May 18, 2023
John is the VP of Finance & Operations at Order Protection.
Shipping is an essential component of any eCommerce business.
It's how products get from the warehouse to the customer's doorstep. But the shipping process opens the door for a lot of potential risk, with the possibility for shipments to end up lost, stolen, or damaged. That's where shipping insurance comes in. Shipping insurance provides protection for eCommerce brands against financial loss resulting from shipping mishaps.
What is shipping insurance?
Shipping insurance is a type of insurance policy for eCommerce companies that provides coverage for products that are being shipped. In the event that the product is lost, stolen, or damaged during transit, shipping insurance can cover the cost of the item. This can be a game-changer for your eCommerce brand, giving you peace of mind and protecting your hard-earned money.
Now, there are two main types of shipping insurance policies. The first one is carrier liability, which is like that basic insurance package that comes free with shipping services. It offers some protection, but hey, it's the "basic" option. The coverage limit is usually set by the carrier and might not cover the full value of your precious cargo
Enter the second type: shipping insurance! Think of it as the upgrade to first-class. This separate policy is your ticket to more comprehensive coverage. It not only covers the full value of your products but also includes shipping costs and any associated fees.
While shipping insurance is the more comprehensive choice, it can be tricky to navigate the legalese, especially when you ask customers to pay an additional fee for shipping protection coverage. This is why a third type of shipping insurance may make the most sense for your brand: a shipping protection provider backed by an insurance captive.
Partnering with a licensed provider like Order Protection allows you to charge a fee to take on risk during the shipping process while staying legally compliant. This partnership can bring a whole new level of benefits and advantages to your eCommerce brand.
Later in this article, we’ll explore why working with a shipping protection provider backed by an insurance captive can be a game-changer. But for now, you know the basics around shipping insurance, so let's dive into why the service is crucial for eCommerce brands.
Does my brand need shipping insurance?
You've put your heart and soul into your eCommerce business, and your products are ready to take on the world. But, unfortunately, shiphaps are more common than any of us would like to accept. According to a study by the Warehousing Education and Research Council, around 3% to 4% of shipped goods experience damage during transit. Yikes!
Shipping insurance saves the day by protecting your products and your bottom line. While carrier liability does provide some level of protection, it often falls short when it comes to covering the full value of your products. That's where shipping insurance swoops in to save the day, offering comprehensive coverage and ensuring you're not left with a gaping hole in your wallet.
Shipping insurance doesn't just save your finances; it's also a customer satisfaction superhero. And while we probably don’t need to remind you of this fact, happy customers are the key to a successful business. Ensuring your customers have a positive experience with your brand should be the focus at each stage of the shopping journey—from marketing and advertising, to checkout and delivery, and beyond. Not convinced? A recent survey found that 63% of consumers say poor delivery service would stop them from purchasing from a company again.
So, how can you choose the perfect shipping insurance policy for your eCommerce brand?
How to choose the right shipping insurance
Here are some essential factors to consider when choosing a shipping insurance policy or provider for your brand:
Understand your carrier's liability: Before jumping into additional shipping insurance, know the limits of your carrier's liability. This basic coverage they offer might leave you vulnerable. So, assess the risks and determine if you need extra protection.
Evaluate the cost: Hey, we get it—money matters! Evaluate the cost of the shipping insurance policy against the value of your products. Remember, the goal is to strike a balance between protecting your goods and keeping your profits intact.
Look for all-inclusive coverage: The best shipping insurance policies are like all-inclusive resorts—they cover everything. Seek policies that protect the full value of your products, including those pesky fees and shipping costs.
Consider the deductible: A deductible is like your contribution to the superhero team-up fund. It's the amount you'll have to pay out of pocket before the insurance kicks in. So, choose a deductible that won't break your bank but still offers reasonable coverage.
Research your insurance provider: Don't settle for just any insurance provider. Do your homework and choose one with a stellar reputation and financial stability. You need someone who can leap tall buildings and fulfill their obligations when it's time to save the day.
While following these steps can help you select a shipping insurance provider or policy, like we mentioned earlier, insurance is a tricky field to navigate. Chances are, you’re not an insurance expert—and no one expects you to be! But that’s where working with a shipping protection provider backed by an insurance captive can save the day.
