Protect Your Online Business with Ecommerce Insurance

May 2, 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 yes. You need ecommerce insurance for your online business, even if it’s small and you’re just starting out.

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.

Business insurance becomes not just a luxury, but a necessity for ecommerce businesses of any size, whether you’re a new entrepreneur, selling products on Amazon, or a full-scale brand shipping internationally.

What risks am I facing as a digital business owner?

There five major threats that your digital business can face:

Cybersecurity threats:

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.

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. It can also help protect your online business from patent infringement claims brought against it.

Customer dissatisfaction:

Maintaining customer satisfaction is essential in ecommerce. 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 ecommerce insurance:

What kind of insurance do I need for my home-based online 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.

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.