Many small business owners have embraced the online business model because of the obvious benefits of lower overheads – no expensive lease agreements, no store fit out costs or maintenance and utilities. This might lead you to believe that there are also fewer apparent business risks associated with having no physical store presence. However, just because you don’t have a ‘bricks and mortar’ business location, doesn’t mean you are not exposed to similar potential financial losses. Having adequate eCommerce insurance is an important way to protect your growing business. So when it comes to insurance for online business, what type of exposures should you consider?
What Is eCommerce Insurance?
E-commerce business insurance refers to a range of insurance products designed specifically for businesses that operate and sell online. These insurance policies are tailored to address the unique risks associated with conducting business over the internet.
Do Online Sellers Need Insurance?
The simple answer to this question is – yes! While you may not run the risk of customers getting injured on your property, you have many of the same risks as any other retailer or service provider plus a couple of more specific ones. If your online business sells goods or services you could definitely benefit from business insurance that could mitigate a number of key exposures.
What Types Of Risks Do Online Businesses Face?
Depending on the type of business that you run, you still have the potential for your products to fail, be stolen or damaged or for your services to be called into question. In addition, operating in a digital space means you are exposed to the specific risks associated with data breaches or cyber crime.
Potential financial losses and liabilities associated with digital or online-only businesses can include everything from your website or online store going down, to the physical loss of your products due to theft, fire, weather damage or transit issues. You may be held responsible if your products cause physical injury or harm to someone and your reputation may suffer damage if a client feels you have been negligent.
Having appropriate online business insurance in place can protect your ecommerce business against potential legal action from customers or third parties who may claim to have suffered injury or property damage as a result of using your goods and services. This can include covering legal costs should you need to defend yourself against such claims and may even cover compensation that you may be required to pay.
Insurance For Online Business
Broadly, insurance for online business falls into several main categories: liability cover, business continuity protection and transit insurance. Let’s take a look at the types of cover you might want to consider.
1. Cyber Liability Insurance
Online retailers and eCommerce sites are most affected by cyber liabilities, as the point of sale overwhelmingly relies on websites and IT. If you were affected by a cybercrime you would likely suffer business interruption and it could impact your business profitability.
Cyber insurance protects against losses due to cyber incidents such as data breaches, hacking or accidental loss of customer information. Cybersecurity is one of the most significant challenges for an online business nowadays. Potential exposures include data breaches and the associated fines and penalties; cyber attacks where your data is encrypted and held to ransom; data loss and recovery costs and reputational harm.
2. Business Interruption Insurance
Depending on how specialised your business is, you need to consider how much you might be affected if an integral part of your business e.g. machinery breakdown such as refrigeration units or storage facilities such as warehouses was unavailable or offline for any period of time.
Business Interruption Insurance provides compensation for lost income and other expenses if the business is unable to operate due to physical loss or damage from natural disasters such as fires or floods. It can cover financial losses such as lost profits, employee wages, fixed costs such as rents, temporary relocation and recovery costs.
3. Workers Compensation / Employers Liability Insurance
The nature of work engaged in by online retailers and eCommerce operations may include exposure of employees to office, warehouse and shop hazards such as slips, trips or falls or risks associated with heavy lifting.
While Workers Compensation insurance regulations differ by state or territory and by the size and type of business that you run, Employers Liability Insurance can provide cover for compensation for medical and hospital expenses and rehabilitation services should an employee be injured in the course of carrying out their duties.
4. Management Liability Insurance
If you run a manufacturing or labour intensive operation and depending on the size and scale of your business, you may have a greater risk exposure to employee unforeseen actions or wrongful acts in your business operations.
Management Liability Insurance can safeguard you against claims arising from mistakes, actions or decisions made by your company directors, managers, officers and employees. It can cover the cost of investigating, defending and settling claims by a third party, as well as paying compensation the business is liable for.
5. Inland Marine Insurance
Don’t let the term ‘inland marine’ confuse you. This isn’t cover for transporting goods on a ship. If your eCommerce business transports products, materials or equipment over land via truck or train, you may be exposed to risks of your products being lost or damaged in transit or while being stored in a warehouse.
Inland Marine Insurance can protect you should you lose products, materials or equipment due to theft, rough handling that causes damage or bad packaging resulting in damage. It can also cover you for damage or financial losses incurred while your goods are being held by a third party such as a warehouse or logistics company.
E-commerce insurance is crucial for online businesses due to the particular vulnerabilities they face, such as cyber threats, logistical challenges, and the global nature of access, which can expose them to various regulatory environments and litigation risks.
If you operate an online business contact AIB’s business insurance experts for assistance in selecting and getting a tailored quote for a policy that covers your specific needs.