Establishing your own insurance program can be daunting, and non-captive providers can leave your business vulnerable to legal risks from organizations like the FTC, ICCTA, and state insurance regulations. Let’s explore how an insurance captive model helps keep your brand compliant and minimizes potential risks.
5 reasons to go with a shipping protection provider backed by an insurance captive
Tailored coverage and flexibility: Shipping protection providers backed by insurance captives have the ability to offer customized coverage options that align specifically with the needs of your eCommerce business. They understand the unique risks and challenges you face and can tailor policies accordingly. This flexibility allows you to choose coverage limits, deductibles, and terms that best suit your business, providing a level of protection that perfectly fits your requirements.
Enhanced claims process: When it comes to filing claims for lost, stolen, or damaged packages, working with a shipping protection provider backed by an insurance captive can streamline the process. These providers often have dedicated claims teams and streamlined systems in place to handle claims efficiently. They can expedite the claims process, reducing paperwork and simplifying the overall experience. This means you can resolve issues quickly, keeping your business running smoothly and maintaining customer satisfaction.
Financial stability and risk management: Insurance captives are entities established to underwrite the risks of their parent company or affiliated businesses. By partnering with providers backed by an insurance captive, you gain the advantage of their financial stability and risk management expertise. Captives are designed to help manage and mitigate risks, ensuring that your eCommerce business is protected against unexpected losses. This partnership provides a solid foundation and peace of mind, knowing that your shipping protection provider has the resources and stability to fulfill their obligations.
Long-term cost savings: Shipping protection providers backed by insurance captives often have a long-term perspective on risk management. They work closely with you to analyze your shipping data, identify trends, and implement strategies to mitigate risks. This proactive approach can lead to long-term cost savings by reducing the frequency and severity of shipping incidents. By minimizing losses, you can optimize your shipping operations and improve your bottom line over time.
Value-added services: Some providers go beyond insurance coverage and offer additional value-added services. These can include risk assessments, loss prevention training, and analytics tools to help you better understand and manage your shipping risks. By leveraging these resources, you can proactively identify areas for improvement, strengthen your shipping processes, and minimize potential vulnerabilities.
In summary, partnering with a shipping protection provider backed by an insurance captive can offer tailored coverage, an enhanced claims process, financial stability, long-term cost savings, and value-added services. These benefits empower your eCommerce company to navigate shipping challenges with confidence, protect your bottom line, and provide exceptional service to your customers.
Remember to assess the offerings and capabilities of different providers to find the one that aligns best with your specific needs and business goals. With this strategic partnership, you can take your shipping protection to the next level and elevate your eCommerce brand to new heights.
Is shipping insurance worth it?
If you’re still not convinced, let's address the elephant in the room—money. You might wonder, "Is shipping insurance really worth the investment?" We'll let the numbers do the talking:
Cost of lost or damaged products: Remember that stat from earlier? The one that showed 3% to 4% of shipped goods suffer damage during transit? While that might not seem like a huge number, the costs add up quickly. The average cost of a lost or damaged package hovers around $140, according to a report by Invesp. For eCommerce brands shipping high-value products, that cost can escalate fast.
Impact on customer satisfaction: In the eCommerce world, customer satisfaction is the currency of success. No, really—data shows that 92% of shoppers say they would quit buying from a company after just one bad experience with customer service. And lost customers = lost revenue. When your customers reach out for support, chances are they’re already unhappy or frustrated. This is a crucial interaction that must be handled the right way to earn that customer’s trust in your brand. Shipping insurance saves the day by ensuring quick resolution, which keeps your customers happy and loyal.
Insurance payout vs. carrier liability: Remember, carrier liability only offers limited protection. USPS Priority Mail, for example, caps its liability at $50, while UPS and FedEx hover around $100. That might be small change for some eCommerce brands, but if you're shipping high-value items, that kind of coverage won’t cut it. Shipping insurance steps in to provide the comprehensive coverage your products deserve.
So, what's the verdict? Is shipping insurance worth the investment? We say yes. It shields you from the financial wreckage of shiphaps and keeps your customers smiling.
Congratulations! You've completed your crash course in shipping insurance. Now you know that shipping insurance is the protection your products need to triumph over shiphaps. While carrier liability offers some protection, it often falls short of safeguarding the full value of your products. Shipping insurance swoops in to save the day, providing comprehensive coverage and boosting customer satisfaction.