cover expenses associated with public relations efforts, crisis communications, and reputation repair strategies aimed at restoring brand credibility and trust.

What other insurance does my ecommerce business need?

Cargo insurance

For ecommerce businesses involved in the shipment of physical goods, cargo insurance provides coverage for loss or damage to goods in transit. It protects against risks such as theft, damage caused by accidents or natural disasters, and other perils during transportation.

Commercial general liability insurance

If you have a physical office that suppliers visit, for example, as part of your ecommerce business, commercial general liability (CGL) insurance will help protect you.

It helps protect your e-business should it be sued for third-party injury (supplier gets injured when they slip and fall on a wet floor) or third-party property damage claims. This type of insurance helps cover legal fees, settlements, and medical expenses that you could be responsible for paying. Without general liability insurance, you would be paying for these expenses out of your own pocket should a customer be injured or their belongings damaged.

Here are some commonly asked questions about insurance for ecommerce businesses:

What kind of insurance do I need for my home-based ecommerce business?

Ecommerce businesses run from your home (or garage) typically still require a range of insurance coverages, including cyber liability insurance, product liability insurance, business interruption insurance, intellectual property insurance, cargo insurance, and general liability insurance, among others.

Do I need cyber liability insurance if I use a third-party platform for ecommerce?

Yes, even if you use a third-party platform for ecommerce, such as Shopify or Amazon, you may still need cyber liability insurance to protect your business from cyber threats and data breaches. While third-party platforms may offer some level of security, the responsibility for safeguarding sensitive customer data ultimately rests with the business owner.

Does my general liability insurance policy cover online sales?

General liability insurance typically covers third-party (customer/supplier) bodily injury, third-party property damage, and advertising injury claims arising from your business operations, including online sales.

What does product liability insurance cover for ecommerce businesses?

Product liability insurance provides coverage for legal expenses, settlements, and judgments arising from claims of bodily injury or property damage caused by defective products sold through your ecommerce platform. It protects your business from financial losses resulting from product-related lawsuits and liability claims.

How can I mitigate the risk of cyberattacks and data breaches for my online business?

In addition to having cyber liability insurance, ecommerce businesses can implement strong cybersecurity measures, such as using encryption protocols, regularly updating software and security patches, conducting employee training on cybersecurity best practices, and implementing multi-factor authentication for access to sensitive data.

You and your employees need to know how to prevent cyber crime.

How can I ensure that my ecommerce insurance policy provides adequate coverage for my business needs?

Work with a Western Coast business expert to get insurance that protects your online business.

You should also do regular reviews of your insurance policy and update coverage limits as your online business grows.